Across the Asia-Pacific region, M&A activity increased by 56.53% over 2003 volumes. Lawyers benefited from the dealmaking, with firms consulted on 1066 transactions over the year for all deals in the region, representing a total business of US$157.43bn. ALB spoke with the lawyers who were in the thick of the dealmaking.

China and Hong Kong

• China GDP growth (year on year): 9.2%.
• Hong Kong GDP growth: 7.6%.
• Outlook: For increased deal activity as more Chinese state-owned enterprises are consolidated and as private equity exits increase.

For the calendar year 2004, companies based on Mainland China were the target of 2141 deals, valued at US$24.54bn. Meanwhile, Hong Kong companies were the subject of 724 deals, valued at US$13.59bn. Behind Australia, the Mainland China and Hong Kong markets were the most in demand in the Asia-Pacific region (excluding Japan), according to Thomson Financial.

Jack Lange, partner, Paul, Weiss, Rifkind, Wharton & Garrison, sums up China's appeal: "It's not just cost. That's the impression that most have, and in many ways it's the wrong impression. In a lot of cases, it's higher quality. The Western companies are losing their edge. The Chinese companies are developing manufacturing and technical expertise - they are better and cheaper. Western manufacturers have to change. They have to adapt. One way to do that is to buy. Another is to sell. You need to do something to deal with it."

On the buy side of two of the largest deals from last year was Robert Ashworth, partner at Freshfields. He acted for HSBC on its acquisition of a 20% stake in BoCom, and on Anheuser-Busch's takeover of Harbin Breweries.

Both deals also point to the growing privatisation of state-owned enterprises. In the case of Harbin, Global Conduit Holding Limited, a group of financial investors, agreed to acquire a separate 29% stake in the brewery from the city government of Harbin. They then sold their stake to a foreign party. This set the stage for the first hostile takeover battle between foreign companies for control of a publicly listed PRC company. Paul,Weiss acted for Global Conduit.

Freshfields represented the acquiror, Anheuser-Busch. Ashworth regards the Harbin takeover as the most high profile 2004 deal for him, over and above HSBC's acquisition of a stake in BoCom. "Anhesuer Busch was more of a high-wire act. It was the first time that we had two corporations fighting over the spoils of a China company. SAB [the other bidder] had a stake in Harbin already. Anheuser-Busch came up on the blind side. It was great, tactically."

Since Harbin, Freshfields has fielded a flood of enquiries on how to conduct a takeover of a Chinese company - not just a red chip (a Chinese company listed outside of the PRC) but also H share companies (listed on the HK exchange). Says Ashworth: "A lot of Chinese companies are listed in Hong Kong, New York and Singapore. These are massive Chinese companies. At one stage people thought they were impregnable."

On the target side, Ashworth says that the firm has received two enquiries about how to defend takeovers. "In Hong Kong, it's difficult to erect an anti-takeover defence. You can't adopt the US-style poison pill. But we've had enquiries in relation to companies listed in the US on how to erect a protective wall...but it's too early to say that this is a trend."

Also adding to the M&A momentum in China is the outbound activity of Chinese companies. TCL is a classic example of a cashed-up company looking for assets abroad. The client of Paul, Weiss completed two major deals last year. In January, TLC signed a combination agreement with Thomson SA of France, merging their respective global television businesses under a joint venture company. The new company will focus on the worldwide development, manufacturing and distribution of television sets and related products and services. The equity in the joint venture company will be 67% owned by TCL International and 33% by Thomson. Illustrating the significance of the deal, the agreement was signed in the presence of the French Prime Minister and President Hu Jintao of China during his state visit to France.

Then, in August, the mobile arm of TLC acquired Alcatel's mobile handset research and development, manufacture and distribution business. Similar to the deal with Thompson, TLC has the controlling stake in the resulting JV - it is 55% owned by TCL Communications Technology Holdings Ltd and 45% by Alcatel.

For firms that want to be a serious player in outbound activity, having a global network is a necessity. Lovells advised China Minmetals on its recent acquisition in Jamaica via a Delaware holding company and for the deal the firm flew support from Singapore into its Beijing office to do the due diligence on the ground, and also relied on its New York team for US advice.

Beijing partner Robert Lewis comments: "There are a few things to be aware of when you're pulling teams together like that from four or five offices. It's imperative that the Chinese team are up to speed on how to do international deals - for that reason for outbound work we hire dual-qualified lawyers who have had significant offshore practice and experience."

Lewis also notes that a desire for control of natural resources has driven a lot of outbound work. "There is a sense of insecurity in China about growth because they are so dependent on natural resources and they rely on outside suppliers and so they want control of those companies." But although outbound China work hogs a lot of the headlines, for firms on the ground in China the future is about going beyond traditional lines of work.

Lewis says: "One of the trends you will see is that there will be more resources from other practice areas into China. We already have a leadership in IP in China and some of that is moving up from Hong Kong - it's not that Hong Kong is being depleted, but it's one of the likeliest sources of professionals."

While according to Paul, Weiss, the flavour of the year might well be private equity.

