Unlocking value with strategic corporate divestments in China

In recent years, moderating GDP growth, fierce competition from local players, rising geopolitical tensions, major regulatory changes, and management constraints stemming from the COVID pandemic have led many MNCs to consider taking a step back from China.

Since 2017, multinational corporations (“MNCs”) have realized nearly US$100bn from divestitures of PRC-based assets, with ~90% of transactions concluded with Chinese buyers. Today, the appetite of PRC corporates/sponsors for quality China operations is at an all-time high, and a well-run process can deliver strong returns for an asset with diminishing strategic value.

In our latest Insights, Unlocking Value with Strategic Corporate Divestments in China, we examine the recent expansion of MNC divestments in the PRC and discuss how on-the-ground insights and careful process management can optimize value in such a situation.

Click to download: Unlocking Value with Strategic Corporate Divestments in China

BDA is highly experienced in corporate exits, both in China and across Asia. For a further discussion please reach out to one of our contacts below:

Jeffrey Wang, Partner, Shanghai: jwang@bdapartners.com
Anthony Siu, Partner, Shanghai: asiu@bdapartners.com

About BDA Partners

BDA Partners is the global investment banking advisor for Asia. We are a premium provider of Asia-related advice to sophisticated clients globally, with over 25 years’ experience advising on cross-border M&A, capital raising, and financial restructuring. We provide global reach with our teams in New York and London, and true regional depth through our seven Asian offices in Mumbai, Singapore, Ho Chi Minh City, Hong Kong, Shanghai, Seoul, and Tokyo. BDA has deep expertise in the Chemicals, Consumer & Retail, Health, Industrials, Services and Technology sectors. We work relentlessly to earn our clients’ trust by delivering insightful advice and outstanding outcomes.

BDA Partners has strategic partnerships with William Blair, a premier global investment banking business, and with DBJ (Development Bank of Japan), a Japanese Government-owned bank with US$150bn of assets. bdapartners.com

2021 was a phenomenal year for deal activity in the Healthcare sector. Strong M&A momentum continued across most Healthcare verticals despite, and sometimes because of, extended COVID-19 disruptions. BDA closed landmark transactions across sub-sectors including Pharma Services (CRO/CDMO), Specialty Generics, Healthcare Services, Diagnostics and Life Science Tools, and Medical Devices, which touched on specialty therapeutic areas such as respiratory, renal care, OB/GYN and dental.

It was a busy year for Asian players in healthcare. Among them, Chinese buyers emerged as some of the most active participants, driven by the desire to expand their capabilities to address unmet needs in the strongly growing Chinese market. With our deep sector knowledge and broad network, BDA delivered strong transaction outcomes for our corporate and private equity clients throughout the pandemic.

Enabling client success:

BDA’s senior Healthcare bankers give their predictions for the year ahead.

Andrew Huntley, Managing Partner and Global Head of Healthcare:

In 2022 I believe the 2021 Asian Healthcare M&A tally of US$139.6 billion⁽¹⁾ will grow further. COVID-19 impacts that disguised underlying EBITDA and created valuation and diligence frictions between buyer and seller should moderate. Specialty clinic chains, pharma services (CRO and CDMO), and diagnostic products and services will continue to attract M&A in Asia. Life science tools and technologies is a category for which I see a growing appetite where the region lags developed markets. So is home healthcare. I am waiting for an Asian leader in medical device CDMO to emerge and there are some interesting building blocks out there. Consolidation trends in China will play out; and we might see some multinational divestments of Chinese units in pharma and devices.

Sanjay Singh, Managing Director, Head of India and Co-Head Asia, Healthcare:

India continues to build innovative pharma research and development capabilities on top of its generics base. This is especially the case in pharma services where I see increasingly well positioned CDMO assets in both API (drug substance) and formulations (drug product) which serve global pharma sponsors not just generics customers. These will drive capital raising and M&A transactions, as will early signs of India nurturing some differentiated medical device innovators. Domestic formulation businesses will likely see consolidation as larger companies seek to expand their presence in chronic therapies. Digital health and Healthcare IT are, respectively, new and established exciting segments for investment and M&A.

Anthony Siu, Partner, Co-Head of Shanghai and Head of Financial Sponsor Coverage, China:

Private equity owners of Health assets are going to capitalise on the favourable sector trends to exit their investments, but they will also be very active acquirers, armed with ample dry powder of over US$650 billion Asia-wide. Healthcare regularly features in the top two priority sectors for Asian financial sponsors. China focused sponsors will continue to back or partner with strategic acquirers to drive both consolidation within China and outbound acquisitions in the West. On the capital markets side, growing uncertainties in public markets will increase the appeal of private capital raise rounds before IPO.

We look forward to delivering outstanding advisory services and great outcomes for our clients.

About BDA Partners

The BDA Private Equity Conference is an annual convene where blue-chip private equity investors meet outstanding private companies. It is a unique platform for outstanding private companies in the chemicals, consumer & retail, healthcare, industrials, services and technology sectors to build their profiles and network with leading PE investors. It is also an exclusive opportunity for PE investors to hear introductory presentations by company founders or senior management, and to have one-to-one individualized access to them. This provides early exposure to companies that may explore a transaction in the medium term.

BDA PE Conference 2021

BDA Partners hosted the 3rd annual BDA Private Equity Conference from November 30^th to December 2^nd, 2021.

32 leading Asian private companies from the Consumer, Education, Healthcare, Industrials, Services and Technology sectors gave presentations and participated in one-to-one meetings with more than 250 Asian & global private equity investors.

Paul DiGiacomo, Managing Partner and Head of the Financial Sponsors Group at BDA, said: “The BDA PE Conference has proven to be a valuable platform for both the private equity community and blue-chip private companies in Asia. We provide investors with unique access to high-quality private companies, and company founders and senior management can begin to develop relationships with investors and get invaluable early market feedback. We’re pleased that the community continues to find the conference to be useful and rewarding, and we expect to introduce additional opportunities for investors and private companies to network and interact in 2022.”

We look forward to hosting the 2022 BDA PE Conference in the second half of 2022. Further details will be shared in due course.

Please contact pe-conference@bdapartners.com if you would like to learn more about the 2021 conference, or to attend in 2022. Please contact pdigiacomo@bdapartners.com to discuss the benefits of presenting at the 2022 conference.

