Good Time for Asian Companies to Buy Into Europe: Pro
The first half of this year may have ended on a somber note for global mergers and acquisitions (M&A) and it was no different for Asia. Deal volumes were down almost 30 percent on year across the region. But according to one analyst that doesn't mean there aren't good investment options for companies out there.
Vikram Chakravarty, partner at A.T. Kearney and the co-author of "Asian Mergers & Acquisitions: Riding the Wave" told CNBC Asia's "The Call" that cash rich Asian companies could use this opportunity to buy assets in the debt-struck euro zone.
"With Asian companies doing more M&A deals, this provides an opportunity for Asian companies to look for opportunities in Europe and European companies to come here and acquire brands and companies here," Chakravarty said.
In his book, Chakravarty says that bleak economic scenarios present opportunities to strong companies that can use the volatility to bolster their standing in their respective industries. He believes many Asian companies are finding themselves in this position — with their relatively strong balance sheets and attractive valuations. As a result, companies in Asia are set to dominate M&A deals in the next 10 years as waves of consolidation sweep through the region, Chakravarty explains in his book.
M&A momentum is already on the rise in Asia. In 2010, the region was the most active in M&A deals, reporting over 8,300 transactions, according to Dealogic. This figure outstripped deals made in North America and Europe. Deals in Asia were led by the top economies of India and China and this helped increase the region's share of the global M&A pie.
Sector-wise, deals in the region were led by industrials, consumer, mining and energy sectors, according to Dealogic. Asia's energy sector alone chalked up $70 billion worth of M&A deals in 2010, data from Mergermarket shows.
While China and India have been among the hottest markets for M&A activity, Chakravarty pointed out that there are other emerging players to watch as well. "Malaysia is doing a lot of work. Also, Korea has not done as much as they should, so we expect the next 5 years to be very intensive for the Korean conglomerates," he told CNBC.
However, a number of risks remain for companies in the region, according to Chakravarty. "What Asian companies have not done is tackle the most fundamental issues around industry structure and competitiveness. The next decade allows them to do that and get globally competitive in that space," Chakravarty said.
Also, Asian companies are relative novices in working out deals. Many companies in this region do not plan for it and few executives have much merger expertise, Chakravarty explains in his book.
Another issue is the close relationship that a number of Asian companies share with governments. "Across Asia, there are too many companies that have government links which have essentially made them lethargic or more bureaucratic. We believe an M&A through government linked companies also can transform them and make them more competitive," Chakravarty said.