The Hindu Business Line : M&A scene hotting up in Asia, says S&P report

IN the backdrop of M&A (mergers and acquisitions) activity gathering steam worldwide, with the US and Europe at the forefront, the scene is hotting up in Asia as well, says a Standard & Poor's report from New York. While Japan has been the most active M&A market, a large number of transactions have taken place in India, Indonesia, and China. The largest increase in M&A activity from the region was in China, the report said.

The report attributes favourable borrowing conditions and a strong economic resurgence since the economic crisis for the increased levels of M&A activity in Asia. The M&A surge is visible in Australia too, where several significant transactions have taken place this year, and such activity shows no signs of abating.

The report, which highlights such activity in the US and Europe, says a continuing deluge of private-equity money into many industries and sectors is expected to add to M&A transactions there next year. Industry consolidation in the US and Europe has been driving M&A in 2005, says `M&A Surge To Continue Worldwide Amid Industry Consolidation, Influx Of Private-Equity Funds,' a report published by S&P Ratings Services.

"For the most part, we expect 2006 M&A activity to have overall neutral or slightly negative effects on creditworthiness in various sectors," the report said.On top of the immediate consequences of the private-equity funds' willingness to use leverage aggressively, some fund-owned individual companies may also become more venturesome competitors on price, innovation and service, thereby cutting into the sales and profit margins of traditional players. Eight sector-specific reports were also published that focus on the US and European sectors most likely to experience the greatest activity.

In the US, sectors especially affected by the influx of investor capital are aerospace and defence, building materials, retail and healthcare. Interest rates in the US, although rising, remain fairly low by historical standards and continue to spur yield-hungry investors to channel capital into private equity and hedge funds.

The result of this reallocation includes the funds' aggressive bidding-up of M&A multiples, in many instances outbidding corporate buyers for assets, the report said.

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