August 2010

Ride the wave Asian mid-market M&A spotlight

Asian mid-market M&A spotlight

Foreword 4

Executive summary 5

Methodology 6

Australasia 8 Australia 16 New Zealand 26

Greater China 36 China 43 Hong Kong 53 Taiwan 62

Japan 72

South Asia 82 India 91 Pakistan 101 Sri Lanka 109

Southeast Asia 113 Indonesia 121 Malaysia 131 Philippines 141 Singapore 151 Thailand 161 Vietnam 171

South Korea 179

Deloitte principal contacts 190

End notes 191

Ride the wave: Asian mid-market M&A spotlight 3 Foreword

Asia on the cusp – mid-market dealmaking in the new decade Asia Pacific is undoubtedly going to be the M&A growth region of the decade. Its economies have proved resilient in the downturn and are growing strongly. Yet, the Asia Pacific region is made up of contrasts. Strong growth in China is driving increasing outbound M&A, the appetite for resources is escalating the volume of inbound Australia deals and greater stability in some Southeast Asia economies, such as Indonesia, is intensifying interest from corporate and private equity buyers for its assets. Particularly robust in the downturn, mid-market M&A is set to grow more rapidly over the next 12 months as CEOs, wary of high risk transformational deals, undertake more serial mid-market transactions to achieve their strategic objectives. As one of Asia’s most respected M&A advisory firms and a specialist in advising on mid-market acquisitions across the region, Deloitte is pleased to commission the third annual mid-market M&A report by mergermarket. We hope you find it both an enjoyable and insightful read, and welcome any feedback you may have. Peter Baldock Global COO of Corporate Finance Advisory Asia Pacific Head of Corporate Finance Advisory

4 Executive summary and methodology

M&A in the Asian mid-market remains Manufacturing and Energy & Natural stable Resources remain at the forefront of Asian mid-market deal-making For the last couple of months, M&A activity across the globe has been on an upward M&A activity in the region’s mid-market continues to trajectory amidst a wider economic recovery. be dominated by deals struck in the Manufacturing Against this backdrop, Asian M&A activity in the space. Indeed, 57 deals at an aggregated valuation first half of 2010 increased by 9.8% from H1 of close to US$8bn were announced in the first 2009, with US$135.3bn worth of deals coming six months of 2010. Hot on its heels is Energy & to market. Natural Resources, accounting for 44 deals with a combined value also close to US$8bn. While the Meanwhile, deal flow in the Asian mid-market question ‘are there any more targets left?’ will soon retracted somewhat - deal volumes dropped from become appropriate, it is hard to foresee M&A levels 720 deals in FY 2008 to 661 in FY 2009, with dropping until the energy requirements of China and the total deal value decreasing from US$112bn India, the regional powerhouses, have been satisfied. to US$102bn. Furthermore, activity over the first half of 2010 has remained tentative, and if this trend continues over the remainder of the year, Private equity is still challenging … the region will only just meet the levels of 2009. Over H1 2010, 323 deals, with an aggregated … however, anecdotal evidence suggests that value of US$60bn, have come to market. the asset class could be making a comeback. After years of furious deal-making driven by During the course of 2008, 127 private equity- consolidation and expansion plays, perhaps Asian related deals worth a total value of US$20bn mid-market corporates are taking a breather and were completed. In 2009, this fell to 91 with focusing on integration before embarking on the a combined value of US$12bn, and H1 2010 acquisition trail again. to-date, there have been 45 worth close to US$6.7bn. Looking ahead, however, the Australasian market Significant regional differences in post- in particular stands out - there is noise that an crisis recovery increasing number of private equity funds are When looking at different regions within Asia- readying their portfolio companies for an exit, Pacific, noteworthy differences emerge. Deal flow either via the stock exchange or a sale, but in in Australasia, which has traditionally seen high many cases via a dual track process. This is surely levels of private equity involvement, is struggling a sign that the market is in full recovery mode. to recover to pre-crisis levels. Meanwhile, M&A activity in the Greater China region has remained stable throughout the crisis. North America continues to play a central role in cross-border deal flow The contrasting levels of M&A activity in these two markets provides an interesting insight into Bidders from North America, as well as North how different M&A activity within the region American targets, continue to hold significant appeal can be. Australasia has suffered as private equity for M&A players in the Asian mid-market. In fact, was hit hard by the financial crisis, while Greater most of Asia-Pacific saw businesses from the region China deal flow has been driven by cash-rich becoming either the biggest buyer of local assets, state-owned enterprises. The differing level of or the key investment destination. Despite this, local activity in these two regions cannot come as a targets and markets have still played a key role in surprise. mid-market cross-border deal flow.

Ride the wave: Asian mid-market M&A spotlight 5 Energy & Natural Resources has a bright Methodology future The following notes pertain to the data in this The outlook is still encouraging for energy publication: companies in the Asian mid-market. • Transactions with a disclosed deal value The mergermarket Heat Chart, which tracks between US$50m and US$500m are included companies up for sale, states that this space • Transactions qualify for inclusion from the is currently seeing the highest number of date of announcement of: businesses for sale. However, the Manufacturing space is also witnessing a number of attractive • The signing of a definitive/binding targets being bandied around, particularly in agreement if the deal is private Greater China and Southeast Asia. Interestingly, • A formal offer for a publicly listed high levels of deal flow are predicted in the company, where the offer is made to the Japanese Industrial mid-market, indicating that shareholders of the target company Japan Inc could be beginning to untangle. • Where a stake acquired is less than 10.0%, or 30.0% where the target is not based in the Asia-Pacific region, the deal is included if the deal value is at least US$100m (provided there is also evidence of an advisory mandate) • Hostile and contested bids in the public arena are included provided the offers are formally announced. • The following deal types are excluded: • Joint ventures where the only asset contributed is cash • Property/real estate transactions restricted to land, buildings, portfolios or sale and leaseback agreements • Equity carve-outs • Acquisitions of brands, rights and/or licenses (excluding Government-awarded telecom spectrum licenses) • Acquisitions of individual assets (i.e. dry bulk vessel) and asset portfolios • On-sales/subsequent sales/back-to-back transactions which are inter-conditional • Share buybacks • Equity placements where shareholders’ interests in total remain the same • Internal restructurings where the effective change of control does not meet inclusion criteria • Acquisition of options and warrants