About BDA Partners

BDA Partners is the global investment banking advisor for Asia. We are a premium provider of Asia-related advice to sophisticated clients globally, with 25 years’ experience advising on cross-border M&A, capital raising, and financial restructuring. We provide global reach with our teams in New York and London, and true regional depth through our seven Asian offices in Mumbai, Singapore, Ho Chi Minh City, Hong Kong, Shanghai, Seoul and Tokyo. BDA has deep expertise in the Chemicals, Consumer & Retail, Health, Industrials, Services and Technology sectors. We work relentlessly to earn our clients’ trust by delivering insightful advice and outstanding outcomes. BDA Partners has strategic partnerships with William Blair, a premier global investment banking business, and with DBJ (Development Bank of Japan), a Japanese government-owned bank with US$150bn of assets.

US securities transactions are performed by BDA Partners’ affiliate, BDA Advisors Inc., a broker-dealer registered with the Securities and Exchange Commission (SEC). BDA Advisors Inc. is a member of the Financial Industry Regulatory Authority (FINRA) and SIPC. In the UK, BDA Partners is authorised and regulated by the Financial Conduct Authority (FCA). In Hong Kong, BDA Partners (HK) Ltd. is licensed and regulated by the Securities & Futures Commission (SFC) to conduct Type 1 and Type 4 regulated activities to professional investors. www.bdapartners.com

The article was originally published in the September 2021 issue of Vietnam Economic Times

Huong Trinh
Managing Director, Head of Ho Chi Minh, BDA Partners

Despite Vietnam experiencing its fourth wave of Covid-19, merger and acquisition (M&A) activities will continue to remain strong. Since the beginning of this year, we at BDA Ho Chi Minh City have seen strong interest from large regional PEs (private equity firms) looking for sizable transactions. We are also observing strong demand for growth capital and exits from both founder-backed and private equity-owned companies, evidenced by numerous current live deals and strong pipelines/opportunities for 2021.

Vietnam’s macroeconomic fundamentals remain strong. In the International Monetary Fund (IMF)’s revised forecast released in July, the country is still on track to remain the fastest-growing economy in Southeast Asia this year, with projected growth of 6.5 percent. Vietnam also has one of the fastest-growing middle-class populations, with rising discretionary spending power, leading to high pent-up demand for goods and services that will contribute to economic recovery as the country opens up again later this year.

Key industries predicted to grow strongly

In general, Vietnam’s economy has remained resilient and maintained good momentum for growth across industries despite the recent surge of Covid-19. In addition to consumer and retail which has always been one of the most active sectors in Vietnam and is expected to rebound strongly in 2022 thanks to the recovery of consumer confidence, the following sectors have been attracting a lot of interest.

We believe that IT & Technology and especially the internet-related segment will achieve the strongest growth in Vietnam, and that there will be a strong pipeline of opportunities for the sector in 2021 and upcoming years. Difficulties caused by the pandemic have driven growth in demand across all industries for technology-related services and digital solutions that help businesses function normally. In a post-pandemic world, there will be a continued push for swift digitalization, and M&As will be the fastest way for businesses to achieve this goal. Also, Vietnam’s internet economy has been growing rapidly during Covid-19, and we expect this trend to continue as there have been long-term changes to consumer habits and dynamics. The pandemic, for all its negative impacts on health, society, and economy, is propelling the growth of e-commerce and digital finance in Vietnam, paving the way for the country to fulfill its digital potential. According to the Ministry of Industry and Trade, Vietnam’s e-commerce market grew 18 percent year-on-year in 2020 to $11.8 billion, while traffic on e-commerce platforms was 150 percent higher than in 2019.

Pharmaceuticals is an industry that has attracted a lot of interest from foreign investors in recent years, with notable transactions including Taisho’s acquisition of a majority stake in DHG Pharma and SK’s recent investment in Imexpharm. According to BMI Research, Vietnam’s pharmaceutical industry could reach $7.7 billion in 2021 and $16.1 billion in 2026. A growing middle class, urbanization, and a young population are driving domestic demand for all aspects of healthcare, including expenditures on pharmaceuticals. As a defensive sector, pharmaceuticals will continue to achieve strong growth as Vietnam transitions out of the pandemic period. The industry is set to benefit greatly from the government’s national strategy to promote domestic manufacturing. To compete with imports, M&As with foreign strategic investors will continue to be crucial for local manufacturers, enabling them to meet global pharmaceutical standards through transfers of technology, R&D, and management expertise.

Renewable energy has also become an interesting sector for M&A activity in Vietnam over recent years, and we expect deal flow to resume as the country gradually opens up. With a rapidly growing economy, Vietnam has been at risk of power shortages as demand exceeds supply due to a lack of power infrastructure, and capital injections into the development of renewable energy could provide a good solution. Vietnam became the largest solar energy market in Southeast Asia in 2019, attracting foreign investors in mega plants in Binh Phuoc, Tay Ninh, and Ninh Thuan provinces, given the more attractive feed-in-tariff schemes compared to other countries in the region. Buyers have also been active with acquisitions of onshore and offshore wind farms in the central highlands and central coastal regions, which boast huge potential given their ample wind resources.

In Vietnam’s real estate market, M&A remains the quickest solution for foreign developers to enter the country and for local developers to expand their land portfolio. An increase in real estate M&A activity is expected this year, as various projects will be approved thanks to new improvements in the Law on Investment, after lengthy delays in the review process in previous years. Investors have accumulated a lot of capital, which is waiting to be deployed as the economy recovers, while owners struggling from the impact of the pandemic are willing to sell at lower valuations. Within the sector, industrial real estate has seen more activity in 2021, as multinational companies continue to shift their manufacturing bases from China to Vietnam despite the ongoing pandemic. Meanwhile, deal flow in residential real estate is expected to recover in the latter half of the year, as postponed transactions are resumed when travel restrictions are loosened.

Manufacturing, one of the sectors temporarily hit by Covid-19, will also provide opportunities to buyers who are confident of a strong economic recovery. Vietnam has been emerging as a manufacturing hub in the region given its low labor costs, its strategic location and many seaports nationwide, and its increasing participation in free trade agreements. For these reasons, its manufacturing sector will remain attractive to foreign investors, especially given ongoing China-US trade tensions, resulting in the relocation of manufacturing hubs from China to Vietnam. Domestically, there could also be a pickup in M&A activity, as we might see a trend in the consolidation of struggling small and medium-sized players into respective market leaders. Demand for growth capital from businesses looking for internal transformation and rebuilding post-pandemic will also present opportunities for investors looking for high-quality assets at attractive valuations.

Common risks and opportunities

Some of the common risks include uncertainty in the legal framework, especially new laws that came into effect recently, quality of information, as some companies still do not apply best practices in bookkeeping, an unfamiliarity among Vietnamese sellers with M&As and the basic concepts and processes involved, and cultural differences during deal negotiation and post-deal integration.

