Non-performing loans securitization in China – Houlihan Lokey Quarterly Newsletter

14 June 2016

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The non-performing loan (NPL) ratio among China’s commercial banks hit 1.67% at the end of 2015, marking the 17th consecutive quarterly increase, according to data from the China Banking Regulatory Commission (CBRC). That pushes the total quantity of failed loans to US$196bn (RMB1.27tn). As economic growth decelerates, pushing more onshore corporates, private and state-run, closer to bankruptcy or to defaulting on loans and bonds, the official level of NPLs is likely to rise further and faster, with deterioration in asset quality set to accelerate. For China, the journey of deleveraging is a painful but inevitable one. Securitization offers a potentially viable way for banks to improve their asset quality in an efficient and cost effective way, but there are policy, regulatory and legal hoops to jump through.
 
Houlihan Lokey, in conjunction with M&A intelligence provider Mergermarket, takes a close look at corporate distress and loan securitization trends in this exclusive thought leadership newsletter, Non-performing loans securitization in China.
 
Highlights and trends analyzed:
 
  • China’s debt pile continues to grow, registering 237% of GDP in Q1 2016, according to Financial Times calculations;
  • China’s NPL ratio is expected to reach 3.1% by the end of 2016, according to Standard & Poor’s; China’s securitization market is now the largest in Asia, outpacing both Japan and South Korea;
  •  Having experienced exponential growth since 2012, the Chinese market accounted for US$65.8bn of issuance in 2015, a 30.7% rise from 2014, according to SIFMA Securitization Group;
  • and An exclusive interview with Houlihan Lokey’s Global Head of Portfolio Valuations Cindy Ma, Director for Financial Advisory Services Gunes Kulaligil, and Vice President for Asia Pacific Financial Advisory Services Ethan Ma, on the nascent opportunities arising in China’s dynamic NPL market, as well as potential risks and challenges for investors.

Capitalizing on opportunities: Private equity investment in oil and gas

21 June 2016

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As companies manage the challenge of volatile oil prices and the energy industry continues to transform, private equity firms are looking at the oil and gas sector with renewed interest, according to Capitalizing on opportunities: Private equity investment in oil and gas, a report released by EY in association with Mergermarket.
 
The report features the results of a survey with 100 global PE executives and examines PE firms’ appetite for investment into the oil and gas sector.
 
Key findings include:
 
  • Forty-three percent of private equity investors plan to deploy capital into oil and gas by the first half of 2017.
  • Sixty-four percent of respondents see favorable asset valuations as the main driver for PE activity in the oil and gas sector.
  • Seventy-one percent plan on raising a new fund targeting acquisitions in the oil and gas sector in the next 12-24 months.
  • Sixty-three percent view providing growth capital as the most important way PE can add value to organizations

Toppan Vite – M&A Pulse: US Antitrust Action in M&A

22 June 2016

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US government agencies have become increasingly active in investigating and blocking M&A deals in the last year, with a number of notable transactions hitting the rail. What is causing this, and what does the near future hold?
 
Toppan Vite, a trusted financial printing and communications company, in partnership with Mergermarket, is pleased to present the second M&A Pulse newsletter, in which US-based senior corporate executives were surveyed to gain insight on antitrust action in M&A.
 
Key findings include:
 
  • Over the coming 12 months, the majority of respondents (64%) expect US antitrust action against M&A deals to increase.
  • Respondents expect the Healthcare and Consumer sectors to receive the most scrutiny by US antitrust regulators in the next 12 months, as cited by 52% and 40% of respondents.
  • Fifty-two percent of respondents believe insufficient divestitures will be a common cause of stalled deals in the next 12 months.
 
See more and subscribe to Toppan Vite‘s Blog here.
 
