Citigroup focuses on Asian cross-border M&A http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyID=2007-01-25T123959Z_01_HKG58490_RTRUKOC_0_US-CITIGROUP-ASIA-MA.xml&src=012507_0743_INVESTING_comment_n_analysis
Thu Jan 25, 2007
By Brian Kelleher, Asia financial services correspondent
HONG KONG (Reuters) - Citigroup (C.N: Quote, Profile , Research), Asia's fourth-biggest M&A adviser last year, is counting on cross-border deals to drive its business as national champions in China and India look abroad and private equity firms stalk the region.
Chief executives are increasingly looking beyond their borders to find growth, driving activity to record levels, and the trend is set to continue, Gordon Paterson, the bank's Asia Pacific head of M&A, said in an interview. "Companies are much stronger here than they were before," he told Reuters in an office with a sweeping view of Hong Kong's increasingly smoggy skyline. "They have been through consolidation, are well-capitalized, have better management teams and access to capital is at an all-time high."
Merger activity in Asia Pacific, excluding Japan, rose 61 percent to a record $402 billion last year, according to market data firm Dealogic, which said Citigroup finished fourth in the rankings by handling $68.7 billion worth of deals.
"I'm really looking at that top basket of activity, where you see the cross-border deals. Those tend to be the larger deals in the region," Paterson said, noting that Citigroup's average Asian M&A deal size doubled to $1 billion in 2006.
"I like to focus on deals above $1 billion," he said. "I spend most of my time on cross-border deals, which is where our strengths lie."
Citigroup's top deals in 2006 were working on the $12 billion bid by Mexico's Cemex (CMXCPO.MX: Quote, Profile , Research) for Australia's Rinker Group (RIN.AX: Quote, Profile , Research) and Kumho Asiana's $7 billion takeover of Daewoo Engineering & Construction Co. (047040.KS: Quote, Profile , Research) in South Korea.
For the new year, Paterson views Chinese financial institutions, telecom companies and energy companies as those well-positioned to take the next step with overseas acquisitions.
OVERSEAS MARKETS
"That has to happen when you become very strong in your home market and you are well-capitalized," he said, noting this trend has already developed with oil companies, while metal and mining companies are due for the same type of expansion once they finish a round of consolidation.
Indian outbound transactions will tend to come from the pharmaceutical industry, where companies are looking to buy access to new products and distribution in markets such as Europe and the United States, he said.
India has also become a popular hunting ground for private equity firms (or financial sponsors), which raised more than $30 billion in Asia last year, including Japan, according to the Asian Venture Capital Journal.
"In India, sponsors will evolve. You're going to start to see a wave of cross-border activity. That's going to provide an opportunity for a financial sponsor to play a role in assisting that activity," Paterson said. Kohlberg Kravis & Roberts (KKR.UL: Quote, Profile , Research) paid $900 million for the software arm of Flextronics International Ltd. (FLEX.O: Quote, Profile , Research) last year in India's biggest leveraged buyout, which Citigroup advised on.
The bank was also active in Taiwan, which has become increasingly popular as buyout shops have been able to invest in cable companies and financial institutions.
"In Taiwan, there is a significant opportunity given the larger number of publicly held companies with strong growth potential," Paterson said. Buyout firms spent more than $45 billion on Asian deals last year and their emergence as well as the activity of strong regional companies should make for another big M&A year in 2007.
"I'm very bullish about this year, next year and the year after," Paterson said. "The trends are very clear. It's just a question of how fast they move."
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