M&A transactions in Vietnam are largely governed by the Law on Enterprises, the Law on Investment, and the Law on Competition. Recent changes in these laws have posed additional challenges to potential buyers. For example, under the new Law on Competition, a substantially higher percentage of M&A deals are subject to merger control filing requirements, and the evaluation process could potentially add months of uncertainty to the timeline of a deal. Quality of information is also a common issue for foreign buyers, as target companies do not always have an organized information system that meets their requirements.

The current postponement of inbound international flights due to the pandemic also makes it difficult for buyers to conduct in-depth due diligence through site visits and face-to-face meetings. Additionally, foreign buyers might be unfamiliar with cultural differences in corporate governance practices in Vietnam. Many target companies are founder-owned, family-run businesses, which may not yet see the value-added of foreign strategic and financial partners or be open to international corporate governance standards. Last but not least, Vietnamese sellers lack knowledge in terms of how the M&A process works and is structured, which will create uncertainties.

Despite the existing drawbacks, it is important to acknowledge that compared to a decade ago, the perception of M&As in Vietnam has changed dramatically among government agencies, business owners, and investors/buyers and in a positive way. Authorities are continuously improving their turn-around times and responsiveness, while working toward new guidelines for M&A transactions, with the new Law on Enterprises, Law on Investment, and Law on Securities having come into effect on January 1, 2021. Shareholders are now more open to adding M&A as a strategic option in their growth trajectory and are becoming more educated in terms of M&A processes and key concepts. We see that sellers are taking a much more structured approach for large domestic deals or cross-border deals by engaging relevant advisors, who will help mitigate risks for foreign buyers by working with them through a transparent process. As BDA has a local team in Vietnam, we have been fortunate and pleased to be trusted by many local business owners and have given them advice and helped them run structured deal processes along the way.

We remain confident in the availability of opportunities in Vietnam’s M&A market. From a macro level value creation process perspective, Vietnam will continue to enjoy: (i) stable, unparalleled economic growth compared to other Southeast Asia countries, especially amid Covid-19; (ii) an influx of advantages from recent free trade agreements; and (iii) a strong government push to equitize State-owned enterprises. From a micro-level perspective, Vietnamese companies are becoming more professional with stronger management teams and better corporate governance. They are more open to foreign investors as they see the different values that both strategic and financial investors can bring.

Anticipated M&A deals and volume in next six months

Companies looking to position themselves for recovery in the post-pandemic economy will need new capital injections for internal transformation and further growth to remain competitive, and they will be eager to restart conversations with buyers for deals that were put on hold or lost. Within businesses in industries such as F&B, manufacturing, and industrials that have been negatively affected by the pandemic, there are still a lot of sizable and high-quality assets in the market. This environment will create opportunities for an increase in deal flow linked to dislocation, as sellers are more willing to close deals at a lower valuation in exchange for immediate access to growth capital. Until travel restrictions are loosened, local investors will have an advantage over foreign counterparts in such transactions, given their presence in Vietnam and their ability to run quicker processes and provide liquidity to businesses in need. We also expect to see a consolidation trend in M&A transactions, as market conditions have become challenging for small and medium-sized enterprises (SMEs).

About BDA Partners

Huong Trinh, Managing Director and Head of Ho Chi Minh at BDA Partners, shares insights on Vietnam M&A market, including growth sectors, cross-border activity, digitalization, and the rise of SPACs.

Which industries do you see picking up in the SE Asia region, largely with the focus on Vietnam?

Internet-related businesses have been growing rapidly of late. Consumer behaviour is changing, and this is a long-term sustainable shift in consumer dynamics. Average order value on e-commerce sites rose by over 35% year-on-year in the first half of this year.

For the industrial sector, COVID-19 has been certainly a catalyst for business owners to consider a transaction. The underlying reason was the fundamental change in the economic outlook domestically and globally, which has urged a number of investors to look for a more stable and “safer” destination while its business owners see the
benefits of having a “big brother” who is financially stronger with them to grow the business, especially during unstable periods.

Healthcare is another attractive sector for investors. The sector will likely see lower cash flow compared to 2019. Hospitals face a huge negative impact on revenue as they have had to cancel many profitable surgeries and procedures, while investing more in staffing and getting extra protection equipment for work. In contrast, personal protective equipment companies are seeing a significant revenue growth and the pharmaceutical sector will continue to grow strongly post-pandemic.

Industrial real estate and logistics will also grow, thanks to multinational companies shifting their manufacturing base from China, and the requirement for logistics and supply chains to keep up.

Sectors that have been temporarily hit by COVID-19, such as food & beverage, hospitality and discretionary retailing, present opportunities at attractive valuations for buyers who are confident of a strong bounce back.

How do you see international investors completing transactions with Vietnam’s borders still shut?

We signed/completed 5 transactions so far since COVID-19 without the buyers coming into Vietnam for the signing/closing.

This has been a key concern when COVID-19 started, but as we came along it is really a matter of how much both sides like the deal and how we, as the advisor, add value. We see that people have been very creative in the process, for example the investor can hire a local advisor to do the site visit/management meeting on the ground in Vietnam, the local team can take high-quality video on the assets, etc. These creative approaches will help very much to get the deals done.

We at the BDA Ho Chi Minh City office are observing a large demand for growth capital and exits from both founder-backed and private equity-owned companies, evidenced by numerous current live deals and strong pipelines/opportunities for 2021.

What are the trends you see in cross-border activity?

Compared to a decade ago, perception towards M&A has changed drastically among business owners, government agencies and investors/buyers in a positive way. As Vietnam’s economy opens up, we have witnessed more and more large cross-border deals that brought positive growth to the target companies and benefits to all stakeholders. We see people are taking a much more structured approach for large domestic deals or cross-border deals which require the involvement of all relevant advisors as they see the benefits of having an official process and advisors in place:

better positioning the company
consistent and organised approach
more competitive process can create better valuation and terms
increase the certainty
professional advice will definitely help get better outcome and reduce risks

As BDA has a local team in Vietnam, we have been fortunate and pleased to be trusted by many local business owners to give them advice and help them run a structured process along the way.

Discuss the growth of digitization especially in the M&A environment in SE Asia?

Overall – the digital economy has been growing exponentially. The COVID-19 pandemic, for all its negative impacts on health, society and economy, is expediting the growth of Vietnamese e-commerce and digital finance, paving the way for the country to fulfill its digital potential. Traffic on e-commerce platforms in 2020 was 150 percent higher than the previous year, with approximately 3.5 million visitors per day on various platforms.