6 • Where the deal is ongoing (has not Liberia, Libya, Madagascar, Malawi, completed, lapsed or been withdrawn), the Mali, Mauritania, Mauritius, Morocco, equity value of the deal is taken as the value Mozambique, Namibia, Niger, Nigeria, at the announcement date Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, South Africa, Sudan, • Earn-outs or future additional payments Swaziland, Tanzania, Togo, Tunisia, based on the target achieving certain Uganda, Zambia, Zimbabwe) financial milestones are included provided the time horizon of the earn-out is within two • Benelux (Belgium, Luxembourg, years of the completion of the transaction. Netherlands) • CEE (Armenia, Azerbaijan, Belarus, Bosnia- Herzegovina, Bulgaria, Croatia, Czech Geography and sector information: Republic, Estonia, Georgia, Hungary, • The geography and sector of deals are Latvia, Lithuania, Macedonia, Moldova, identified according to the dominant Montenegro, Poland, Romania, Russia, geography and sector of the target company Serbia, Slovakia, Slovenia, Ukraine) (unless otherwise stated) • Central Asia (Kazakhstan, Kyrgyzstan, • Where the bidder is a consortium of Tajikistan, Turkmenistan, Uzbekistan) investors, dominant geography is determined • France by the headquarters of the lead investor • Germanic (Austria, Germany, Switzerland) • Where a transaction involves the sale of multiple companies or assets with different • Iberia (Andorra, Portugal, Spain) geographies, dominant target geography is • Italy based on where most revenue is derived • Middle East (Afghanistan, Bahrain, Iran, • For the purposes of this publication, the Asia- Iraq, Israel, Jordan, Kuwait, Lebanon, Pacific region is defined as the following: Oman, Palestine, Qatar, Saudi Arabia, • Australasia (Australia, New Zealand) Syrian Arab Republic, United Arab Emirates, Yemen) • Greater China (China, Hong Kong and Taiwan) • Nordic (Denmark, Finland, Iceland, Norway, Sweden) • Japan • North America (Antigua, Aruba, • South Asia (India, Pakistan, Sri Lanka) Barbados, Bermuda, British Virgin Islands, • Southeast Asia (Indonesia, Malaysia, Canada, Cayman Islands, Cuba, Grenada, Philippines, Singapore, Thailand, Vietnam) Jamaica, Mexico, Puerto Rico, Saint Lucia, Trinidad & Tobago, US) • South Korea • North Asia (Mongolia, North Korea) • For the purposes of this publication, non-Asia-Pacific geographies are defined as • SEE (Albania, Cyprus, Greece, Malta, the following: Turkey) • Africa (Algeria, Angola, Benin, Republic of • South America (Argentina, Bolivia, Brazil, Botswana, Burkina Faso, Cameroon, Cape Chile, Colombia, Ecuador, French Guyana, Verde, Central African Republic, Chad, Guyana, Paraguay, Peru, Surinam, Congo, Democratic Republic of Congo, Uruguay, Venezuela) Egypt, Eritrea, Equatorial Guinea, Ethiopia, • UK & Ireland Gabon, Gambia, Ghana, Guinea, Guinea- Bissau, Ivory Coast, Kenya, Lesotho,

Ride the wave: Asian mid-market M&A spotlight 7 Australasia Australasia

Overview Mid-market M&A trends Over the past five-and-a-half years, mid-market 60 9,000 M&A activity in the Australasia region has accounted for 614 deals with a total value of 8,000 around US$94.2bn. In the years leading up 50 7,000 to the collapse of Lehman Brothers and the subsequent turmoil in the world’s financial 40 6,000 systems, the region witnessed an upwards trend in M&A levels in terms of both deal volume and 5,000 value. As witnessed in a number of other M&A 30 4,000 alue (US$m) markets, deal-making peaked in 2007 when V

158 deals worth a combined US$24.5bn were Number of deals 20 3,000 announced. Notably, 2007 also saw one of the 2,000 biggest mid-market deals announced when 10 Japanese conglomerate Mitsui agreed to pay 1,000 US$487m for a 19.9% stake in Sims Group, the listed Australian metal recycler. 0 0

Since 2007, M&A levels in the region’s Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 mid-market have dropped year by year, falling Number of deals Value (US$m) by over 50.0% both in terms of value and volume between 2007 and 2009, with a mere 68 deals worth US$10.4bn announced in 2009. Furthermore, activity over the first half of 2010 has remained subdued with a total of Deal size split by volume, H2 2009-H1 2010 34 transactions brokered, worth an aggregate US$5.5bn. Reports and anecdotes suggest that 9% an uptick could take place in the second half of the year, however, while market conditions are most certainly improving, many companies and their M&A advisors are still facing significant challenges in their attempt to execute on US$50m - US$150m opportunities. 27% US$151m - US$300m The deal size split in the region’s mid-market US$301m - US$500m over the last 12 months has remained broadly similar to longer trends with the bulk falling into 64% the bottom end of the mid-market category. Indeed, 64.0% of all deals announced since the second half of 2009 have been valued between US$50m and US$150m. The top segment, deals valued between US$301m and US$500m, has accounted for the smallest share of overall deal flow with only 9.0% falling into this category. This trend is entirely in line with global trends where a marked shift into deal-making at the lower end of the mid-market has been witnessed. Persistent difficulties in obtaining larger debt

Ride the wave: Asian mid-market M&A spotlight 9 Sector split by volume, H2 2009-H1 2010 packages and corporate acquirers not wishing to 'bet the farm' must serve as an explanation for this shift. 4% 5% Energy & Resources Once again, the lion’s share of the mid-market 6% 28% Financial Services deals in Australasia region took place in the Consumer Business Energy & Resources space, accounting for 6% Manufacturing 28% and 29% of total deal volume and value Business Services respectively over the reporting period. During 6% Agriculture that time 23 deals with a total value of US$3.6bn Pharma, Medical & Biotech came to market. Transportation 6% This space has long been the dominant sector Real Estate 13% in terms of deal flow in the region, accounting Technology, Media & for 136 deals with a total value of US$23.7bn 7% Telecommunications (TMT) between 2005 and the first half of 2009. Given Tourism, Hospitality 9% 10% & Leisure the high levels of interest that foreign (particularly Chinese) buyers are demonstrating, and provided there is a continued need to access raw materials and resources to drive infrastructure growth at home, this sector will continue to see brisk levels of deal flow going forward. Other mid-market sectors that witnessed high levels of activity over the course of 2009 and the first half of 2010 include the Financial Services Sector split by value, H2 2009-H1 2010 industry, accounting for 13.0% of volume and 14.0% of value. Elsewhere, the Consumer Industry comprised 10.0% of total deal volume 3% 3% 4% Energy & Resources and 8.0% of value. 5% 29% Financial Services Manufacturing Private Equity 6% Transportation Looking back over the last five-and-a-half years, Consumer Business private equity has remained somewhat active Real Estate in the Australasian mid-market, undertaking a 7% Agriculture total of 100 buyouts worth US$15.2bn. Sell-side Technology, Media & activity has been less significant, although a Telecommunications (TMT) 8% total of 51 exits have been announced over the Business Services same timeframe, worth a total of US$8.8bn. 14% Pharma, Medical & Biotech However, private equity investment is very much 9% Tourism, Hospitality a 'tale of two stories'. Indeed, until the onset of 12% & Leisure the financial crisis, interest in regional targets, particularly in Australia, was exceptionally high with a number of listed companies on the ASX being in the crosshairs of both local and international private equity funds.

10 Australasia

Nevertheless, this interest did not always Private equity buyout trends convert into actual deals with the battle over supermarket chain, Coles Myer, being a case in 14 2,500 point in this regard. After initially being a target for KKR and other high profile private equity 12 funds, the business was acquired by a consortium 2,000 led by fellow trade player, Wesfarmers, after a 10 long battle. Private equity’s inability or unwillingness to 8 1,500 execute deals lead to fluctuating buyout trends in the run up to the financial crisis – periods of 6 1,000 upward trending frequently followed by periods Number of deals alue (US$m) of decline. Furthermore, the recent media 4 V coverage in relation to Healthscope suggests not only that the large scale funds are still active 500 2 in Australia but are also seemingly confident of raising sufficient debt to execute larger transactions. 0 0

Since the financial crisis, the number and Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 value of buyouts has been in a steady decline. Number of deals Value (US$m) Remarkably, the 18 months since the beginning of 2009 has seen just 11 such deals come to the market, compared to 21 transactions in 2007 alone. Private equity exit activity in the mid-market Private equity exit trends has also been volatile in recent years. After a peak in the final quarter of 2005, when six 7 1,200 exits with total value of US$1.1bn came to market, deal flow dropped off sharply and in 6 the second quarter of 2006 not a single deal 1,000 was announced. The number of deals did pick 5 up, although both volume and value levels took 800 another beating in the aftermath of the financial crisis. Just two exits worth US$382m have been 4 announced in the first half of 2010. 600 alue (US$m)