Toppan Vite, a leader in financial printing, delivers a hassle-free experience for mission-critical content for capital markets transactions, financial reporting and regulatory compliance filings, investment companies and insurance providers. Part of the world’s largest printing company with over $13 billion in annual sales, we have the scale, financial strength and commitment to be the partner of choice for mission-critical transactions, any size, across the globe. Learn more at us.toppanvite.com

Searching for solutions: Energy asset sales in Asia-Pacific

23 June 2016

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Depressed oil prices are putting pressure on the profit margins of some international oil companies (IOCs), leading to further cost reductions. This may result in more asset sales in Asia-Pacific in the year ahead. In the Asia-Pacific region, 2015 closed with 44 energy divestitures and asset sales worth a total of US$17bn, down from 2014’s US$30.2bn from 60 deals. Q1 2016 saw 11 divestments worth US$1.3bn.
 
Eversheds, a leading international law firm, has teamed up with Mergermarket to trace the shifting trends in the Asia-Pacific energy sector in Searching for solutions: Energy asset sales in Asia-Pacific, the second issue in a newsletter series.
 
This thought-leadership publication includes an exclusive interview with Eversheds partners Charles Butcher, Corporate, and Jae Lemin, Banking, presenting expert insights on considerations pertaining to timing, preparation and risks in Asian oil and gas divestitures and asset sales.
 
Highlights from Searching for solutions: Energy asset sales in Asia-Pacific:
 
  • According to Mergermarket data, Oil and gas exploration and production assets accounted for almost half the asset sales in value and 42% in volume from 2014 to Q1 2016.
  • The clean energy sub-sector saw the region’s second-highest rate of asset sale and divestment activity from 2014 to Q1 2016, accounting for 34% of deal volume and 17% of value in the sector.
  • Across the Asia-Pacific region, Australia accounted for 54% of energy asset sale and divestiture values and 30% of volume from 2014 to Q1 2016. In second for energy divestitures and asset sales was China, which accounted for 24% of the region’s total divestment volumes and 17% of value.

Mid-Market M&A: Deal Environment for Sellers

23 June 2016

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As volatility continues in the world economy, the North American mid-market has seen a dip in M&A activity. In the first five months of 2016, the value of mid-market deals fell 10% to US$56.9bn, while volume dropped to 655 deals, from 896 a year earlier. After several years in which sellers could dictate terms, it has become a buyer’s market in many sectors.
 
And yet, selling opportunities will continue to arise. The question for sellers is: How can a company best position itself in this environment?
 
Mergermarket, on behalf of Firmex, a virtual data room provider, interviewed four experienced mid-market dealmakers to discuss the key steps business owners should take to optimize value.
 
Points of discussion include:
 
  • Sectors in which favorable conditions persist for mid-market sellers.
  • Unique challenges that activists present to the mid-market and how mid-market companies can best respond to activist pressure.
  • Alongside valuations, which other major factors sellers should consider when evaluating buyout offers.
  • Advantages and disadvantages of selling to a private equity firm vs. a strategic

Monthly M&A Insider – June 2016

24 June 2016

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Global M&A activity continued at a deliberate pace in May, continuing this year’s slowdown, with 1,054 deals worth US$224.5bn – a 39.7% decrease in value and 356 fewer deals than the corresponding period of 2015. Private equity activity has been livelier, however: In the first two months of Q2 2016, there were 367 buyouts worth US$72.2bn, a 23.9% increase in value year-over-year.
 
Highlights from the report include:
 
  • Energy, Mining & Utilities (EMU) was the top sector in May 2016, with 80 deals worth US$40.5bn, a 66.8% increase in value despite 16 fewer deals compared to a year ago.
  • North America was the region with the highest market share of global M&A by value (48.1%), with US$108bn from 351 deals. Conversely, Europe had 51 more deals, yet less than half the value of North America (US$46bn).
  • Business Services was the second-place sector in May and had the top deal of the month: US-based Quintiles Transnational Holdings’ acquisition of IMS Health Holdings for US$12.9bn

Market Spotlight: Challenges for Private Equity

30 June 2016

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Welcome to the June Venue® Market Spotlight.
 