Jack Lange acted on a number of PE deals last year. Paul, Weiss represented Morgan Stanley Managed Private Equity Funds in connection with the corporate restructuring of China Mengniu Dairy Holding Company. Mengniu is the indirect parent of Inner Mongolia Mengniu Milk Industry, the largest milk producer by volume in China. The company was structured to make it a public company. Lange regards it as a model PE transaction, one that went the full investment cycle - a restructure, then listing.

Says Lange: "The real success stories for China private equity have been relatively few over the years. It's a new phase in China private equity." He puts China Netcom's listing in New York and Hong Kong in the same category. "A significant thing in the past year is that in private equity, for the first time, there's a pattern of successful transactions. There wasn't a pattern before. It was hit-and-miss, mostly a miss pattern, because of the lack of experience on both sides and the maturation in the concept and execution that was lacking in the early stages. People were blinded by the potential of China in general. Neither private equity investors nor companies had the sophistication to make the deals work."

Another emerging trend is the growing number of deals involving media companies. The media sector might be the hardest for investors to crack into in China, but there are positive signs. Paul, Weiss finished off 2005 with the representation of MIH in connection with its strategic investment in Beijing Media Corporation Limited (BMC), the first PRC stateowned media company to list overseas. Jeanette Chan, partner at Paul, Weiss, says that the deal is significant because it was the first print media company that the Chinese government has allowed to do an overseas listing.

Singapore

• GDP growth: 8.6%.
• Outlook: Temasek entities will continue to stimulate mergers and acquisitions activity. Potentially less deals in IT because of drop in global demand.

Singapore's economic recovery is in full swing. Its outbound companies are leading the way. The largest deal for 2004 in relation to a Singaporean entity came in April, with the US$3.72bn acquisition of TXU Australia by Singapore Power.

In March this year, Singapore's determination to be known as the exchange for bioscience companies paid off with the landmark S$286m IPO of medical devices company Laryngeal Mask Airways (LMA). The company is an international leader in LMA products used for surgical procedures. According to Finance Asia, in previous years LMA would have gone to Nasdaq. The majority of its sales are from the US. LMA could well set a trend for further biosciences listings this year. One that is on the cards is that of heart stent manufacturer Biosensor International.

Singapore now has an edge over Hong Kong with bioscience company listings. Ashworth considers that Singapore has established a niche in biosciences, while Hong Kong's attempt to compete with Nasdaq has not gone as well. Says Ashworth: "Hong Kong launched a second tier exchange - GEMS, the Growth Enterprise Market - which is supposed to be the Asian equivalent of Nasdaq, but unfortunately it happened when the tech bubble burst."

Allen & Gledhill was the strongest performer on the league tables among the Singaporean firms, advising on 35 announced deals valued at US$6.97bn and 34 completed deals with a value of US$6.74bn.

Australia and New Zealand

• Australia GDP growth: 3.5%.
• New Zealand GDP growth: 4.6%.
• Outlook: The quarter of a percentage interest rate rise will further cool the property sector. The focus is on cashed-up private equity funds.

Lawyer participation in mergers and acquisitions nearly doubled during the calendar year 2004 in Australia and New Zealand. In 2003, lawyers were involved in 379 deals with a total value of US$58.97bn. Legal advice was sought on 647 transactions in 2004, totalling US$114.64bn.

Freehills dominated both the tables based on 'deals announced' and on 'deals completed'. The firm recorded 228 announced deals with an accumulated rank value of US$74.77bn. From fourth in the rankings in 2003, the firm surged to the top spot in 2004, relegating the number one firm for 2003, Allens Arthur Robinson, to number two. Mallesons rounded out the top three with the second-highest number of announced deals: 100 deals, amounting to US$55.15bn. Bell Gully was the only New Zealand firm to rank within the top 15 firms.

Freehills acted on many of the landmark deals in 2004, including the sale of Loy Yang Power, Tabcorp's bid for TAB, the Deutsche Bank property trusts merger, Prime Infrastructure Group's acquisition of Powerco, Burns Philp's disposal of its herbs and spice business to Associated British Foods, Macquarie Office Trust's purchase of Principal America Office Trust and Prime Retail Group's merger with Centro Properties Group.

It comes as no surprise that the firm is keeping its focus on a domestic level. Braddon Jolley, partner at Freehills, says: "Freehills' main focus is on growth in selected local markets, and providing superior service to our locally-based clients."

With the Australian economy continuing to perform strongly, firms have been hard-pressed to carpetbag overseas. Significantly, the largest deal for 2004 in the Asia-Pacific region was Australian - the union between the three former listed Westfield entities was the largest announced transaction for 2004, amounting to a total of just over US$20bn.

Ashworth's observation from Hong Kong zeroes in on the different approaches of Australian firms in Asia: "How are Australian firms doing in Asia, ex-Asia deals? They are making some inroads. Mallesons in particular, especially with its JV with a local HK firm, is starting to appear on more deals. Other firms are less evident."

What are the trends for 2005? The rise in interest rates will affect deals that are cash funded as well as those involving property trusts. For those using stock as consideration, their deals will be largely unaffected. Byron Koster, partner at Blake Dawson Waldron, says that the strong sharemarket will hold up activity. "2005 will be a strong year, if current activity at law firms is anything to go by."

Source: Thomson Financial