3 V Against this backdrop, it is difficult to be optimistic about exit activity going forward. Number of deals 400 However, market intelligence suggests that an 2 increasing number of private equity portfolio 200 companies are coming to market as private 1 equity funds, under increasing pressure from limited partners, and they are keen to take 0 0 advantage of the recovering valuations. Moreover, if equity markets improve and the Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Valemus IPO gets traction, this could lead to Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 11 Inbound M&A trends more IPO exits, while some cash-rich corporates will also be eyeing attractive portfolio businesses. 18 3500 In addition, recent secondary buyouts by CHAMP 16 3000 and Quadrant Private Equity, as well as the high 14 level of private equity interest in Loscam, suggest 2500 there is still strong interest for good quality assets 12 with robust growth prospects – even if the seller 2000 10 is a direct private equity competitor. An active 8 secondary market has long been in place in

1500 alue (US$m) V 6 North America and Europe, and its development Number of deals 1000 in the region reflects on a maturing Australasian 4 500 market. 2 0 0 Cross-border mid-market M&A review

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) Australasian mid-market cross-border trends have tended to develop in two very different Geographic volume split of inbound M&A, H2 2009-H1 2010 directions. While the recent financial crisis had little impact on inbound deal flow, outbound 3% 3% investments made by Australasian buyers took 3% a sharp hit, witnessing a sharp decline in recent 6% 37% North America years. UK & Ireland Inbound M&A trends have fluctuated, at 6% Greater China times significantly, from quarter-to-quarter. Southeast Asia Nevertheless, overall activity has been impressive Benelux with an average of 32 deals undertaken by 12% foreign buyers in the region annually over recent Japan years. Interestingly, inbound deal flow peaked Germanic both in terms of value and volume in 2008 France when a total of 41 deals with a US$7.9bn were South America announced. 2010 has also got off to a strong 15% 15% start with 16 deals worth US$2.9bn coming to market over the first six months. Taking Geographic value split of inbound M&A, H2 2009-H1 2010 into account the fact that the third quarter has traditionally been the strongest, there are 3% 3% pointers that 2010 could see significant inbound 3% investment. 6% 44% North America The bulk of inbound activity into the Australasia UK & Ireland 7% region stems from North American buyers Greater China who account for 37.0% in terms of volume Japan and 44.0% of valuations. This is particularly interesting considering the amount of publicity 8% Southeast Asia Benelux that Chinese buyers generate when looking to make an acquisition in the region. It would France appear that North American buyers, while being South America more prevalent, have been able to execute 12% Germanic their transactions out of the limelight, while cash-rich and resource hungry Chinese buyers 14%

12 Australasia

understandably attract a significant amount of Outbound M&A trends attention. Chinese buyers do, however, stand as the third-most active acquirers of Australasian 20 3,500 18 assets by volume and value. 3,000 16 The picture is somewhat different when looking 14 2,500 at regional outbound mid-market M&A activity. Activity levels were volatile both in terms of value 12 2,000 and volume up until the financial crisis, with 10 alue (US$m)

1,500 V valuations peaking at US$3.2bn in the fourth 8 quarter of 2006, and volume spiking in the Number of deals 6 1,000 third quarter of 2007 with 18 deals announced. 4 500 Since the onset of the downturn, Australasian 2 corporates have been understandably reticent to 0 0 engage in deal-making outside of the domestic market, perhaps reflecting the reality that Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 regionally-listed companies do not always get Number of deals Value (US$m) rewarded by their investors when they expand internationally. Levels dropped to a single deal Geographic volume split of outbound M&A, H2 2009-H1 2010 worth US$103m in the second quarter of 2009 5% although there has since been a modest recovery 5% with the first half of 2010 seeing 12 deals valued 5% 49% at US$1.9bn. North America When they do undertake outbound M&A, 5% UK & Ireland regional acquirers tend to broker the majority Benelux of their acquisitions in North America. Indeed, 5% South America deals in that region made up 49.0% of overall Germanic outbound volume and 58.0% of deal value over 8% France the H2 2009-H1 2010 period. Other markets Africa targeted by Australasian buyers include the UK Japan & Ireland, which has a 9.0% volume share, and 9% Southeast Asia the Benelux region which accounts for 11.0% of overall valuations. 9%

Geographic value split of outbound M&A, H2 2009-H1 2010

3% 3% 4% 4% 58% North America 5% Benelux Southeast Asia 6% UK & Ireland Japan 6% South America France Germanic 11% Africa

Ride the wave: Asian mid-market M&A spotlight 13 Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Mar-10 P Corporate Express Australia Manufacturing Australia Staples Incorporated US 494 (41.4% stake) Aug-09 C Moto Goldmines Ltd Energy & Australia 0858065 BC Ltd Channel 487 Resources Islands Aug-09 C Delaware Management Financial US Macquarie Bank Ltd Australia Lincoln National Corporation US 428 Holdings Inc Services Apr-10 P Westpac Office Trust Real Estate Australia Mirvac Group Australia 385 Nov-09 C PIPE Networks TMT Australia TPG Telecom Ltd Australia 379 Mar-10 C Shell New Zealand Ltd Consumer New Aotea Energy Ltd New Shell New Zealand Ltd Netherlands 357 (Distribution and retail Business Zealand Zealand businesses) Dec-09 P BHP Billiton (Ravensthorpe Energy & Australia First Quantum Minerals Canada BHP Billiton Ltd Australia 340 Nickel Operations) Resources Australia Pty Ltd Feb-10 C MedHold NV Pharma, Belgium Sonic Healthcare Ltd Australia Annie Vereecken (Private Netherlands 317 Medical & Investor); Geert Salembier (Private Biotech Investor); Waterland Private Equity Investments BV Sep-09 C Timbercorp Ltd (Blue-gum Agriculture Australia Global Forest Partners LP US Timbercorp Ltd Australia 305 plantation assets) Aug-09 C Challenger Mortgage Financial Australia National Australia Bank Ltd Australia Challenger Financial Services Group Australia 298 Management Holdings Services Pty Ltd Nov-09 P Hanover Finance Ltd (certain Financial New Allied Farmers Ltd New 294 assets); United Finance Ltd Services Zealand Zealand (certain assets) Jun-10 P Airwork Holdings Ltd; Transportation Australia Contract Aviation Group US 291 Alliance Airlines Pty Ltd Pty Ltd Jul-09 C Macquarie Airports Transportation Australia Macquarie Airports Ltd Australia Macquarie Group Ltd Australia 282 Management Ltd Jun-10 P Ball Corporation (plastic Manufacturing US Amcor Ltd Australia Ball Corporation US 280 packaging assets) Jan-10 C Athabasca Potash Energy & Canada BHP Billiton Ltd Australia 279 Resources Jun-10 P FreightLink Pty Ltd (Asia Transportation Australia Genesee & Wyoming Inc US 278 Pacific Transport Finance) Oct-09 C Moly Mines Ltd (68.78% Energy & Canada Hanlong Mining Australia 275 stake) Resources Investment Pty Ltd Aug-09 C Transpacific Industries Group Manufacturing Australia Warburg Pincus LLC US 260 Ltd (20.35% stake) Mar-10 P CBH Resources Ltd Energy & Australia Nyrstar NV Belgium 259 Resources Apr-10 P CBH Resources Ltd (75.9% Energy & Australia Toho Zinc Co ltd Japan 247 stake) Resources Aug-09 C Aquila Resources Ltd (15.0% Energy & Australia Baoshan Iron & Steel China 241 stake) Resources Co Ltd Sep-09 C Elders Insurance Agencies Financial Australia QBE Insurance Group Ltd Australia Elders Ltd Australia 238 Pty Ltd (75% stake); Elders Services Insurance Ltd May-10 P Malaya Glass Products Sdn Construction Malaysia ACI International Pty Ltd; Australia Fraser & Neave Holdings Bhd Malaysia 222 Bhd Berli Jucker Public Co Ltd Dec-09 P Goodman Fielder Consumer New Cargill Australia Ltd Australia Goodman Fielder Ltd Australia 220 (Commercial edible oils and Business Zealand fats operations) May-10 P United Utilities Australia Energy & Australia Innovation Network Japan United Utilities plc United 203 Pty Ltd Resources Corporation of Japan; JGC Kingdom Corporation; Manila Water Company Inc; Mitsubishi Corporation C = Completed; P = Pending

