Deals and IPOs

Asia overtakes Europe in targeted M&A volume this year

Jason Alden | Bloomberg | Getty Images

The economic uncertainty dogging the Asia Pacific region excluding Japan (AXJ) has not stopped corporations from making several high-profile merger and acquisition (M&A) deals in the past nine months, new figures show.

Asia Pacific saw M&A deals worth $770.9 billion announced between January and September, overtaking Europe to become the second most active region after the U.S., according to a report by Dealogic.

China, despite reports of an economic slowdown, contributed to nearly 50 percent ($384.3 billion) of M&A volume in the region, followed by Hong Kong ($125 billion) and Australia ($86.1 billion). Japan's targeted M&A volume was $59.2 billion, a slight year-on-year decrease.

The deal value in China between January and September was nearly 50 percent higher from the same period last year.

Dealogic tracks M&A deals at the time they are announced; if deals fall through, they are omitted in the next counting cycle.

Some of the biggest deals in the region between January and September include a $10.3 billion joint investment in China's Citic Group by Japan's Itochu Corp and Thailand's Charoen Pokphand (CP) Group.

Also on the list: the purchase of Australian logistics firm Asciano by Canada's Brookfield Asset Management group for $9.7 billion, and the acquisition of Australian company Toll Holdings by Japan Post for $6.4 billion, according to data provided by Dealogic.

So what is driving M&A deals despite heightened volatility in financial markets?

"We have seen over the past eight to nine months a lot of companies are looking to make acquisitions primarily because they are being driven by their shareholders to produce growth," Chunshek Chan, Global Head of Research, M&A and Financial Sponsors at Dealogic told CNBC.

One of the ways companies keep shareholders happy is by paying more dividends, which can potentially be accrued through acquisitions that boost earnings.

"You buy a smaller company, you increase the revenue of the larger, or parent, company, the EBITDA, [and] everyone's happy," said Chan.

EBITDA is a company's earnings before interest, taxes, depreciation, and amortization, and is a gauge of a company's operating performance.

Between January and September, the total value of global M&A deals was $3.41 trillion.

The United States was the top target destination for M&A transactions, seeing the largest volume of $1.68 trillion, with big-ticket mergers such as Warren Buffet's Berkshire Hathaway buying a majority stake in metal and steel firm Precision Castparts for $35.8 billion.

The value of deals in Europe stood at $745.4 billion.

Companies are taking advantage of the U.S. Federal Reserve's decision last month to keep interest rates low to finance their acquisitions, through bridge loans, term loans, and bonds. Other companies are using their stocks as a means of financing their M&A deals, said Chan.

Even then, market volatility continues due to ongoing stock market correction in China, low oil prices, and falling commodities prices.

Chan thinks this would be an interesting time for corporations with big war chests to make moves against struggling companies, to consolidate their market positions.

"If you do have that kind of fighting power, you would want to scoop in companies on, presumably, lower valuation."

The total volume of global cross border M&A deals was $1.07 trillion, accounting for 31 percent of the total volume. The biggest cross-border M&A deal for the third quarter was the $40 billion bid for Allergan by Teva Pharmaceutical Industries in July.

Read MoreThe 5 biggest M&A deals of the year (so far)

In a separate report, KPMG said it expects the appetite of the world's largest corporations for M&A deals to persist and have the means to fund them over the next 12 months.

Africa, Middle East, and Japan will experience a growth in M&A appetite in the next 12 months by 12 percent, whereas AXJ and Latin America will see that figure jump to 25 percent, said KPMG.

Shareholder pressure driving M&A: Dealogic

Corporations have been spending more this year to acquire stakes in other companies. The average size of M&A deals, noted in the Dealogic report, was up 38 percent year-on-year to $120 million.

There were 45 deals announced in this period with a value of over $10 billion each, accounting for just over a third of total value of M&A deals globally. But some market observers expressed caution.

"The continuing impact of low oil prices, market and political instabilities in some key regions should also not be overlooked," said Leif Zierz, KPMG International's global head of Deal Advisory in Germany, in a report.

One market, in particular, that is expected to enjoy investor confidence in future M&A opportunities is China, despite the recent market turmoil there.

"There continues to be a robust M&A market, and significant appetite for China by investors," said Jeffrey Wong, Head of Deal Advisory in China at KPMG, in the report.

"The fluctuations have created plenty of opportunities for investors and sellers alike to consider the options."

The top three global sectors for M&A were Healthcare ($520.2 billion), Technology ($442 billion), and Real Estate ($331), as noted in the Dealogic report. In AXJ, technology dominated, with China accounting for 83 percent or $97.7 billion of total M&A deals in the sector.

Read MoreWhy we haven't reached 'peak M&A' in Europe

Falling oil and commodity prices dented deal-making for Utility and Energy companies, as it was the only sector where transaction fell by 23 percent, from $203.1 billion last year to approximately $156.9 billion in September this year.

But Chan thinks challenging market conditions might prompt future M&A transactions in this sector to rise.

"A lot of the energy players are actually scrambling to make things happen because the commodity prices are making things a little bit interesting for these guys," said Chan.