Asia outperforms Europe with rise in deal value, but fortunes vary across region. Elizabeth Broomhall reports

Given the investment that international law firms have poured into Asia, there will be no shortage of partners reading the latest deal statistics to gauge the impact that the cooling of the region's major economies has had on bid activity.

The good news is while M&A activity is not thriving, in global terms Asia is faring better than most.

Mergermarket's stats for Asia show that the region was one of the few global markets to see a quarterly rise in deal value in Q3, with the Asia-Pacific region (excluding Japan) seeing a 16.6% rise in deal value to hit $89.5bn (£55.4bn).

This contrasted with sharp falls in European M&A as nervousness in boardrooms continued to put many acquisitions on hold.

Over the more representative first three quarters of 2012, Asia-Pacific deals totalled $246.3bn (£153bn), down 13.2% on the same period in 2011. The most active sectors in the region were TMT; industrials and chemicals; and energy, mining and utilities.

Good resilience

In context, it is clear that corporate markets, while being affected by the uncertain global economy, have held up much better than the volatile initial public offering (IPO) market in Asia, which has seen plunging activity levels this year, particularly in Hong Kong.

"The M&A and private equity sectors haven't been as quiet as capital markets since they are driven by different factors," says Nick Seddon, Eversheds' Asia managing partner.

"Our experience is that there is still a reasonable amount of M&A work going on, with activity being driven by a combination of value and risk."

Jeremy Hunt, a Hong Kong-based corporate partner from Morrison & Foerster, who was recently hired from Allen & Overy, agrees with Seddon that M&A is holding up solidly in comparison to the current slump in the typically volatile IPO sector.

He comments: "Looking at volume, though the number of transactions is down slightly on last year, the M&A sector is certainly looking better than the capital markets arena at the moment.

"The figures also reflect the development of Asian countries – typically, as a market matures, M&A activity increases. The long-term view is that this will continue as the region's economies grow."

Also interesting is the kind of deals that have taken place in 2012. One transaction saw China's largest e-commerce company, Alibaba Group, restructure its business engagements with Yahoo! for $7.6bn (£4.7bn), while another involved Hong Kong-based City Telecom relinquishing its 100% stake in Hong Kong Broadband to private equity house CVC.

"There have been some very interesting M&A deals announced or completed this year," says Michael Liu (pictured), managing partner at Latham & Watkins' Hong Kong arm.

"Many of the deals [in Asia] are resourced-focused, but current market conditions are also encouraging some [Chinese] property developers to recycle capital."

That said, Mergermarket's research illustrates the sharply contrasting fortunes for dealmakers across the wider region.

While South Korea and Australia have attracted substantial interest from legal advisers in recent years, deal activity was down in both markets, respectively falling annually by 47% and 43.9% in terms of deal values over Q1-Q3.

In contrast, Indonesia reported a total M&A deal value of $12.3bn (£7.6bn) for the first three quarters of 2012, a 185.3% increase on last year's results. Advisers put this down to the country's fast-growing economy and a current wave of energy-related investments.

Singapore was another stand-out market, with total bids of $24.6bn (£15.3bn) over the first nine months of 2012, a rise of 152% on the same period in 2011. China also saw a 9% increase in the value of deals on the same period in 2011, with bids totalling $91bn (£56.5bn).

Medium-term concerns

But even if the results are solid in the context of the global economy, views vary on the medium-term prospects for M&A in the region.

Certainly, many firms are apprehensive about the prospects for deal work in Asia, with Hunt believing that the full effect of the downturn in the public markets this summer remains to be seen.

Likewise, Eversheds' Seddon says that, given the turbulent market conditions, it is likely that advisers will increase their focus on the wider corporate market while equity capital markets work remains slow.

Liu concludes: "There are many more transactions still in discussion/negotiation stage, which are not progressing particularly quickly.

"Many people in China and Hong Kong are adopting a wait-and-see attitude pending the outcome of China's leadership transition taking place in November, and the overall negative sentiment around the world has not helped with deal activity either.

"Given the depressed levels at which many US-listed Chinese companies are trading, we also expect to see more 'going private' transactions involving them."

Turning to individual rankings, there was cause for cheers for Freshfields Bruckhaus Deringer, which was the top-ranked firm on Asia-Pacific bids after advising on 16 deals with a combined value of $29.2bn (£18.1bn).

There was also good news for King & Wood Mallesons, which acted on the highest numbers of Asia-related bids: 57 deals with a combined value of $21.3bn (£13.2bn).

But in a more subdued market, the question is whether there will be enough to go around for everyone.

Top Asia-Pacific advisers Q1-Q3 2012 – by volume

Firm / Value ($bn) / Deal count
King & Wood