Can you comment on the rise of SPACs?

There are tremendous benefits of considering a SPAC buyer in a sale process, opening opportunities for growing companies in developing markets that wish to participate in other established markets’ capital markets:

Valuation: Robust public market valuation with retail participant
Speed to market: Ability to secure capital commitments within 4-6 weeks vs. IPO with 3-4 months of market risk before roadshow
Certainty: Less sensitive to general equity backdrop and market windows
Flexibility: Ability to fully disclose financial forecasts to support investment case; Structural flexibility for integration of earn outs/conditional fees and more incentive driven deal constructs

About BDA Partners

Simon Kavanagh, Partner and Head of Industrials at BDA, shares his views on where we will see the most M&A activity within Industrials in Asia, in terms of sub-sectors, markets and key players in 2021 and beyond.

– Which are the most active sub-sectors in Industrials in Asia in terms of M&A activity since 2020?

There are two sub-sectors within Industrials where we’re certainly seeing a lot of activity. One is general component manufacturing, both metal components and plastic components. The automotive sector in particular has rebounded from a low in 2020, and we are seeing several deals in the marketplace currently. Component manufacturing then extends up into EMS and assembly, and there’s quite a lot of focus on electronic components, especially where there’s a technology angle.

The general trend for 2021 onwards is that technology is key. The R&D capabilities of target companies are scrutinized very closely by investors and the extent of their technology expertise has a meaningful impact on valuation. For pure play component manufacturing companies, with less of a technology angle, there is less demand, and appetite and valuations are lower.

Another sub-sector where we are starting to see increased activity is in waste recycling. This ties into the general mega theme towards ESG, which is becoming an attractive investment sector and one which funds and LPs are actively looking for opportunities.

– At the end of 2020, BDA closed a milestone transaction in the semiconductor sector with the sale of Compart to Shanghai Wanye. Compart is a leading global supplier of semiconductor components and assemblies, headquartered in Singapore with manufacturing plants in China and Malaysia. Do you see more opportunities in this subsector? Who are the most active investors?

The sale of Compart was a very successful transaction, for both buyer and seller. The investment environment is strong and there are several additional semiconductor related transactions coming to the market. BDA is currently working on a number of these, each in a different stage of the semiconductor manufacturing supply chain.

China has made it a priority to strengthen its domestic semiconductor capability and Chinese companies are keen acquirers. There is a strong willingness for Chinese corporates to borrow money and for private equity firms to commit capital to semiconductor related targets.

We expect the Chinese pace of investment in the semiconductor sector to continue for the next few years. It is an industry where most of the manufacturing and the technology is outside of China, either in Taiwan, Korea or the US. So there is a strategic value to the companies they are buying, even if valuation is relatively high. Private equity firms specialising in the semiconductor sector have sprung up. Wise Road Capital is one of the better-known ones: earlier this year it acquired MagnaChip in Korea for US$1bn. It was unusual for a Chinese company to buy something in Korea of that size, but it followed their 2020 acquisition of United Test and Assembly Center.

– How do you view the acquisition appetite of financial sponsors versus strategic investors for the Asian Industrials sector?

Financial sponsors have the upper hand at the moment and that will continue throughout 2021, until the macroeconomic environment stabilises and travel restrictions are lifted. The investor universe for industrial companies is weighted quite heavily towards Asian financial sponsors, with some activity and interest from Asian strategics. However, financial sponsors are much more flexible in terms of considering cross border M&A in the Covid-19 environment and being able to complete due diligence virtually.

Sponsor investors across the board are looking to increase their exposure to the region. Several international private equity firms have raised large Asia-only focused funds since 2020, including KKR, Blackstone and Carlyle. China-focused private equity firms (Boyu, Primavera, Fountainvest, BPEA, Hillhouse and PAG) are also investing or raising billion-dollar funds.

Strategic investors tend to be a little more conservative. It has not been a priority for US or European corporates to make significant investments in Asia these past couple of years: they have tended to focus on their home markets. The difficulty of doing site visits under the current Covid-19 travel restrictions has more of an impact on them, than on financial investors. However, while it is early stages, BDA is starting to see a change in the trend with a noticeable increase in the number of corporate clients calling us in 2021 to discuss buyside roles in Asia.

– China outbound M&A in 2020 was the lowest level in the last decade. Do you still see Chinese investors having a conservative view in outbound industrial deals in 2021?

The volume of China outbound M&A has come back from the low of 2020. Outbound volume in Q1 2021 was up 15.9% YoY. But in general, yes, the heyday of Chinese outbound diversification has gone. US assets are still out of favor due to geopolitical tensions. Europe is attractive, but acquirers are far more cautious, both in terms of what they buy and how much they pay for it.

When they do make acquisitions it’s the technology that is most critical. China’s next stage of development is very much towards being at the forefront of technological leadership and R&D capabilities. They are looking at what this target can bring to them in the industry. Does it have something that is not essentially in China already? What can a new Chinese owner do to win Chinese customers for this foreign company? Does the target company have some special intellectual property or is it the leading expert in a particular niche? Technology will remain the key driver for outbound M&A for many more years.

– SPACs have been a hot topic recently. What impact do you think SPACs will have on the industrial sector in Asia?

Not much of an impact. SPACs tend to focus on high growth companies that are looking at raising capital and want to do an IPO, but are less suited to the more traditional routes for public listing. There are not many industrial companies that fall into that category. Local Asian SPACs are still not regulated or available / approved by regulators in either Hong Kong or Singapore, although that will change in due course. In order to pursue the SPAC route in either the US or Europe, the business needs to be big, like Grab. But if you’re a US$1 billion valuation Industrials company, you won’t need to sell new shares to raise capital, and if you’re looking for liquidity you will probably just go and do a normal route IPO or sell to a financial sponsor.

– Is the shift of manufacturing capacity to Vietnam, at the expense of China, continuing?

Yes, the trend will continue for the foreseeable future. Vietnam still has a significant cost advantage over China, particularly for labor-intensive industries. Companies are not necessarily moving their entire supply chain from China to Vietnam, but if they are adding capacity, it’s less likely that they will be making that capital expenditure in China. Vietnam, as well as Malaysia to some extent, are continuing to benefit because of their well-qualified workforce of engineers and a friendly FDI regulatory environment.