14 Australasia

Once again, the bulk of the top 25 deals in Heat Chart Australasia since the second half of 2009 involve mergermarket’s Heat Chart is based on our the acquisition of Australia-based Energy & intelligence database and tracks all companies that Resources assets, highlighting the importance are reportedly up for sale in the Australasia region. buyers attach to this sector in the region. The intelligence derives from a range of sources, However, the largest deal over the period was including press reports, company statements and in the Manufacturing space. The transaction in our own proprietary intelligence. The data does not question saw Staple, the listed United States-based differentiate between small and large transactions retailer of office supplies, make a recommended nor between near-term and long-term deals. offer to acquire the 41.4% stake it did not already Similarly, it does not differentiate between rumored own in Corporate Express Australia, for US$494m and confirmed intelligence. in March 2010. More generally, it is notable that the majority of deals listed on the top 25 deals – 13 Hot Warm Cold in total – are inbound deals, struck either by North American or Asian players. 120 75 30 105 60 15 The second-largest deal did fall in the ever 90 45 0 prominent Energy & Resources space, and saw Randgold Resources pay AngloGold Ashanti US$487m for mineral exploration and development company, Moto Goldmines, in August 2009. Australasia Energy & Resources 132 TMT 62 Consumer Business 46 Business Services 37 Manufacturing 30 Financial Services 25 Pharma, Medical & Biotech 25 Tourism, Hospitality & Leisure 21 Agriculture 17 Real Estate 16 Transportation 14 Construction 5 Government 2 Other 6 TOTAL 438

Ride the wave: Asian mid-market M&A spotlight 15 Australia

There is no doubt that life is being breathed back into the M&A market. That said, confidence is still fragile against a global back drop of continued European sovereign risk and volatile equity markets. We anticipate less volatility going forward and therefore, buyers to be more aggressive and sellers to be less concerned around completion risk. Overall, we expect this to translate to a small increase in volume going forward. Australia will continue to be an active destination for offshore investors. Major sectors of interest include Oil and Gas; Mining; Energy and Resources; Agriculture; Food and Beverages; and Consumer Business. Once the proposed industry specific Resource Super Profit Tax (RSPT) is clarified, there is no doubt that inbound activity from Asia in the Energy and Resources sector will continue. We expect further consolidation in the Real Estate Investment Trust (REIT) market given the current trading discounts to Net Tangible Assets (NTA). We have also seen private equity re-emerge. At the big end, healthcare transactions are being driven by strong fundamentals. In the mid-market we have seen new investees and some exits. In summary we expect a net increase in M&A activity in the next 12-18 months. Tony Garrett, Deloitte Australia Australia

Overview Mid-market M&A trends Since the beginning of 2005, Australian 8000 mid-market M&A activity has totalled 548 deals, 50 worth a combined US$83.7bn. The single most 45 7000 active year for deal flow was in 2007, when 148 40 transactions worth a collective US$23.4bn were 6000 announced with deal flow spiking in the third 35 quarter of the year. 5000 30 Since then, quarterly figures have fallen, bottoming out in Q2 2009 when just seven 25 4000 alue (US$m) deals valued at US$1bn came to the market. V 20 3000 Nonetheless, performance subsequently picked Number of deals 15 up over the second half of 2009 and the first 2000 half of 2010, with an average of 18 transactions 10 worth a mean of US$2.7bn announced over each 1000 of these four quarters. 5 In terms of deal size, 65.0% of Australian 0 0 mid-market transactions over the past four quarters took place in the US$50m-US$150m Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 range, with a further 27.0% of deals being worth Number of deals Value (US$m) between US$151m and US$300m. 8.0% of them were worth more than US$300m. Incidentally, these figures were very similar to mid-market deal size trends over the H1 2005-H1 2009 period, with 65.0% of transactions over this Deal size split by volume, H2 2009-H1 2010 timeframe being conducted in the US$50m- US$150m range, 23.0% in the US$151m- 8% US$300m space, and 12.0% in the >US$300m arena. Just less than one-third of all Australian mid-market M&A activity since the beginning of the second quarter of 2009 has taken place in US$50m - US$150m the Energy & Resources sector. Deal-making in 27% US$151m - US$300m the space has totalled US$3.4bn from 22 such US$301m - US$500m purchases. Another prominent sector stands as the Financial Services industry which witnessed 65% 10 deals, with a total valuation of US$1.4bn.

Ride the wave: Asian mid-market M&A spotlight 17 Sector split by volume, H2 2009-H1 2010 Over the wider period, the Energy & Resources and Financial Services sectors have also dominated activity. Between 2005 and the end 5% 3% Energy & Resources of H1 2009, 28.0% of all mid-market deals were 5% 30% Financial Services located in the Energy & Resources space, which 5% Manufacturing also accounted for 31.0% of all M&A valuations, Consumer Business while a further 12.0% of deals by both volume and value were Financial Services transactions. 7% Business Services Transportation Real Estate 7% Agriculture Pharma, Medical & Biotech 7% 14% Technology, Media & Telecommunications (TMT)

8% Tourism, Hospitality 9% & Leisure

Sector split by value, H2 2009-H1 2010

2% 2% 4% Energy & Resources 4% 32% Manufacturing 6% Financial Services Transportation 6% Real Estate Technology, Media & Telecommunications (TMT) 8% Agriculture Consumer Business Business Services 10% 13% Tourism, Hospitality & Leisure 13% Pharma, Medical & Biotech

Just less than one-third of all Australian mid-market M&A activity since the beginning of the second quarter of 2009 has taken place in the Energy & Resources sector.

18 Australia

Private Equity Private equity buyout trends 79 mid-market private equity buyouts worth US$12.2bn have taken place in Australia since 12 2,500 the beginning of 2005. The bulk of such activity took place in 2006 and 2007 with mid-market 10 buyout activity steadily dropping since then, with 2,000 just three deals worth US$414m being brokered over the first half of 2010. 8 1,500 At the same time, the lion’s share of private equity exits in Australia took place in 2005, 6 alue (US$m) 2006 and 2007. From then on, activity has 1,000 V nosedived, and just 13 disposals worth US$2.5bn Number of deals 4 have occurred from 2008 onwards. Indeed, the private equity exit market was completely 500 dormant between Q2 2009 and Q1 2010 with 2 signs of revival only coming to light in the second quarter of 2010. Over this timeframe, two 0 0 divestments worth US$382m came to market.

