Apr 22 2008
when the u.s. economy tanks, “go west young man”
There were a pair of articles last week at the Financial Times that talked about how companies are investing in the Asian M&A market while the western markets (American and European) aren’t do so well. The West’s pain will ultimately be China’s gain it seems.
The first article is entitled, “Asia’s M&A market shows its mettle” and it reads:
The mergers and acquisition market in Asia is holding up better than in Europe and North America, underlining easier access to funds in the region and the global expansion drive by Chinese and Indian companies, according to bankers.
Since the start of January, M&A transactions in Asia-Pacific have amounted to $236.5bn, a fall of 5.8 per cent from a year earlier, according to data from Dealogic. By comparison, the M&A declines in Europe and North America are respectively 31.8 per cent and 37 per cent.
Chinese and other Asian investors are injecting capital into Western financial services companies that have been hit by the collapse of the US subprime market.
Of course, this should come as no surprise to people who know that the Asian market is still growing… at least, it is in China, where “ slow growth” is the catch phrase.
The other article from FT ( h/t to China Digital Times) is an example of one such company, GE, which got hammered on its earnings due to the faltering U.S. economy. GE is investing 2 billion dollars into Chinese markets, with the hopes of increasing its revenues to $10B by the year 2010. Talk about aggressive:
General Electric plans to invest up to $2bn in acquisitions and other deals in China over the next three years as part of a strategy to double its revenues in the country.
The world’s biggest industrial company, which stunned investors last week when it announced its worst quarter of financial results in five years, is looking to hire a team of 20 “in-house investment bankers” to conduct the deals in China.
The aggressive investment plans, which will include acquisitions and joint ventures, underline GE’s intention to expand its China business rapidly at a time when its domestic operations face a slowing US economy.
GE plans to increase its 2007 revenues in China of $4.4bn to $10bn by 2010, which would require the company to expand more than twice as fast as the economy’s double-digit rate of growth.
“The wider problems in the credit market and the signs of a slowing in the overall global economy have not entered the picture [in China],” said Mr Bertamini.
The comments come just days after GE slashed its full-year earnings forecast because of the effect of the credit crunch.
China Venture News was optimistic about GE’s future in China:
With GE’s good record on clean technology and Beijing’s new emphasis on environmental issues, the company may be able to find its way into some sweet deals in the coming years
While I am not able to really comment on GE’s ability to succeed or fail in its aggressive stance in China, the China M&A market remains as one of the few places for western companies and venture capital/private equity to invest. It makes sense: the western economy isn’t doing well, shift the money to where the economy is doing much better. I don’t think it takes a rocket scientist to figure this out.
I have been hearing that the M&A work at law firms is slowing down. It doesn’t have to be. There are plenty of firms still quite busy because they are doing American or European cross-border M&A into China and other Asian countries. If you aren’t prepared to do Chinese M&A work, then it really is time to learn. There are plenty of resources out there, which can give you a very basic understanding of the law, and numerous conferences. You owe it to yourself to get educated.
This call to go west isn’t just for businesses looking for opportunities: it is siren call for lawyers as well.
