Asia dealmakers look to take-privates, distressed sales as M&As slump to 7-year low

* Deal value across Asia-Pacific falls 20% in Q1

* Deals seen hit by material adverse change clauses

* Listed companies set to raise funds via share sales

HONG KONG/SINGAPORE, March 31 (Reuters) - Asia’s dealmakers are looking to distressed sales and a pick-up in take-private deals after fallout from the coronavirus outbreak sent first-quarter M&A activity to a seven-year low.

Bankers and other advisers, fearing a prolonged hiatus in headline mergers and acquisitions (M&As), are turning to other forms of activity as governments worldwide restrict movement to curb the spread of the virus, making travel and face-to-face meetings near-impossible.

Deal value across the Asia-Pacific region, at $177.4 billion, was down 20% in the first three months of 2020 versus the same period a year earlier, showed data from Refinitiv. Deals involving China, where the virus was first reported at the end of last year, dropped 16%.

“I’m seeing significant disruption in our business,” said a senior Hong Kong-based M&A banker. “Volatility, earnings, predictability - all in the wrong direction. I am not seeing any signs of rushing for deals.”

British retailer Tesco PLC sold its remaining Asian business to Thailand’s CP Group and subsidiaries for $10.6 billion in early March shortly before the virus took hold worldwide, scoring the largest deal this quarter.


The outbreak has prompted governments to impose widespread measures disrupting business activity, and caused stock markets to plunge as investors try to factor in the economic impact.

Japan’s benchmark Nikkei 255 and Hong Kong’s Hang Seng are both down more than 15% this year, while China’s blue-chip CSI 300 is down nearly 10%.

Bankers and lawyers fear they will continue to see negotiations and deals signed but not completed or put on hold as sellers and buyers reassess business fundamentals.

“Buyers obviously are concerned as whether or not today’s value is the right value. Everyone’s business forecast is entirely thrown up in the air,” said the M&A banker, who declined to be identified due to the sensitivity of the matter.

Singapore Press Holdings Ltd, which last month struck a deal to acquire a portfolio of senior housing properties in Canada for C$232.9 million ($163.4 million), said this month it had agreed not to proceed with the transaction due to “global market instabilities” caused by the outbreak.

Some buyers are contemplating triggering material adverse change (MAC) clauses in deal agreements that can allow them to walk away, renegotiate or delay as prices fall, while others eyeing assets may want to have epidemic- or pandemic-related clauses added to contracts, lawyers said.

An MAC is usually defined as a change that significantly reduces the value of a company.

“People’s experiences now in the current environment will most likely forever shape their approach to doing deals in the post-pandemic world,” said Steven Tran, a Hong Kong-based partner with law firm Mayer Brown.


Grounded dealmakers reduced to conference calls are still looking for opportunities, and believe take-privates and distressed asset sales could increase as valuations tumble and default risks rise.

Take-privates rose nearly 60% year-on-year to $42.8 billion in the first quarter, including Singapore developer CapitaLand Ltd’s $6.1 billion merger of two trust units, and the $6.2 billion offer for Hong Kong’s Wheelock & Co Ltd by its controlling shareholder.

“This is definitely a space to watch,” said Dorothea Koo, a partner with law firm Baker McKenzie. Individuals or companies may have financial difficulties due the market conditions, potentially driving sales of shares in listed firms, she said.

Dealmakers are eyeing the potential to bring in private equity firms on what is expected to be a rush by listed companies to raise funds by selling shares.

“The conversation with clients now is about how to restructure, strengthen companies and making sure that additional funding sources are identified, and if possible, made available,” said Keoy Soo Earn, regional managing partner, financial advisory, at Deloitte Southeast Asia. ($1 = 1.4256 Canadian dollars)

Reporting by Kane Wu in Hong Kong and Anshuman Daga in Singapore; Editing by Christopher Cushing