However, recent sales by CHAMP and Quadrant Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Private Equity, as well as purchases by Quadrant Number of deals Value (US$m) and Catalyst Investment Managers all suggest an increased level of activity in the Australian mid-market space. This upcoming activity is likely to be characterized by less reliance on debt, and Private equity exit trends more alignment between buyers' and sellers' expectations. 6 1,000

900

5 800

700 4 600

3 500 alue (US$m) 400 V Number of deals 2 300

200 1 100

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 19 Inbound M&A trends Cross-border mid-market M&A review Inbound mid-market acquisitions of Australian 16 3500 assets by foreign bidders have risen of late, with 14 3000 quarterly volumes close to tripling between Q4 12 2009 and Q2 2010, while valuations rose by 2500 more than US$1bn. As a result, inbound activity 10 2000 in the quarter was higher than historical quarterly 8 averages for the whole timeframe, which 1500 alue (US$m) stood at around eight deals worth a collective 6 V US$1.5bn per quarter. Number of deals 1000 4 North American acquisitions of Australian 500 2 mid-market assets have been relatively prevalent 0 0 over the past four quarters, with buyers spending some US$2.6bn making 13 acquisitions. Greater

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 China bidders undertook five deals worth Number of deals Value (US$m) US$699m, while UK & Irish acquirers accounted for a further four purchases totalling US$721m. Geographic volume split of inbound M&A, H2 2009-H1 2010 North American and UK & Irish investment in 3% 3% 3% mid-market Australian purchases has remained 6% 35% steady in recent times. However, the rising North America prominence of Greater China acquisitions is clear 6% Greater China for all to see – between 2005 and the end of UK & Ireland H1 2009, buyers located in the region made up Southeast Asia around 10.0% of all M&A volumes and 12.0% of valuations. By both measures, this share has 8% Australasia increased to 17.0% of the overall market over Benelux the last 12 months. Japan Germanic 11% France 14% South America 11%

Geographic value split of inbound M&A, H2 2009-H1 2010

3% 2% 3% North American and UK 6% 42% North America & Irish investment in 6% UK & Ireland mid-market Australian Greater China Japan targets has remained 7% Southeast Asia steady in recent times. Australasia 7% Benelux However, the rising France prominence of Greater South America 12% Germanic China acquisitions is clear 12% for all to see.

20 Australia

Over the wider five-and-a-half-year period, Outbound M&A trends Australian mid-market acquisitions of foreign assets numbered some 205 deals worth 20 3500 US$36.1bn. The bulk of this activity took place 18 3000 in 2006 where 56 transactions worth US$10.8bn 16 were announced, although activity has since 14 2500 dropped off with just 18 deals worth US$2.7bn 12 coming to the market in 2009. A spike in 2000 outbound M&A activity did take place in the final 10 1500 8 alue (US$m) quarter of 2009 although this proved temporary V and deal flow has since fallen away over the first Number of deals 6 1000 two quarters of 2010. 4 500 Australian acquisitions of foreign assets tended 2 to focus on North American targets over the last 0 0 four quarters with 11 such buys worth US$2bn coming to market over the period. Purchases of Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) other Australasian businesses were also relatively numerous, accounting for three further deals, Geographic volume split of outbound M&A, H2 2009-H1 2010 worth US$347m. 4% 4% 4% 44% North America 4% Australasia 4% UK & Ireland Benelux 8% South America Germanic France 8% Africa Japan Southeast Asia 8% 12% Geographic value split of outbound M&A, H2 2009-H1 2010 2% 3% 2% 4% 53% North America 5% Benelux 5% Australasia Southeast Asia 6% UK & Ireland Japan South America 9% France Germanic Africa 11%

Ride the wave: Asian mid-market M&A spotlight 21 Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Mar-10 P Corporate Express Manufacturing Australia Staples Incorporated US 494 Australia (41.4% stake) Aug-09 C Moto Goldmines Ltd Energy & Australia 0858065 BC Ltd Channel 487 Resources Islands Aug-09 C Delaware Management Financial Services US Macquarie Bank Ltd Australia Lincoln National Corporation US 428 Holdings Inc Apr-10 P Westpac Office Trust Real Estate Australia Mirvac Group Australia 385 Nov-09 C PIPE Networks TMT Australia TPG Telecom Ltd Australia 379 Dec-09 P BHP Billiton Energy & Australia First Quantum Minerals Canada BHP Billiton Ltd Australia 340 (Ravensthorpe Nickel Resources Australia Pty Ltd Operations) Feb-10 C MedHold NV Pharma, Medical Belgium Sonic Healthcare Ltd Australia Annie Vereecken (Private Netherlands 317 & Biotech Investor); Geert Salembier (Private Investor); Waterland Private Equity Investments BV Sep-09 C Timbercorp Ltd Agriculture Australia Global Forest Partners LP US Timbercorp Ltd Australia 305 (Blue-gum plantation assets) Aug-09 C Challenger Mortgage Financial Services Australia National Australia Bank Ltd Australia Challenger Financial Services Australia 298 Management Holdings Group Pty Ltd Jun-10 P Airwork Holdings Ltd; Transportation Australia Contract Aviation Group US 291 Alliance Airlines Pty Ltd Pty Ltd Jul-09 C Macquarie Airports Transportation Australia Macquarie Airports Ltd Australia Macquarie Group Ltd Australia 282 Management Ltd Jun-10 P Ball Corporation Manufacturing US Amcor Ltd Australia Ball Corporation US 280 (plastic packaging assets) Jan-10 C Athabasca Potash Energy & Canada BHP Billiton Ltd Australia 279 Resources Jun-10 P FreightLink Pty Ltd Transportation Australia Genesee & Wyoming Inc US 278 (Asia Pacific Transport Finance) Oct-09 C Moly Mines Ltd Energy & Canada Hanlong Mining Investment Australia 275 (68.78% stake) Resources Pty Ltd Aug-09 C Transpacific Industries Manufacturing Australia Warburg Pincus LLC US 260 Group Ltd (20.35% stake) Mar-10 P CBH Resources Ltd Energy & Australia Nyrstar NV Belgium 259 Resources Apr-10 P CBH Resources Ltd Energy & Australia Toho Zinc Co ltd Japan 247 (75.9% stake) Resources Aug-09 C Aquila Resources Ltd Energy & Australia Baoshan Iron & Steel Co Ltd China 241 (15.0% stake) Resources Sep-09 C Elders Insurance Financial Services Australia QBE Insurance Group Ltd Australia Elders Ltd Australia 238 Agencies Pty Ltd (75.0% stake); Elders Insurance Ltd May-10 P Malaya Glass Products Construction Malaysia ACI International Pty Ltd; Berli Australia Fraser & Neave Holdings Bhd Malaysia 222 Sdn Bhd Jucker Public Co Ltd Dec-09 P Goodman Fielder Consumer New Cargill Australia Ltd Australia Goodman Fielder Ltd Australia 220 (Commercial edible oils Business Zealand and fats operations) May-10 P United Utilities Energy & Australia Innovation Network Japan United Utilities plc United 203 Australia Pty Ltd Resources Corporation of Japan; JGC Kingdom Corporation; Manila Water Company Inc; Mitsubishi Corporation May-10 P Stella Travel Services Tourism, Australia Jetset Travelworld Ltd Australia CVC Asia Pacific Ltd; UBS AG United 196 Holdings Pty Ltd Hospitality & Kingdom Leisure Mar-10 C Interleasing (Australia) Financial Services Australia McMillan Shakespeare Ltd Australia GMAC Australia Financial Australia 191 Ltd Services C = Completed; P = Pending