RR Donnelley commissioned Mergermarket to interview professionals based in the US, Europe and Asia-Pacific to gain insight on their opinions regarding private equity challenges over the next 12 months.
 
As the appeal of private equity continues to rise among investors, competition for fundraising and deals is at an all-time high. Yet regulatory pressures have become intense and the world economy remains on shaky ground – especially after the Brexit vote on June 23.
 
This month’s Venue® Market Spotlight examines the challenges facing the private equity industry over the coming year. Half of all respondents said intense competition from strategics will be one of the biggest barriers to PE success, while 33% said tight profit margins at portfolio firms will be a major issue as well. Europe is expected to have the least attractive valuations for PE over the coming year, 88% of respondents said.

Testing the Defenses: Cybersecurity due diligence in M&A

12 July 2016

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As the importance of cybersecurity rises in the corporate environment, it has become vital for potential acquirers to assess the IT systems of M&A targets. Companies are increasingly aware of the need for cybersecurity due diligence, yet they often lack the proper personnel to conduct thorough analyses, according to a new study by West Monroe Partners and Mergermarket, Testing the defenses: Cybersecurity due diligence in M&A.
 
West Monroe Partners, a North American business and technology consulting firm, commissioned Mergermarket to interview North America-based senior M&A practitioners to provide insight on the complexities and challenges of cybersecurity due diligence in the acquisition process.
 
Highlights from the report include:
 
  • 80% of respondents said that cybersecurity issues have become highly important in the M&A due diligence process.
  • More than a third (40%) of acquirers said they had discovered a cybersecurity problem at an acquisition after a deal went through, indicating that standards for due diligence remain low.
  • 70% of respondents said compliance problems are one of the most common types of cybersecurity issues uncovered during due diligence, while 40% said a lack of comprehensive security architecture is also common.
 
See more content from West Monroe here.

Dealmakers’ Guide

14 July 2016

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In a global environment fraught with economic uncertainty and political change, companies looking to acquire need help from their adviser pool like never before.
 
M&A activity worldwide stood at US$4.28tn in 2015, an increase of 30.4% on the previous year, but has dipped so far in 2016. With a lower number of deals, the stakes are even higher for those that do get done. Understanding what is important to your clients and how you can best serve them is essential to being an effective adviser.
 
With this in mind, RR Donnelley, in association with Mergermarket, presents the Dealmakers’ Guide, a snapshot into the minds of 75 global corporate dealmakers.
 
Key findings include:
 
  • Corporates feel that due diligence and formulating the deal rationale are the most important steps when it comes to achieving deal value. Respondents noted that navigating these phases well helps lead to more informed decision-making down the line.
  • Corporates mainly define M&A success by looking at sales growth metrics, with almost three quarters using it as a primary success measure.
  • An adviser’s past M&A record is the main factor that influences corporates when choosing one, with 75% choosing it as one of their top two considerations

Market Spotlight: M&A Post-Brexit

28 July 2016

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Welcome to the July Venue® Market Spotlight.
 
Against a backdrop of sluggish global growth and diminished M&A activity this year, Brexit adds further uncertainty to the macroeconomic picture. Before the dust settles, many corporates will likely take a “wait and see” approach when it comes to dealmaking, both in Europe and beyond.
 
To gain insight on the effects of the UK vote on M&A, RR Donnelley commissioned Mergermarket to interview professionals based in the US, Europe and Asia-Pacific. Respondents are broadly bearish when it comes to Brexit’s impact on dealmaking, yet they believe opportunities will present themselves for risk-hungry buyers.
 
Almost two-thirds (64%) of respondents said global M&A activity will decline further due to Brexit, while 40% believe private equity activity will decrease as well. Nearly three-quarters (72%) said they think Brexit will cause a major downturn in Europe and/or the UK, but not in the rest of the world.

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