Asia Access Quarterly: Q1 2021: Asian cross-border M&A activity

Japan

Driven by the increasingly strong and deliberate focus on ESG investments in Japan recently, prompted by a renewed and unified push from the government and industry leaders, we’ve witnessed Japanese trading houses, in particular, accelerate their decarbonisation activities:
- With a shift away from traditional oil & gas businesses, they are deploying arguably sizable capital in clean gas and renewable energies on a global scale – for example, Japan has added a new offshore wind capacity of 4.37GW in 2020 alone[1]. Given this trend, we have experienced a significant increase in inbound enquiries for activity within these renewable sectors
- Sustainable food supply is another ESG-related theme, where plant-based food ventures have been hugely successful in their fund-raising activity - especially in the US, driven by more engaged and health-conscious consumers
Japan has started to pursue more aggressive growth strategies post-Covid leveraging M&A to expand their platforms globally, transform business models and absorb new technologies - as demonstrated by Hitachi’s announcement of the acquisition of GlobalLogic for $9.6bn[2]
- Japanese interest in overseas M&A remains strong, particularly across the ‘pandemic-proof’ Technology & Software, Consumer, Healthcare and Industrials sectors
- As part of this, and in order to create more sustainable business models, we expect Japanese investors to seek higher growth and better profitability overall. In parallel to buy-side deals, we anticipate that they will continue with their disposals of non-core and legacy overseas assets - which saw a significant increase throughout 2020
- US President Biden’s $2 trillion domestic infrastructure package[3] has also caught Japanese attention; with what we anticipate will be several cross-border investment projects to be announced this year as a result of this allocation

Western PEs have continued to grow their presence and activity in Japan, driven by the clear opportunities presented by the consolidation and internationalisation of certain sectors. For example, the fragmented, over-diversified and undifferentiated nature of the Japanese Industrial sector has created various shortcomings in the space (ie structural unprofitability and low stock market valuations)
CASE (Connected, Autonomous, Shared, Electric) is not just an area for US and Chinese players. Toyota Motors, once one of the largest automotive players in the world, has thrown its hat back into the ring - Toyota’s ‘woven city’ vision is a very ambitious city-wide pilot scheme - with reported $4bn+ budget - for testing of relevant technologies in smart city and homes (eg AI, robotics, MaaS & personal mobility, block chain)[4]. We expect to also see the participation of other key Japanese industry players such as NTT in this space
- Whilst this is meant to showcase Japan’s home-grown technologies - given the ubiquity of Japanese electronics and automotive products abroad - we expect to see Japanese brands, such as Hitachi, starting to challenge the dominance of Western technology infrastructure providers such as Siemens and GE, and we believe there will be more M&A in this area to come
The pharmaceutical and cosmetics retail industry has also seen considerable activity, which is expected to continue this year. For example, mass market drugstore operator, Matsumotokiyoshi Holdings and Cocokara Fine have merged to create a $10bn+ giant, declaring their ambition to become a pan-Asian leader through aggressive M&A[5]

Japan outbound deals by target region – Q1 2021:

As seen below, Technology & Software and Industrials continues to account for nearly half of the target outbound acquisition sectors – an increase for Technology & Software but a drop for Industrials compared to Q4 2020[6]. There was a very notable recovery for Consumer, Leisure & Retail - up from 5% last quarter to 17% in Q1 2021[7] - as the space becomes more stabilised, particularly across Asia
Regionally, the biggest gain was in Europe (ex-UK), doubling its proportion from 10% last quarter[8] to 20% in Q1 (see below) - taking shares marginally from the US and the rest of Asia

Graph: Outbound deals by sector [9]

Graph: Outbound deals by region [10]

