Many wondered whether the co-head structure that Salomon adopted for its Asian M&A department would last, or whether it was a transitional structure. Turns out it's the latter. Gordon Paterson, who recently joined from CSFB, becomes the new head; and former head, Steve Schiller will return to New York to jointly head the Corporate Sale and Divestiture Group. Here they both talk about how they see the M&A scene.
Is this the worst six months in M&A you can remember since the Asian financial crisis?
Schiller: No, it's not, at least in Asia. Then again, it probably is globally. Our volumes globally are as bad as they have been for many years. I haven't seen this much gloom in the industry since the early 90s. But from an Asia-Pacific perspective, the view is different. We feel that - for us - it is better and more robust than it has been for quite a while. When I first came out in 1998, I felt as if the market was worse then than it is now.
I believe that the transaction volume is actually healthier now than it was at that time. Look at some of the very healthy corporate restructuring that have been going on up in Korea, such as the demergers of LG Chemicals and LG Electronics.
Paterson: Business is down in Asia, but it's not nearly as down as the global business. Globally the M&A business is down two-thirds from 2000. We don't see that in non-Japan Asia. We are maybe down 50%, but then again that 2000 number includes PCCW and China Mobile. If you take those out, then the business is roughly down 25%. There are a number of themes driving this difference. FIG is clearly more active in Asia than it is globally. What we call the æIndustrials sector' may be behind the curve, but I think you'll see significant changes in that respect over the next 6-12 months, given the pipeline of deals I am aware of.
I don't think I've ever spoken to an M&A banker in Asia who isn't optimistic. It must be genetic.
Paterson: Probably.
Or delusional?
Paterson: I don't think so. Business is down from the peak, and this year, the first six months is weak when it comes to closed deals. But when I look at the quality of business we have in the pipeline and how diversified it is, I am actually relatively upbeat about the next six months. If I was in the US, I wouldn't be saying the same thing.
Is the following statement true: "We're doing deals, we're working hard, but the transactions keep falling apart because of different price expectations between the buyer and seller."
Schiller: Our competitors may feel that way. We're actually seeing a significant number of things head in the right direction. There's always been price-gaps in Asia, but I believe we're seeing more constructive behaviour than we've seen in a while.
On the buyers' side of the equation - thanks to Enron etc - is it the case that CEOs are reluctant to make M&A decisions, even in Asia?
Schiller: You are also going to see some holding back. There is a greater degree of scepticism. That's healthy and that's cyclical. That's not about price gaps. You see it more in other parts of the world than in Asia.
Are we seeing less of it in Asia, because deals are done less with stock and more with cash?
Schiller: That's part of it, but also because we're seeing a number of transactions being driven forward by the fundamentals of global consolidation. It's also helped by the fact that Asia is having a rebound, and the US consumer is continuing to spend. There is a part of me that believes there is more optimism in Korea, Taipei and China than there is in North America or Europe.
So you think the second half of the year could prove better for announced and closed deals?
Schiller: It will continue to move along in a nice way. We believe our second half will be somewhat better than our first. Not by leaps and bounds, but we are seeing a nice healthy flow of new business from almost every country. Indeed, that's the other interesting part of this. It's not just based in one country. It's a nice broad movement forward in almost every country. We're active in Thailand, in the Philippines and a number of markets where there has traditionally been a smaller volume.
Which sectors are you most active in?
Paterson: Steve's right, the business is broader. We break sectors out into tech, telecoms, industrials and FIG. What is interesting to me is that it's getting more balanced. FIG has improved dramatically. We've also seen significant momentum in industrials, which in the boom years of 1998-2000 wasn't necessarily there. We're still very strong in tech and telecoms but that is obviously down since the boom years.
In Taiwan, all four of our sectors are active. I don't think that has ever happened before. It's active in terms of FIG consolidation; it's active in technology because you've had some reorganizations; and we're seeing activity in industrials and telecommunications.
Will any of these FIG deals close?
Paterson: Given the strong consolidation trend in Taiwan, I would be shocked if there weren't at least two FIG transactions in Taiwan this year.
How likely are you to close a Korean bank M&A transaction this year?
Paterson: I would say I am very optimistic that we will do at least one. We're working on several opportunities.
How much down will M&A volume be this year versus last?
Schiller: In Asia, I am guessing somewhere around the 30-40% level.
Will we see more China M&A?
Schiller: We are seeing a very healthy surge in Chinese-related activity. Big Chinese corporates are becoming more interested in strategic, or outbound M&A. One of the things I have read is that China Netcom is looking at Asia Global Crossing û that's extraordinary, and something you would not have guessed in the past. So China's becoming more of an interesting marketplace û even versus six months ago.
There were trend transactions such as PCCW (in 2000) and the Singapore banks (2001). Will there be a trend transaction in 2002?
Schiller: I don't know of a deal that defines the year - maybe I am missing it, or we're not involved. I do think that we will see a much broader base of M&A than you've seen in the past. You won't have a league table driven by one transaction, and that can only be good for the marketplace.