With our strong BDA Partners team on the ground in Vietnam, we are seeing and working on a lot of founder-owned sellside transactions where the target companies are very attractive bolt-on acquisitions for strategic investors. We’re witnessing the start of a shift, where a generation of founders of some very successful Vietnamese companies are looking for liquidity, and they need access to an international investor universe and an advisor to help guide them through an M&A process.

About BDA Partners

A Q&A with Anthony Siu, Partner, Co-Head of Shanghai and Head of China Financial Sponsor Coverage, at BDA Partners, on the outlook for China M&A, private equity exits and outbound M&A activities

2020 was a record year for domestic Chinese M&A. Do you see this continuing in 2021?

Yes, I do see that trend of domestic Chinese M&A continuing, and even accelerating in 2021 and beyond. 2021 year-to-date domestic M&A has been on a record pace, with $80bn of deals announced and the busiest ever start to a year. This period saw three times the level of M&A deal value of the same period in 2020.

Covid-19 impacted the China M&A market heavily in the first half of 2020 but, since then, the market has rebounded significantly. Chinese buyers are focusing their M&A efforts domestically, largely due to geopolitical tensions, travel restrictions, and the severe impact of Covid-19 in Europe and the USA, along with shifting focus to domestic demand.

We see more domestic players speeding up their plan to expand in China. They are using this opportunity to consolidate in the domestic market, to accelerate growth, and to expand beyond their own regions to the whole country. Some national champions are emerging in certain sectors. With China aiming for more self-reliance and the economy still growing, I expect there will be further domestic M&A consolidation.

In terms of sectors, consumer and healthcare are the favorites for domestic buyers. As China is gearing towards consumer upgrade with higher disposable income, the consumer market will continue to grow. The large corporates would like to accelerate their channel network and market share expansion through acquisitions.

Healthcare is another area where we expect more domestic activities. The strategic players are looking at ways to expand their market share in a fast-growing but fragmented market. For example, in the healthcare services areas, we see a lot of M&A activities in hospitals, specialist clinics and rehabilitation centers.

Do you think we will see Chinese family owner / founder business preferring IPO or trade sale exits in 2021?

I see both happening. The IPO market has been hot over the past year. The STAR Market has enabled smaller, high growth companies to list at attractive valuations. For founders who have no plans to retire or exit soon, or have high growth businesses that are tough to sell at an early stage, they will prefer the IPO route.

But for founders who have established businesses in traditional industries such as industrials and consumer & retail, trade sale can be a very attractive exit route for them. Strategic and private equity buyers are interested in market leaders with strong cash flows, and targets with these characteristics can attract strong interest.

How do you see Covid-19 impacting PE owners’ timing and planning for exiting their investments?

Last year we saw PE sellers postponing their portfolio company exits due to adverse business environment. Looking ahead, we should see more PEs exiting their investments to clear the backlog. In the first half of this year, some PE firms are waiting to establish a clear path of recovery of the target’s financial and operating performance, and we expect trade sale exits to accelerate in the second half of the year.

Do you see distressed / restructuring M&A opportunities in 2021? Domestic or overseas Chinese owned assets?

Not so much in China because the Covid-19 impact was short-lived. The over-leveraged situations for some enterprises happened before Covid-19 and they were forced to de-leverage. We saw a lot of these divestiture activities in the past 1-2 years.

Outside China, there may be more distressed and restructuring opportunities for companies that are looking for liquidity. With Chinese buyers being more active in outbound investments, we may see more deals done in overseas asset restructurings.

China outbound M&A in 2020 was the lowest in the last decade. Do you see it bouncing back in 2021? If so, what sectors and countries will be attractive?

Since the beginning of this year, we have already seen early signs of recovery in outbound M&A. The Chinese players are becoming more active in outbound transactions into Europe and the rest of Asia such as Singapore and fast-growing countries like Vietnam; less so into the US because of the tensions between Washington and Beijing creating significant deal uncertainties. As the pandemic situation eases and borders re-open, we should see outbound deal volume picking up through the rest of the year.

I believe outbound investors will continue to favor sectors such as industrial and healthcare. Another sector that has benefited from the pandemic was transportation and logistics due to the boom of e-commerce.

How do you see the geo-political relationship between China and the USA playing out under the new Biden Administration?

We have probably hit the lowest point of the China-USA relationship during the Trump Administration. I think the Biden Administration will take a firm but pragmatic approach to China, knowing that this is one of the most important strategic relationships to the US. US companies have significant investments in China, and they need to be protected. China is the biggest market in the world in many respects, and the US cannot afford to ignore that opportunity.

On the other hand, China will continue to open up. The government has already removed a lot of restrictions in foreign direct investments. Going forward, I expect that there will be a revival of US interest in investing in China.

Will the new EU-China Agreement boost cross-border M&A in 2021?

The EU-China agreement primarily focuses on the China market opening up to the EU. It helps various sectors, for example, new energy, healthcare services, financial services; areas that were traditionally protected by the government. The EU companies will benefit from this agreement by China opening up these sectors more for EU investments. In terms of M&A, we expect to see more EU companies increasing their investments in China, through outright acquisitions or strategic investments. However, the recent sanctions row between the EU and China put the ratification of the agreement in doubt. I believe both sides will lose if the agreement falls through, and hope that they will find a way to avoid escalation and put the agreement back on the right path.

About BDA Partners

SPACs are the hottest story in financial markets globally, today.

Special Purpose Acquisition Companies (“SPACs”) have been around for 30 years, but they blossomed in 2020, in the US market. 248 SPACs launched last year, raising a total $83bn in proceeds.

And the craze keeps getting hotter: in January and February 2021 alone, 188 SPACs raised $58bn, just in the US.

This rising tide shows that the SPAC approach is, for now, seen as a legitimate and quicker alternative to a traditional US IPO. And yet SPACs are in favour and controversial for the same reason: highly favourable economic returns to SPAC IPO sponsors, market challenges caused by the pandemic, and the apparent execution, pricing and liquidity certainty offered by SPACs, for both investors and target companies.

Today, 300 SPACs are searching for acquisition targets to de-SPAC within a limited timetable, typically two years. As the US becomes saturated, SPACs are increasingly looking for opportunities in South East Asia and Greater China, where companies backed by private equity and venture capital are demonstrating compelling growth and value prospects.

Total deal value of Asia-focused SPACs (US$bn)

This year, we’re beginning to see Asian sponsors listing SPACs in the US.

And yet only two Asian countries, South Korea and Malaysia, allow SPACs to list today.

SE Asia is arguably the most fertile ground for acquisitions by SPACs, due to the vibrant technology startup scene and smaller domestic IPO markets. This raises the question of whether financial hubs like Hong Kong and Singapore should themselves consider becoming more SPAC-friendly.