Key M&A deals table – Q1 2021

Company to watch	Representative transaction	Date announced	Transaction Type	Regions	Sectors & keywords	Value (€m)	Source
Hitachi	GlobalLogic	31/03/2021	Overseas acquisition	Japan / USA	Computer software	8,186	[11]
Itochu	Provence Huiles SA (40% Stake)	30/03/2021	Overseas acquisition	Japan / France	Agri processing, cereals	28	[12]
Takeda Pharmaceutical	Maverick Therapeutics	09/03/2021	Overseas acquisition	Japan / USA	Biotechnology related research	442	[13]
Sojitz	Southwest Rail Industries	05/03/2021	Overseas acquisition	Japan / USA	Rental and leasing	N/A	[14]
Chubu Electric Power and Diamond Transmission	Hornsea 1 offshore electricity transmission link asset	03/03/2021	Overseas acquisition	Japan / UK	Alternative energy	1,362	[15]
Renesas Electronic	Dialog Semiconductor Plc	08/02/2021	Overseas acquisition	Japan / UK	Electrical components	4,546	[16]
TEPCO Renewable Power	TetraSpar Demonstrator ApS (30% Stake)	04/02/2021	Overseas acquisition	Japan / Denmark	Alternative energy	N/A	[17]
SoftBank Group and EchoStar	OneWeb	15/01/2021	Overseas acquisition	Japan / UK	ISPs, Mobile	330	[18]
Precision Granite W	Sale the stake to Physik Instrumente	17/03/2021	Disposal (cross-border)	Japan / Germany	Industrial equipment and machinery	N/A	[19]
Sanden Holdings	Sale the 75% Stake to Hisense Home Appliances Group	01/03/2021	Disposal (cross-border)	Japan / China	Automotive components	846	[20]
Tsukui Holdings	Sale the 74% Stake to MBK Partners	08/02/2021	Disposal to PE	Japan	Health institutions	605	[21]
Shiseido	Sale of personal care products business (65% Stake) to CVC Capital Partners	03/02/2021	Disposal to PE	Japan	Personal care	823	[22]
Showa Denko	Sale of Showa Aluminum Can and Showa Denko Sakai Aluminum to Apollo Global Management	28/01/2021	Disposal to PE	Japan	Aluminium raw material production	396	[23]
Matsumotokiyoshi Holdings	Cocokara Fine (79.98% Stake)	26/02/2021	Public merger	Japan	Chemists, health	1,119	[24]
TOYOTA MOTOR	Isuzu Motors (5.02% Stake)	24/03/2021	Public takeover	Japan	Automotive	6,451	[25]
Mitsubishi	Mitsubishi UFJ Lease & Finance Company (3.97% Stake)	19/03/2021	Public takeover	Japan	Banking, Realestate, Rental, leasing	38,680	[26]
Maeda	Maeda Road Construction (48.71% Stake)	24/02/2021	Public takeover	Japan	Heavy construction	1,156	[27]
Teijin	Japan Tissue Engineering (57.72% Stake)	29/01/2021	Public takeover	Japan	Biotechnology related research	200	[28]

China

China has demonstrated a strong performance in Q1 2021, with an economic growth of18.3% and deal volume growth of 15% YOY[29]. Excluding the pandemic-induced initial decline witnessed in Q1 2020, the performance witnessed in Q1 2021 equates to a c.10% growth over Q1 2019’s GDP[30]. This growth was driven by strong Industrials activity, given its pandemic-proof nature - 24.5% over the same period of last year[31]
China’s exports have also grown by 14.1%[32], which indicates a significant proportion of the industrial output was consumed domestically, given the Covid-19 restrictions in place. The Q1 result has also been driven by household growth - a 34.2% increase in retail sales[33] for March 2021 is expected to continue driving activity moving forward
Despite the political challenges between the US and China, we’ve witnessed an uptick in global investor interest as Chinese PEs aim to deliver a record year of fund raising. Last year, fund raising by the same community was 64% lower than the peak of 2017 (although PE-backed investment in China was a record $185m in 2020[34])
So far in 2021, a number of large Chinese funds have already built significant momentum (eg Primavera is raising a new fund of up to $5bn; FountainVest Partners $3.5bn; Boyu is aiming at $6bn; Baring PE Asia $8.5bn; and Hillhouse is targeting the Asia’s largest US dollar fund of $13bn) [35]. This is not just a result of Chinese funds building up their war chests, but also of global investors increasing their activities across Asia too[36] - for example, KKR announced that its fourth Asia-pac fund has raised $15bn, bigger than original target of $12.5bn[37]
Driven by its strong post-pandemic recovery pattern, China got off to a robust opening quarter this year. Outbound deal volume from China in Q1 recorded 52 - an increase of 15% over the same quarter in 2020 and a rise of 16% over the whole last year[38]
As demonstrated below, Industrials deal volumes continue to drive outbound M&A activity, with semiconductors, automation and electronics being the hottest subsectors. Healthcare, Technology & Software, and logistics deals have also been active due to the boom in wellbeing and ecommerce during the pandemic
Notable transactions in Q1 2021 include the acquisition of Philips Domestic appliance by Hillhouse Capital[39]; the purchase of Oxford Genetics by Wuxi App Tec[40] and the acquisition of MagnaChip Semiconductor, a NYSE-listed South Korean semiconductor company by Wise Road Capital[41]