22 Australia

Aside from the aforementioned acquisitions of Heat Chart a minority stake in Corporate Express Australia mergermarket’s Heat Chart is based on our and the outright purchase of Moto Goldmines, intelligence database and tracks all companies the most notable Australian mid-market that are reportedly up for sale in Australia. The transaction of the past four quarters saw Lincoln intelligence derives from a range of sources, National Corporation, a US insurance and including press reports, company statements investment management business, sell Delaware and our own proprietary intelligence. The Management Holdings, a US asset management data does not differentiate between small company, to Macquarie Bank for US$428m in and large transactions nor between near-term August 2009. and long-term deals. Similarly, it does not Meanwhile, Australia’s most recent top-five mid- differentiate between rumored and confirmed market transaction by value was the US$385m intelligence. acquisition of the Westpac Office Trust by the Mirvac Group via a scheme implementation Hot Warm Cold agreement in April 2010. Mirvac was able to 120 75 30 offer a premium of 4.9% over Westpac’s Office Trust’s share price one day prior to the deal 105 60 15 announcement, a sweetener which obviously 90 45 0 endeared the deal to the target company’s shareholders. Australia Energy & Resources 128 TMT 49 Business Services 35 Consumer Business 34 Pharma, Medical & Biotech 25 Manufacturing 21 Financial Services 20 Tourism, Hospitality & Leisure 17 Agriculture 13 Real Estate 13 Transportation 11 Construction 4 Government 3 Other 2 TOTAL 375

Ride the wave: Asian mid-market M&A spotlight 23 Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 738 783 948 1,039 983 GDP (%, y/y change) 3.2 2.6 4.7 2.4 1.3 FDI (US$bn) -35.6 26.4 41.1 47.3 25.1 AUD:US$ (period average) 1.3 1.3 1.2 1.2 1.3 Official cash rate (%, end of period) 5.5 6.3 6.8 4.3 3.8 Interbank rate (%) 5.5 5.8 6.4 6.7 3.3

Source: Reserve Bank of Australia, http://www.rba.gov.au; Economist Intelligence Unit (EIU)

As one of the few global economies not to fall projects in Australia. Indeed, the Financial Times into a recession over the economic downturn, it newspaper reported that up to 35 such initiatives is perhaps unsurprising that the wider outlook – all of marginal economic viability – are on the for Australia is relatively bullish. GDP grew by line, with the tax having already claimed the 0.5% over Q1 2010 following on from a strong scalp of Kevin Rudd, the former Prime Minister performance in Q4 2009, when the economy who introduced the tax. Kevin Rudd's recent expanded by 1.5%. Looking forward, GDP is departure has led to his replacement by Julia forecasted to grow by 2.0% over the 2010-2011 Gillard as the new prime minister. Gillard brings period, according to the Australian Bureau of with her a desire to renegotiate the resources Agricultural & Resource Economics. 'super tax' and this will no doubt encourage The primary driver of this positive forecast is mining groups that have a strong presence in increasing global demand for Australian iron ore Australia. and coal, particularly from China and India. The In terms of domestic monetary policy, the country’s resources exports earnings are expected Australian central bank recently announced to surge by 23.0% in the 2010-2011 period to that it would raise its key interest rate for the AU$203bn, a record-breaking total. This comes sixth time in seven months to 4.5%, the highest as both prices and volumes of resources exports cash rate among developed countries in the increase, with iron ore miners pencilling in a world. Indeed, with Australian economic growth 25%-30% increase in pricings in H2 2010, and looking likely to continue over the rest of 2010, coal firms having recently secured a 40.0% rise in the current prognosis is that rates will continue April 2010. rising, with the central bank indicating that the However, the recent imposition of the Resources cost of borrowing could rise to 4.75%. The Super-Profit Tax by the Australian Government relatively positive economic outlook has also could stifle this somewhat, with some of the forced the central bank to revise its inflation world’s largest miners, such as London-based forecasts for 2010-2011 to the top end of its Xstrata, already having suspended mining 2-3% target band.

24 Australia

Meanwhile, the Australian Dollar has fluctuated 27.6% between July 2009 and the beginning of widely against its US counterpart over the past January 2010. The market then remained broadly year, with the currency appreciating by around steady until mid-April when it dropped 11.7% 14.0% between July and November 2009. over the subsequent six-week period. Since then, However, by 20 May 2010, the currency had it has staged a minor rally to finish the first half lost 16.0% of its value. Since then however, it of 2010 at around 4,300 points, some 10.0% has slowly crept back to around AU$1.14 to the higher than its position a year earlier. Dollar and is expected to stay roughly at this level until the end of the year. Since the beginning of H2 2009, Australia’s All Ordinaries stock index has mirrored movements in the Australian Dollar, strengthening by around

Stock market activity and mid-market M&A trend

50 7,000 45 6,000 40 35 5,000

30 4,000 25

20 3,000 SX 50 Index A

Deals by volume 15 2,000 10 1,000 5 0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Deals by volume ASX 50 Index

Source: mergermarket/Bloomberg

Ride the wave: Asian mid-market M&A spotlight 25 New Zealand

The New Zealand M&A mid-market has experienced a significant decline in deal volume and value over the past two years. The decline in deal value has been largely driven by lack of offshore private equity activity in the larger value deals (US$150m+) compared to the proceeding two years. The decline in the number of deals, especially for smaller deals (less than US$100m) has been largely due to tightened lending policies from the major commercial banks. We haven’t seen many distressed sales in New Zealand over the past year, with the banks typically being supportive and giving companies the opportunity to trade out of financial difficulties. Historically, most of the transactions in the New Zealand market have been smaller than US$50m (the threshold for transactions analysed in this report) and the buyers have typically been Australian strategic or private equity acquirers. Although there was also a slow- down in the number and value of these transactions, the slowdown was not as severe as seen in transactions above this level. We expect a modest increase in M&A activity in the second half of 2010. We expect this to be largely driven by overseas investment in primary sector industries such as dairy, agriculture and forestry. The buyers are generally strategic and from the Asia region. Chas Cable, Deloitte New Zealand New Zealand

Overview Mid-market M&A trends

The New Zealand mid-market has seen just eight 12 1,600 M&A transactions worth US$1.4bn announced over the past four quarters. Although M&A has 1,400 10 no doubt been subdued by the unfavorable economic and deal-making climate, recent 1,200 activity is broadly in keeping with historical 8 trends. 2006 was an exception to the rule and 1,000 witnessed something of a pronounced spike in 6 activity with 24 deals worth US$4.3bn brokered, 800 alue (US$m) accounting for more than one-third of overall V 600 mid-market M&A over the wider five-and-a-half- Number of deals 4 year period. Unsurprisingly, deal flow continues 400 to be overshadowed by Australian activity with 2 New Zealand responsible for around 12.0% 200 of Australasian mid-market M&A in terms of volumes. 0 0 The deal size breakdown of New Zealand-based activity shows that mid-market M&A over the Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 last four quarters has predominantly fallen in Number of deals Value (US$m) the lower value ranges. Indeed, the US$50m- US$150m space has accounted for 62.0% of overall activity with a further 25.0% falling in the US$151m-US$300m range. Tellingly, just 13.0% of mid-market deals have been valued at more Deal size split by volume, H2 2009-H1 2010 that US$300m over the last 12 months. 13%

US$50m - US$150m 25% US$151m - US$300m US$301m - US$500m

62% Although M&A has no doubt been subdued by the unfavorable economic and deal-making climate, recent activity is broadly in keeping with historical trends.