But for now, Asian companies are mostly looking to SPACs in the US.

Here are some of the ways Asian markets are engaging with SPACs – or resisting them.

1. CHINA

China is the go-to model for the South- and SE-Asian technology unicorns. Alibaba and JD.com are Chinese giants with dual US-China listings. Political pressure and rampant local multiples have encouraged Asian companies to explore regional markets, not just NASDAQ.

Notwithstanding the trade war, NYSE and NASDAQ have expressed willingness to continue to entertain China-related SPACs.

US billionaire Dan Och and his family office, Willoughby Capital, own 5.6% of Primavera Capital Acquisition Corp, a SPAC led by Fred Hu, formerly of Goldman Sachs China, hunting for a consumer target with a significant presence and potential in China. Primavera raised $350m in an NYSE IPO.

Fang Fenglei, founder of HOPU, is active via HH&L, a SPAC, now chasing a China healthcare target.

CITIC Capital raised $240m for a SPAC targeted on the energy efficiency, clean technology and sustainability sectors, in China and beyond.

The Shanghai Stock Exchange’s Sci-Tech Innovation Board (STAR Market), has attracted many high-growth startups. The popularity of these platforms offers issuers potentially stratospheric valuations, without going down the SPAC route.

New Frontier Group, an asset manager run by Anthony Leung, Hong Kong’s former financial secretary, merged Chinese private hospital United Family Healthcare with its SPAC on the NYSE in 2019. New Frontier Health is still trading below its $10 IPO price, and is soon set to be taken private by a consortium, again led by Leung, valued at only $12 a share.

Octillion Energy, a privately-held US and China headquartered electric vehicle powertrain solutions provider recently hired Bank of America to explore a potential acquisition by a NASDAQ listed SPAC instead of a trade sale.

2. HONG KONG

Hong Kong and Singapore are taking divergent approaches to the SPAC boom, as they watch Asian unicorns explore future listing structures.

The Hong Kong Exchange prefers traditional IPOs and is treading a more cautious path.

Hong Kong has long been one of the world’s top IPO destinations alongside New York and Shanghai, and it has been skeptical about non-IPO listings. In recent years, HKEX has been tightening rules on backdoor listings and shell activities. Regulators in Hong Kong and mainland China have been working hard to streamline and simplify conventional IPO listing procedures and requirements, reducing the appeal of the SPAC route. Hong Kong already allows pre-revenue biotech companies to list on its main board.

Model Performance Acquisition, a Hong Kong-based blank check company led by ex-Templeton Asset Management North Asia PE co-head Claudius Tsang, has filed with the US Securities and Exchange Commission (SEC) to raise up to $50m in an IPO.

Ace Global Business Acquisition is a Hong Kong blank check company targeting gaming and e-commerce in China, Japan and SE Asia, launching a US IPO. The company is led by Eugene Wong of Whiz Partners Asia and the China Hero PJ Fund.

HKEX’s CEO Calvin Tai said the bourse “will open our eyes and ears, listen to the market, and watch other markets” when it comes to future IPO regulations.

In 2020, 154 companies raised a combined US$52bn in IPO proceeds in Hong Kong.

3. INDIA

An array of Indian companies, valued at $30bn or so in total, are considering SPAC deals in the US. For example, Indian ecommerce pioneer Flipkart, owned by Walmart Inc, is mulling merging with a blank-cheque company in the US, potentially at a $35bn valuation.

SPACs are scouring India’s more mature targets. Last week, ReNew Power, one of India’s largest renewable energy groups, unveiled plans to go public in New York through an $8bn deal with a SPAC. ReNew Power is an Indian renewable energy company, with an asset base of 8 GW, of which 5 GW is operational. It is now exploring a dual listing in Mumbai.

Baring Private Equity Asia is considering listing US-Indian health tech company, Citiustech Healthcare Technology Pvt., in the US through a SPAC merger. Baring is hoping for a valuation of US$1bn for Citiustech. Baring only acquired its majority stake in Citiustech in 2019 for US$750m.

4. INDONESIA

Indonesia is a less mature market, but with a huge consumer population and a growing online economy. This has created four unicorns to date. Naturally they have considered the merits of listing via SPAC.

The Indonesia Stock Exchange is the third Asian market, after Hong Kong and Singapore, to consider allowing SPACs to list. Last year, there was only one SPAC deal involving an Asian company. Only five Asian start-ups have listed via SPAC since 2016.

Ecommerce leaders Tokopedia and Bakalapak, and airline ticketing and hotel booking services player, Traveloka are all considering SPAC mergers today. SPAC deals may be just one step along the way: a proposed $18bn merger between Tokopedia and ride-share giant Gojek could lead to a dual listing in New York and Jakarta.

The biggest SPAC focused on SE Asia is Bridgetown Holdings, backed by Richard Li and VC Peter Thiel. Bridgetown raised $595m, and is exploring a potential merger with Tokopedia that could value the unicorn at $8bn-$10bn.

Provident Acquisition is a $200m SPAC launched by SE Asian fund Provident Growth. Provident backed Gojek, Indonesia’s biggest start-up, and Traveloka.

5. JAPAN

Japan doesn’t allow SPACs on its domestic markets. The Japanese authorities don’t consider SPACs to be sufficiently transparent or safe in regulatory terms, as a path to IPO, or as an investment vehicle.

SoftBank is listing two new SPACs on NASDAQ. The Japanese conglomerate will raise $480m to acquire businesses in the AI sector. SoftBank’s SPACs are funded primarily by its Vision Fund. SoftBank listed its first SPAC in the US in January 2021, raising $525m.

6. SINGAPORE

The Stock Exchange of Singapore is likely to approve the formation of SPACs in Singapore.

Singapore’s IPO ranking is far behind Hong Kong, while it has suffered a slow-burning delisting trend in recent years – making it more receptive to SPACs as a growth engine.

The Singapore Stock Exchange is home to more old economy companies and REITs. SPACs would be a natural step for Singapore to attract new economy listings.

The spectacular rise of Sea, the Singapore gaming and ecommerce company listed on NYSE, was one of the world’s best-performing stocks in 2020.

Grab, backed by SoftBank and Shinsegae, is exploring going public in the US through a merger with a SPAC to speed up its listing process. Grab is a “super app” that offers multiple conveniences, including ride-hailing, financial services and food delivery. The platform has traction in eight countries — including Singapore, Indonesia, Vietnam and Thailand. Its mobile app has been downloaded more than 14 million times. This comes after talks to combine with Indonesian rival Gojek collapsed. See above.