China outbound deals by target region – Q1 2021:

As demonstrated below, mainland Europe and the UK accounted for nearly half of outbound transactions, compared to 34% in the preceding year[42]. Despite the restrictions on travel and group gatherings, we’ve seen both buyers and sellers adopt virtual conferences and site tours to continue the investment process. Hillhouse’s acquisition of Philips Domestic Appliances (c.€4b) has contributed significant part of such growth[43]
Intra-Asia deals decreased slightly with the proportion dropping from 31% in Q4 2020[44] to 23% in this quarter, due to increase in other regions, especially Europe (see below)
The outbound deals between China and the US declined broadly, exacerbated, in our view, by strained relations between Washington and Beijing as well as Covid-19 travel restrictions

Graph: Outbound deals by sector [45]

Graph: Outbound deals by region [46]

Key M&A transactions – Q1 2021

Company to watch	Representative transaction	Date announced	Transaction type	Regions	Sectors& keywords	Value (€m)	Source
Wise Road Capital	MagnaChip Semiconductor Corporation	26/03/2021	Public-to-Private	China / South Korea	Semiconductors	970	[47]
Hillhouse Capital Management	Domestic appliances business of Koninklijke Philips	25/03/2021	Disposal to PE	China / Netherland	Appliances	3,700	[48]
WuXi AppTec	Oxford Genetics	01/03/2021	Overseas acquisition	China / the UK	Biotechnology	112	[49]
WuXi AppTec	Bristol-Myers Squibb Company (manufacturing facility in Couvet)	02/02/2021	Overseas acquisition	China / Switzerland	Pharmaceuticals	N/A	[50]
Hisense Home Appliances Group	Sanden Holdings Corporation	01/03/2021	Overseas acquisition	China / Japan	Automotive	846	[51]
Pharmaron Beijing	Allergan Biologics Limited	28/02/2021	Overseas acquisition	China / the UK	Biotechnology	98	[52]
China Three Gorges Corporation	400 MW of operating renewables in Spain	22/02/2021	Overseas acquisition	China / Spain	Renewable energy	400	[53]
Huadong Medicine	High Technology Products	17/02/2021	Overseas acquisition	China / Spain	Medical devices	65	[54]
JOMOO Kitchen & Bath	Tetard Haudiquez Grisoni	11/02/2021	Overseas acquisition	China / France	Furniture	N/A	[55]

