Strong deal-making momentum in Asia Pacific this year is set to continue in 2019 despite global trade uncertainties, an international law firm said Monday, cautioning that valuations for public listings may slip marginally.
The region has seen a banner year for capital market deals, both domestic and cross-border, marked by strong activity out of Japan and Hong Kong.
One of the mega-deals this year was Takeda Pharmaceutical's $59 billion takeover of London-listed Shire, which marked the biggest-ever foreign acquisition by a Japanese company. With regard to initial public offerings, Chinese mobile phone infrastructure builder China Tower listed in Hong Kong in what was Hong Kong's largest IPO for the year.
Japan's Softbank Group is set to list shares in its telecommunications unit on Wednesday in what will be the country's largest public listing. Expected to raise some 2.65 trillion yen ($23.5 billion), the IPO will be one of the biggest in the world.
In its Global Transactions Forecast for 2019, Chicago-based Baker McKenzie noted the strong momentum for mergers and acquisitions, as well as IPOs, in Asia Pacific this year, as deal-makers focused on economic fundamentals instead of global trade and protectionist worries. Much of that momentum will likely continue into 2019, the law firm said.
"Our forecast is for a robust increase in M&A, and sustained strength in IPO activity in 2019," said the report, compiled with research firm Oxford Economics. However, it added that overall deal fever in the region will likely cool off in 2020, citing a natural slowdown after consecutive strong years as well as an expected slowdown in economic growth.
Total deal-making activity in Asia Pacific should increase to about $751 billion in 2019 from an expected figure of just under $700 billion this year, the report said. But domestic public listings will likely be a little lower, at about $65.4 billion in 2019 compared with $66.5 billion this year.
"Chinese domestic M&A cooled, partly driven by tighter credit conditions, but inbound M&A has gathered pace as overseas firms' move to protect access to the Chinese market in the event of future trade barriers," the report said.
The outlook for IPOs in China and Hong Kong depends on how much easier Chinese authorities make it for capital to flow into the country, the report noted.
"Better access to overseas capital in domestic markets may obviate the need to list in Hong Kong," it said. "This is particularly important in light of tighter liquidity conditions in China, as the government aims to reduce the build-up of bad debt and financial risk."
Cross-border IPOs, meanwhile, are forecast to drop sharply to $34.5 billion from an expected $68.4 billion in 2019. But Hong Kong will likely maintain its top global position in cross-border listings next year, though values are set to slip to $33.5 billion from this year's expected $34.1 billion, Baker McKenzie said in its report.
Domestic public listings will also likely shrink to $51.4 billion while M&A activity in Asia Pacific is expected to decline to about $653 billion, it said.