Singapore’s on-demand bus service provider Swat Mobility is contemplating a Japan IPO to fund its expansion, or else a merger with a US SPAC to gain a listing there.

COVA Acquisition, Crescent Cove’s $300m SPAC, listed in February, is now scouting for targets across SE Asia.

L Catterton Asia Acquisition Corp launched this week as a consumer tech-focused $250m IPO on NASDAQ.

SPACs formed in 2021, searching for targets in Asia

Source: Dealogic, Mergermarket

Investors have already poured almost $3bn into SPACs focused on acquiring Asian companies this year, nearly doubling the amount committed during all of 2020, according to Dealogic. While modest by the standard of American companies, BDA understands that several Asian private equity firms are hoping to join the stampede.

The gold-rush mentality is causing concern from sponsors looking to invest, about inflated valuations for young businesses. Asian management teams at fast-growing companies are typically unprepared for the regulatory requirements of a US listing. Asian markets are simultaneously tightening restrictions on backdoor listings which avoid the independent due diligence process on a traditional IPO.

As described above, many of Asia’s most high-profile entrepreneurs and CEOs are playing in the SPAC pool. In addition to Fred Hu, Ken Hitchner, ex-head of Goldman Sachs Asia Pacific, Li Ka-shing’s son Richard Li, and Peter Thiel, the US tech investor, have all backed significant SPACs focusing their aim on SE Asia.

Most of SE Asia’s burgeoning unicorns are still valued below $3bn, which was the traditional minimum value for an IPO in the US.

As a result, Asia-focused SPACs are chasing a limited pool of viable targets.

However, Asia’s limited history of companies successfully going public via SPAC could weigh on the region’s prospects.

Sponsors have also come under scrutiny for their own lucrative compensation, typically a 20% stake in the company.

They have flocked to the US, where investors show apparently limitless appetite for blank check firms, while the larger exchanges in Asia still do not allow SPACs to list.

SPACs feel like a reflection of the mature bull market. The exuberance has sparked debate among investors and bankers about how long the trend will continue, and whether there will be enough suitable targets to be merged, if the frenzied pace of fundraising continues.

Many observers expect the SPAC mania to end badly – but not before more investors, CEO, bankers and sponsors have ridden the wave for a while longer.

About BDA Partners

The new Suga government has already been bold.

Japan’s fiscal response to the pandemic dwarfs the measures taken after the global financial crisis, and the earthquake and tsunami of 2011.

Now standing at more than 250% of GDP, Japan’s national debt is among the highest in the world, twice the average of other advanced economies. But it seems to be working.

Japan may finally be emerging from a prolonged slump, effectively a recession lasting three decades.

Japan’s population may be shrinking at a worrying pace, more than 1% per annum, but investors are thoroughly bullish, as if for the first time in living memory.

Private equity firms Bain, Carlyle and KKR are lining up to put serious capital to work in Japan. Interest rates remain low, which is helping to drive investor enthusiasm.

Last week, the Nikkei 225 rose above 30,000, a psychologically significant level last seen in 1991. Energy, Healthcare and Industrials have led the gains.

The Nikkei has risen 30% since November 2020, 9% since the beginning of the year, and 7% in the last two weeks. It is outperforming the US and European markets.

Nikkei 225 index 1991-2021

The TOPIX, which reflects a broader set of Japanese companies, also hit a 30-year high.

Japan’s Ministry of Health, Labour and Welfare has finally approved a Covid vaccine, months behind other major economies.

Still, signs that the pandemic is abating globally have caused optimism among Japanese analysts. Japanese companies are poised to rebound. Industrial customers and end consumers are both demonstrating renewed confidence.

Japan’s economy performed surprisingly strongly in Q4 2020, recovering markedly from the slowdown earlier in the year. But this growth is still fragile and might be easily disrupted, analysts warn.

The second state of emergency, declared in January 2021 and extended in February, will dampen economic activity in Q1 2021, and tourism remains severely subdued.

Japan is the world’s third-largest economy behind the US and China. GDP rose 3.0% in Q4 2020, for a 12.7% annualized growth rate. The economy had also recovered by 5.3% in Q3 2020.

2019-2020 Japan Quarterly GDP growth

Exports and consumer spending have both surprised on the upside. Analysts say that consumers are demonstrating pent-up demand for Japanese goods which they did not buy in H1 2020.

Exports have been booming, especially capital goods and technology-sector goods and services.

Even before the pandemic, 2020 had begun inauspiciously, with a disastrous hike in the national consumption tax, a steep drop in trade with China, and an unusually damaging typhoon. The pandemic then arrived to cause the biggest drop in GDP since records began in 1955.

But the Government has managed the pandemic relatively well, allowing Japan to avoid the more profound economic damage that beset the US and Europe.

The Japanese population spent most of 2020 still able to travel domestically, eat out, and visit leisure facilities. The Government quickly brought in subsidies for domestic tourism, Covid notwithstanding.

Shinzo Abe resigned in August 2020, to manage his ulcerative colitis. Yoshihide Suga assumed office in September. Suga said his premiership will focus on continuing the goals of the Abe administration, including notably the Abenomics suite of economic policies.

Suga’s “third extra budget” in December 2020 supplements two earlier packages worth 11% of GDP. The year-end shot of fiscal caffeine was worth $708bn, including $385bn in direct fiscal spending and initiatives targeted at reducing carbon emissions, and boosting the adoption of digital technology.

The stimulus helped keep employment high, and companies in business. Bankruptcies actually dropped 6.5% in 2020, according to credit research company, Teikoku Databank.

Japan has been lamentably slow to start vaccinations. Regulators have finally approved the Pfizer-BioNTech vaccine. Frontline healthcare workers will receive their first doses this week, but it will be months before most citizens get shots.

And yet the pandemic’s effects have been much less severe in Japan, with fewer than 7,000 deaths to date.

The Government has begun encouraging activist investors to search for undervalued stocks, previously a taboo exercise. The weaker yen-dollar exchange rate, too, boosts the value of overseas holdings and makes exports more competitive.

The last time the Nikkei scaled these heights, Japan was in the throes of the bubble economy. The Bank of Japan throttled that speculative fever, which led to the infamous lost decade at the end of the twentieth century. Momentum has been stalled ever since.

Japan still has many hurdles to overcome. The economy relies on “old” companies. Productivity is stunted. Efforts to promote tourism died with the pandemic. Women remain undervalued in the economy, which becomes a more significant issue as the population shrinks – but also an opportunity, of course. As in other markets, inequality is growing in worrying ways, and the recovery looks K-shaped for now: steep for some, non-existent for others.