Rest of Asia

Southeast Asia

M&A activity in Southeast Asia has been affected by the pandemic, but has shown signs of recovery in Q1 2021 as local governments began to roll out mass vaccination programs. Albeit in smaller deal volumes compared to the same period last year, European and US investors have also continued to make investments in this region - Southeast Asia reported deal value of $24.5 bn across 111 deals in Q1 2021, comprising $15 bn across 76 inbound / domestic deals and $9.5 bn across 35 outbound deals^[56]
The pace of recovery for deal making, however, could be hampered as new Covid-19 variants surface and border restrictions remain stringent as a result
A notable transaction in the first quarter was CLA Real Estate Holding’s $7.7 bn acquisition of the remaining 48.24% stake, not already own in CapitaLand Limited[57], a Singapore-based and listed real estate group engaged in property, hospitality, property services and real estate financial services, as part of a restructuring exercise undertaken by the real estate major, to sharpen its business focus and unlock shareholder value
Another notable transaction was the $1.8 bn fundraise completed by J&T Express, an Indonesian-headquartered express delivery company, which saw participation from a consortium of investors including, Chinese PE giants, Hillhouse Capital and Boyu Capital, as well as Sequoia Capital China[58]

Thailand

Following a wave of optimism at the beginning of 2021 – a result of the reduced spread of Covid-19 – we expected to see increased consumption, mobility and ultimately, an economic recovery – positively impacting the Thai M&A landscape
However, the recent resurgence of local cases (particularly in economically important cities), coupled with the slow vaccination program, has caused the 2021E GDP growth forecast to be revised down from 2.7% to 2.2%[59] - the impact of this outbreak on the economy is now largely dependent on the policy response and the duration of the outbreak
Despite the fact that the Thai M&A landscape witnessed a 43.9% declined in deal value compared to Q4 2020[60] amidst volatile market conditions, foreign investors have been active in pursuing deals in Thailand
Foreign direct investors operating there are confident in the country’s potential and are creating plans to expand or at least maintain their investment, according to the BOI’s annual Foreign Investor Confidence Survey. Many foreign investors are even willing to accept quarantine measures in order to finalize due diligence and execute transactions[61]
Given overall market sentiment, we still expect to see steady flow of deals in the coming months, especially across Healthcare, Business & Tech-Enabled Services, and Technology & Software
- Healthcare: We saw a pandemic-induced drop in share prices during 2020, resulting in an uptick in investor interest for hospital shares at lower multiple prices (eg sale of Bamrungrad Hospital (BH) by BDMS[62])
- Technology: We anticipate demand for companies in areas such as, payment gateway, online gaming and logistics, to grow not only during but also post-pandemic

Southeast Asia outbound deals by target region – Q1 2021:

As demonstrated below, the largest outbound investment destination by volume in Q1 2021 was Asia, with 17 deals, accounting for 49% of all outbound deals. [63] The majority of these transactions relate to targets in China and India. Within the active sectors of Technology & Software and Industrials, transactions which relate to targets in the computer software, internet, semiconductors and electronics subsectors feature more prominently

Graph: Outbound deals by sector [64]

Graph: Outbound deals by region [65]

Key M&A transactions – Q1 2021

Company to watch	Representative transaction	Date announced	Transaction type	Regions	Sectors& keywords	Value (USDm)	Source
CLA Real Estate Holdings Pte Ltd	CapitaLand Limited (48.24% stake)	22/03/2021	Domestic acquisition	Singapore	Real estate	7,675	[66]
Amazing Parade Sdn Bhd	Eastern & Oriental Berhad (68.18% stake)	26/03/2021	Domestic acquisition	Malaysia	Real Estate	356	[67]
Sequoia Capital, Hillhouse Capital, Boyu Capital, CMB International Capital Corporation, ATM Capital	J&T Express (undisclosed stake)	28/02/2021	Overseas acquisition	China/Indonesia	Logistics	1,800	[68]
GIC Private Limited	AC Energy Philippines (17.5% Stake)	04/01/2021	Overseas acquisition	Singapore/Philippines	Energy	416	[69]
Wattana Somwattana, Sornsak Somwattana	Nirvana Daii Public Company Limited (84.4% Stake)	06/01/2021	Domestic acquisition	Thailand	Construction	286	[70]
Warburg Pincus, Macquarie Capital, Tybourne Capital, Goodwater Capital, Affirma Capital, Kora Management	MoMo	13/01/2021	Overseas acquisition	Multiple/Vietnam	Technology & Software	100	[71]