Ride the wave: Asian mid-market M&A spotlight 27 Sector split by volume, 2005-H1 2010 Casting an eye to the sector breakdown of recent activity, the Consumer Business niche 3% 2% 3% Consumer Business clearly leads the way in both volume and value 5% 19% terms, responsible for 19.0% and 21.0% of total Agriculture mid-market M&A activity respectively. The sector 6% Financial Services witnessed the highest-valued deal of the first half Pharma, Medical & Biotech of 2010 with Aotea Energy, a New Zealand-based Energy & Resources consortium equally owned by Infratil and New 8% Manufacturing Zealand Superannuation Fund, moving to acquire 12% Technology, Media & the distribution and retail businesses of Shell Telecommunications (TMT) New Zealand, for a total cash consideration of 9% Business Services US$357m. Elsewhere, the Agriculture, Financial Transportation Services, and Pharma, Medical & Biotech sectors 12% Tourism, Hospitality have also seen a degree of activity, together 9% & Leisure accounting for 12.0% of overall deal volumes 12% Construction each. Real Estate

Sector split by value, 2005-H1 2010

2% 2% 3% Consumer Business 3% Financial Services 3% 21% Pharma, Medical & Biotech

9% Technology, Media & Telecommunications (TMT) Manufacturing Agriculture Energy & Resources 10% 13% Transportation Construction Business Services 11% Real Estate 12% Tourism, Hospitality 11% & Leisure

28 New Zealand

Private Equity Private equity buyout trends

Private equity activity in New Zealand continues 8 1,000 to be largely dormant with just one transaction brokered over the last four quarters. The deal 900 in question came to the market in the fourth 800 quarter of 2009 and saw regional heavyweight 6 Archer Capital exit its investment in Onesource 700 Group, the holding company that offers office 600 technology solutions. In a deal valued at US$76m, the private equity house sold out to 4 500

CSG, the Australia-based ICT firm. Through the 400 alue (US$m) V acquisition, CSG indirectly acquired a 90.0% Number of deals stake in Konica Minolta Business Solutions New 300 2 Zealand. 200

Looking at buy-side activity emanating from 100 this asset class, just 21 buyouts have been announced in the New Zealand mid-market 0 0 space since 2005. Remarkably, 90.0% of this activity was brokered in 2005 and 2006 with Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 just two deals announced in the subsequent Number of deals Value (US$m) timeframe. Moreover, not a single buyout has come to the market since the onset of the Private equity exit trends financial crisis in September 2008 with the most recent acquisition being the US$67m 2 600 management buyout of fish farmer and processor New Zealand King Salmon Company, backed by 500 domestic buyout house Direct Capital Private Equity, just days before the collapse of Lehman Brothers back in September 2008. 400

1 Cross-border mid-market M&A review 300 alue (US$m) Of the 66 mid-market M&A deals announced V Number of deals in New Zealand since 2005, foreign acquirers 200 have accounted for a significant 58.0% of total deal volume and 53.0% in terms of valuations. 100 While this figure partly reflects domestic firms’ cautious approach to undertaking M&A, it is still notable that foreign acquirers account for a 0 0 larger share of the domestic M&A market in New Zealand than neighboring Australia, where the Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 corresponding volume share is 33.0%. Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 29 Inbound M&A trends The geographic breakdown of inbound cross- border M&A activity shows that the bulk of 10 1,200 investment has come from Australia. Indeed, 9 Australia-based firms have undertaken three of 1,000 8 the four inbound deals seen in New Zealand over the last four quarters. The largest of these saw 7 800 6 Cargill Australia move to acquire the Australia- 5 600 and New Zealand-based edible fats and oils operations of Goodman Fielder for US$216m. 4 alue (US$m) 400 V The transaction included refining facilities at Number of deals 3 East Tamaki, Auckland. However, Goodman 2 200 Fielder retained its New Zealand-based flour 1 milling operations and a part of its food service 0 0 operations. Australian acquirers have been similarly active Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 over the wider five-and-a-half-year period, with Number of deals Value (US$m) Australian bidders being responsible for 74.0% of inbound volumes and 82.0% of valuations. Geographic volume split of inbound M&A, 2005-H1 2010 Compared to cross-border inbound investments 3% 3% 5% into New Zealand, outbound deal flow has been largely inactive. A total of 19 outbound 5% mid-market deals have been announced since Australasia the first quarter of 2005, carrying an aggregate disclosed value of US$3.6bn. Again, the bulk North America 11% of this activity (74.0%) was transacted between Japan 2005 and 2007 with just three deals announced Greater China since the second half of 2008. However, all of UK & Ireland these deals have come to the market in the Southeast Asia first half of 2010, perhaps reflecting the recent improvement in deal-making conditions and increased confidence amongst both corporate 73% and financial investors.

Geographic value split of inbound M&A, 2005-H1 2010

2% 1% 2% 3%

10%

Australasia North America Japan Greater China UK & Ireland Southeast Asia

82%

30 New Zealand

These three deals have all involved the Outbound M&A trends acquisition of Australia-based targets and this is broadly representative of the longer term trends. 3 800 Indeed, 58.0% of outbound acquisitions from 700 New Zealand since 2005 have been brokered in 600 Australia with the total valuation share standing 2 at 53.0%. The North American market has also 500 seen notable mid-market investment from New 400 Zealand-based acquirers, accounting for 21.0% alue (US$m) of deal volume and 32.0% of valuations. 300 V Number of deals 1 200 100 0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Geographic volume split of outbound M&A, 2005-H1 2010 5% 5%

11%

Australasia North America South America Germanic Italy 58% 21%

Geographic value split of outbound M&A, 2005-H1 2010 3% 5%

8%

Australasia North America South America Germanic 52% Italy 32%

Ride the wave: Asian mid-market M&A spotlight 31 Top 25 deals 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country US$(m) Dec-06 C International Paper Manufacturing US Carter Holt Harvey Ltd New Zealand International Paper Company US 500 Company (Beverage Packaging Business) Mar-06 C Trade Me Ltd TMT New Fairfax Media Ltd Australia AMR Holdings New 499 Zealand Zealand May-05 C Sky Network Television TMT New Merger Company New Zealand Commonwealth Bank of Australia Australia 418 Ltd (22.0% stake) Zealand 2005 Ltd Mar-05 C Amatek Holdings Ltd Construction Australia Fletcher Building Ltd New Zealand CVC Capital Partners Ltd; DLJ United 417 Merchant Banking Partners III L.P. Kingdom Aug-06 C Tower Australia Group Financial Services Australia Tower Ltd New Zealand Tower Ltd New 402 Ltd (shareholders) Zealand Mar-10 C Shell New Zealand Ltd Consumer New Aotea Energy Ltd New Zealand Shell New Zealand Ltd Netherlands 357 (Distribution and retail Business Zealand businesses) Feb-06 C Carter Holt Harvey Ltd Manufacturing New Rank Group New Zealand 353 (14.0% stake) Zealand Investments Ltd Dec-07 C Qualcare Group Pharma, Medical New Retirement Care NZ New Zealand Ironbridge Capital Pty Ltd Australia 344 Holdings Ltd & Biotech Zealand Jun-07 C Blue Ridge Holding Manufacturing US Rank Group Ltd New Zealand KPS Capital Partners LP US 338 Corp. Oct-06 C Alliant Energy New Energy & New Infratil Ltd New Zealand Alliant Energy Corporation US 335 Zealand Ltd Resources Zealand Jul-05 C Wrightson Ltd Agriculture New PGG Wrightson Ltd New Zealand 298 Zealand Nov-09 P Hanover Finance Ltd Financial Services New Allied Farmers Ltd New Zealand 294 (certain assets); United Zealand Finance Ltd (certain assets) Jul-05 C Carter Holt Harvey Ltd Agriculture New Rayonier, Inc; US Carter Holt Harvey Ltd New 293 (94,300 hectares of Zealand RREEF Alternative Zealand forest) Investments Sep-06 C Truck Leasing Ltd Financial Services New Nikko Principal Australia 291 Zealand Investments Australia Pty Ltd (NPIA) Aug-05 C Fonterra (Meadow Consumer New New Zealand Dairy New Zealand Fonterra Co-operative Group Ltd New 287 Fresh and Kiwi Meats Business Zealand Foods Ltd Zealand business) Jan-07 C PowerTel Ltd TMT Australia Telecom Corporation New Zealand TVG Capital Partners Hong Kong 277 of New Zealand Ltd Dec-06 C Blue Star Print Group Ltd Manufacturing New CHAMP II Funds Australia 266 Zealand Sep-05 C Capital Properties New Real Estate New AMP Capital Investors Australia 259 Zealand Ltd Zealand Ltd Dec-06 C EnviroWaste Services Ltd Manufacturing New Ironbridge Capital Australia Fulton Hogan Ltd New 250 Zealand Pty Ltd Zealand Sep-05 C Asian Growth Properties Real Estate British Trans Tasman New Zealand Trans Tasman Properties Ltd New 246 Ltd Virgin Properties Ltd Zealand Islands (Shareholders) Oct-05 C Metlifecare Ltd (81.96% Pharma, Medical New Retirement Villages New Zealand Private Health Care Group; Todd New 237 stake) & Biotech Zealand New Zealand Ltd Lifecare Ltd Zealand Mar-06 C Griffin’s Foods Ltd Consumer New Pacific Equity Partners Australia Danone Asia Pte Ltd Singapore 234 Business Zealand Dec-06 C Strategic Investment Financial Services New Allco Hybrid Australia 225 Group Ltd (50.0% stake) Zealand Investment Trust Ltd Dec-09 P Goodman Fielder Consumer New Cargill Australia Ltd Australia Goodman Fielder Ltd Australia 220 (Commercial edible oils Business Zealand and fats operations) Jul-06 C Metropolitan Glass & Construction New NZ Glass Investment New Zealand 219 Glazing Ltd Zealand Company Ltd C = Completed; P = Pending