And yet: Japan is reforming, and reviving, and becoming fashionable among fund managers.

Prime Minister Suga has reasons to be cheerful. A month from now, Tokyo’s cherry trees will blossom. The symbolism should be potent this year: a chance to contemplate renewal and future happiness.

About BDA Partners

We spoke with Howard Lee, Partner and Head of Seoul at BDA Partners, who discussed the outlook of the M&A activities in South Korea, the impressive growth of the Korean private equity market and the role of a great financial advisor.

What are the latest trends in the M&A inbound and outbound market in South Korea?

Inbound acquisitions of Korean assets by foreign investors have been inactive over the past year. It is largely related to the impact of Covid-19 on overseas buyers. For example, when I talked to potential buyers in the US or China about Korean assets, the general feedback was, under the Covid situation, we were unable to organize ourselves to seriously look at the asset. The Korean inbound market will be more active when the Covid situation improves globally during 2021.

Also, overseas acquisitions by Korean companies in the US and European market have not been particularly active over the last decade. Only few top conglomerates in Korea, like Samsung, LG and SK, tend to execute such M&A transactions. In general, most Korean companies tend to take a conservative stance when it comes to allocating considerable resources for cross-border M&A transactions. The problem resides in their limited exposure to cross-border M&A as well as in post transaction steps such as PMI (Post-Merger Integration). Thus, in order to penetrate overseas market through M&A strategy, it is important that they approach and confront the deal confidently but with proper preparation. Secondly, out of those major conglomerates, their hands are tied up by regulations. So, even though they would intend to go out looking at M&A opportunities, there are sometimes issues at the corporate level or sometimes at the level of key individuals.

What are the key factors to the rising presence of financial sponsors in the Korean market?

Korean financial sponsors are quite capable, in terms of sourcing capital and executing transactions. Most Korean financial sponsors are supported by large limited partners such as the National Pension Service, the largest public pension fund in South Korea. As private equity funds continue growing in Korea, they are pressured to invest capital and make investments. Moreover, the Korean private equity market is relatively mature compared to other Asian countries and the private equity professionals are very capable and intelligent, exerting high level of professionalism in sourcing high quality assets and undertaking extensive due diligence.

The growth of Korean private equity has quite a unique story. In Korea, conglomerates divest certain affiliates every year. However, for various cultural reasons, transaction between corporates in Korea is very rare. For example, if Samsung sells one of its affiliates to LG, it would be considered exactly a kind of betrayal to employees. So, rather than directly selling the affiliate to another corporate, they would likely have an indirect discussion and sell it first to a private equity fund. A few years later under private equity ownership, the fund would then sell the asset to another conglomerate. This is a pretty typical process in Korea, and that is why financial sponsors are very active in acquiring assets, without many challenges divesting to corporates a few years later.

Korean M&A market is expected to face an unprecedented boom in 2021. What are your views for the Korea M&A market in 2021?

The expected booming M&A activities in 2021 will be largely driven by the pent-up in transactions. Many private equity funds had good assets ready to be divested in 2020 but the M&A process was disrupted by Covid-19. These funds are now looking to resume these M&A processes in 2021. We will likely see a number of large assets come to the market in 2021. In the case of corporates, their outbound investments in the US, Japan and European markets have also been put on hold because of Covid. As we were seeing the light at the end of the tunnel by the end of 2020, these activities are also likely to resume during 2021.

As far as my knowledge goes, the market has already begun its process to rejuvenate M&A activities. A number of advisors/bankers are already in the process of developing deals and we can soon expect the market to be flooded with deals.

How have chaebols (large local conglomerates) changed over the last few years and what do you expect going forward?

In my perspective, each chaebol has been focusing on building up their internal taskforce in 2020 looking to identify and resolve potential in-house issues related to liquidity, financial performance, etc. As a result, there were no significant transactions in 2020, other than SK Hynix’s acquisition of Intel’s NAND memory business for US$10bn.

For the past few years, chaebols were not active about overseas M&A. However, they now realize the future depends on their capabilities in AI, semiconductor, data, platform business, etc. As evidenced by Hyundai Motors’ recent investment in a global robotics company in the US, I think that these kinds of investment and acquisition by chaebols will be flourishing going forward.

What are the most attractive sectors in Korea for M&A over the next five years and why?

One of the most attractive sectors in M&A over the next five years will be the industrials sector as it needs to be consolidated or restructured. Large industrials companies in Korea such as Samsung, LG and SK will need to complete some consolidation or restructuring, whether it is acquiring a competitor or exiting this sector soon in preparation for the ESG era. Based on the expected market dynamics as mentioned above, there will be a myriad of acquisition opportunities of legacy business under the consolidation or ESG preparation.

In addition, other attractive sector to look out for is the tech-driven industry which Korean chaebols and conglomerates are focusing on at the moment. Businesses related to AI, data, cloud computing, semiconductor are the ones that the conglomerates not only have strong fundamental on but also heavily investing in as well.

How do you think the role of M&A financial advisory will evolve under such fierce competition?

Over the past decade, I think the top five or six conglomerates in Korea accounted for more than 80% of the fees paid to M&A financial advisors. That is because those conglomerates have sizable revenues and there are many M&A deals being sourced from them. In recent years, the private equity sector has been growing fast, contributing more and more to the financial advisory business across Korea.

Therefore, an advisor needs to focus on these two client types, and be able to deliver what they require. Corporate clients value the advisory firm’s network in both domestic and global markets. Private equity clients tend to look at each individual banker, their capabilities and track record for instance. So, I think M&A financial advisory needs to be built up in these two ways. Any advisory firm that is successful in building extensive local and global networks, and continuing to hire great professionals, will end up in a better position compared to the competition.

Another perspective here is the M&A financial advisory firms need to act like a bridge between corporates and private equity funds. If we build up a private pipeline between the two, we can arrange the one-on-one deal between private fund and corporate.

BDA has an edge in our unparalleled local Korean and global networks, extended experience in sell-side process, and seamless execution by the global team of professional bankers. Going forward, BDA Seoul will keep hiring highly competent people and delivering bigger transactions.

In this light, BDA Seoul is currently in discussion with a U.S. law firm to help Korean corporates elevate their knowledge of rules and practices to be considered when acquiring U.S. publicly-listed companies and will hold a session in March where all M&A staffs from most of major corporates in Korea will be invited. I believe this will greatly improve our reputation in the Korean market and strengthen our relationship with the potential clients.