South Korea

Due to the impact of Covid-19 on overseas buyers, inbound acquisitions of Korean assets by foreign investors have been relatively inactive in Q1 2021. However, one notable inbound M&A transaction is Match Group’s 100% stake acquisition in Hyperconnect, a Korean social media firm, for €1.4bn[72]
Many private equity funds had, in our view, strong assets ready to be divested in 2020 but the M&A process was disrupted by the pandemic. These PEs are now expected to resume these M&A processes in 2021, with some notable M&A pipelines include Hahn & Company’s sale of 50.5% stake in Hanon Systems, a Korean automotive supplier, which is expected to value more than €5bn[73]; and MBK Partners’ sale of 100% stake in Doosan Machine Tools, a Korean high precision machines manufacturer, which is expected to value around €2bn[74]

South Korea outbound deals by target region – Q1 2021:

As seen below, the sector that led outbound deals in Korea in Q1 2021 was Healthcare, with four deals, accounting for 58% of all outbound deals. The Healthcare sector has attracted attention as a new ‘growth engine’ for both strategic investors and financial investors alike, and thus we expect to more outbound activities for the space. One of the notable outbound M&A transactions in the healthcare sector was MBK Partners’ 74.4% stake acquisition in Tsukui Holdings, a Japanese nursing care provider, for €605mn[75]
The largest outbound investment destination in Q1 2021 was the US, with five deals worth €1.3bn, accounting for 57% of all outbound deals. The US’ attractiveness as an investment destination is increasing based on its high economic growth rate and favourable business conditions, such as a low corporate tax rate

Graph: Outbound deals by sector[76]

Graph: Outbound deals by region [77]

Key M&A transactions – Q1 2021

Company to watch	Representative transaction	Date announced	Transaction type	Regions	Sectors& keywords	Value (€m)	Source
SK Holdings	Yposkesi (70% stake)	21/03/2021	Overseas acquisition	South Korea / France	Healthcare	n/a	[78]
MBK Partners	Tsukui Holdings (74.42%)	08/02/2021	Overseas acquisition	South Korea / Japan	Healthcare	605	[79]
Ewon Comfortech	Metavagen (49% stake)	08/02/2021	Overseas acquisition	South Korea / USA	Healthcare	14	[80]
Midad AI	Melrose Facility Management (51% stake)	20/01/2021	Overseas acquisition	South Korea / USA	Consumer, Leisure & Retail	8	[81]
SK Holdings	Plug Power (10.18% stake)	09/02/2021	Overseas acquisition	South Korea / USA	Energy	1,223	[82]
LG Electronics	Alphonso	07/01/2021	Overseas acquisition	South Korea / USA	Technology & Software	65	[83]
Yonsung Fine Chemicals	Arevipharma	01/01/2021	Overseas acquisition	South Korea / Germany	Healthcare	n/a	[84]

India

India is expected to continue its modest growth in GDP for the Q1 2021; this would be the second consecutive quarter of growth after two quarters of GDP decline
Although the second wave of Covid-19 has started impacted India severely since mid-March, corporate India has demonstrated resilience by reporting growth and better profitability led by sectors such as IT services and Financial Services
Capital markets buoyed by high liquidity from foreign and domestic capital witnessed a record number of IPOs[85] in domestic consumption oriented sectors, such as consumer brands and Financial Services
Capital markets in India are now preparing for large tech listings such as Zomato[86] (food delivery), Flipkart[87] (ECOM), Policybazaar[88] (fintech)
We saw the private market in this quarter saw more deals in the Healthcare and EdTech sectors, with new unicorns created in EdTech and FinTech due to disruption of traditional sectors
The Industrials sector has also seen mixed results - with the packaging and speciality chemicals segments picking up deal momentum while the automotive, building products and heavy engineering markets suffered through the pandemic
Outbound deals from India in this quarter has been largely driven by IT Services companies which are acquiring companies in US/Europe for product capabilities in cloud services, big data and more