32 New Zealand

The run down of the top 25 deals is mostly Heat Chart dominated by deals transacted during the M&A mergermarket’s Heat Chart is based on our boom between 2005 and 2007. The largest intelligence database and tracks all companies transaction is an outbound cross-border deal that that are reportedly up for sale in New Zealand. came to market in the fourth quarter of 2006 The intelligence derives from a range of sources, and saw Carter Holt Harvey, the forest products including press reports, company statements company, acquire the beverage packaging and our own proprietary intelligence. The business of International Paper Company, the data does not differentiate between small listed United States-based manufacturer of paper, and large transactions nor between near-term packaging and forest products, for US$500m. and long-term deals. Similarly, it does not Tellingly, just three deals announced over the differentiate between rumored and confirmed last 12 months make the list, with the top deal intelligence. standing as Aotea Energy’s abovementioned US$357m buy of the distribution and retail Hot Warm Cold businesses of Shell New Zealand. Elsewhere, the 120 75 30 fourth quarter of 2009 saw the second-largest mid-market Financial Services deal of recent years 105 60 15 when Allied Farmers bought the financial assets 90 45 0 of Hanover Finance and its subsidiary, United Finance, for US$294m. New Zealand TMT 13 Consumer Business 12 Manufacturing 9 Financial Services 5 Agriculture 4 Energy & Resources 4 Tourism, Hospitality & Leisure 4 Real Estate 3 Transportation 3 Business Services 2 Construction 1 Other 3 TOTAL 63

Ride the wave: Asian mid-market M&A spotlight 33 Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 111 108 131 129 116 GDP (%, y/y change) 3.1 2.3 3.3 -0.6 -0.6 FDI (US$bn) 1.5 4.7 3.4 5.5 0.4 NZD:US$ (period average) 1.42 1.54 1.36 1.42 1.60 Official cash rate (%, end of period) 7.25 7.25 8.25 5.00 2.50 Interbank rate (%) 6.76 7.30 7.93 7.55 2.82

Source: Reserve Bank of New Zealand, http://www.rbnz.govt.nz; Economist Intelligence Unit (EIU)

New Zealand saw a sharp decline in economic Elsewhere, export growth was completely activity in 2009, contracting 0.6% year-on- flat in the year, which, given the global trade year as all major drivers of growth faltered. The environment, was astonishing. This principally exception to the rule was government expenditure reflected a strong surge in exports to China, which which grew by a modest 1.5% in the year, as the rose by around 50.0% in 2009, helping to offset government utilized its fiscal policy in a bid to lagging exports to other markets. Consequently, prop up business activity. Nevertheless, this was the narrowing in export and import growth ultimately insufficient to help ward off the effects differentials helped boost net exports’ contribution of the recession. to real GDP growth by 5.8 percentage points. Household spending, the main driver of the Over the first half of 2010, foreign trade has economy, recently standing at nearly 60.0% continued to play a determinant role in the of GDP, fell by 0.6% over 2009 amid rising economic recovery of New Zealand, which saw unemployment levels and deteriorating consumer GDP increase by 1.9% in Q1 2010. Overseas sales confidence. However, this decline appears relatively of goods and services from the country rose by minor when compared to the 12.7% year-on-year 5.4% year-on-year in the first quarter of 2010, fall in gross fixed investment. Mainly, this reflected boosted by strong demand from China for the the continued decline in residential housing nation’s raw material and agricultural goods. construction, which had been experiencing severe Household spending grew by 2.3% over year- problems stretching back to early 2008. That said, earlier levels on the back of firming labor market capital spending by firms also fell over 2009 as conditions as businesses took on more workers in risk-averse businesses curtailed capital spending. the face of rising business activity. While the central bank cut the policy rate by 250 The strong pick up in activity prompted the central basis points to just 2.5% by December 2009 to bank to implement its first interest rate hike in help stimulate greater business activity, domestic over a year in June 2010, raising the official cash credit growth lagged with an increase of just 1.5% rate by 25 basis points to 2.75% in order to ward annually. In contrast, domestic credit growth over off potential overheating in the economy. This the previous four years had averaged 12.0% per will likely see the New Zealand Dollar appreciate annum. going forward after seeing a depreciation of

34 New Zealand

around 5.0% since the end of 2009. While this Stock market activity and mid-market M&A trend may somewhat affect exports, the revaluation of 12 5,000 the Chinese Yuan means that it is unlikely to make 4,500 exports to this market uncompetitive in the near 10 term. 4,000 3,500 Going forward, the government will also step 8 3,000 up public investment in infrastructure while 6 2,500 simultaneously cutting income taxes to further 2,000 drive the recovery. Overall, real GDP is projected 4 NZSX 50 Index to grow by 3.5% in 2010 by the central bank, the Deals by volume 1,500 fastest rate in recent years. 2 1,000 500 0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Deals by volume NZSX 50 Index

Source: mergermarket/Bloomberg

Ride the wave: Asian mid-market M&A spotlight 35 Greater China Greater China

Overview Mid-market M&A trends

Mid-market M&A activity in Greater China has 120 18,000 accounted for 36.0% of overall Asia-Pacific deal 16,000 flow in the mid-cap space over the past five-and- 100 14,000 a-half years. A total of 1,332 such transactions were brokered in the region with the aggregate 80 12,000 deal value amounting to US$200.4bn, comprising 10,000 60 35.0% of overall Asia-Pacific mid-market deal 8,000 alue (US$m) valuations in the period. V 40 6,000 Number of deals Transaction activity and valuations grew robustly 4,000 during the 2006-2007 boom period, averaging 20 2,000 annual increases of over 50.0% respectively. However, as the impact of the global financial 0 0 crisis began to take hold in 2008, deal activity Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 slowed. In that year, mid-market deal-making Number of deals Value (US$m) and valuations each fell by around 18.0% from 2007 levels, which, while significant, was less severe than the 26.0% contraction in activity and Deal size split by volume, H2 2009-H1 2010 valuations for mid-market deals in the rest of the 13% world. However, over 2009 the Greater China deal market proved remarkably resilient in relative terms. Outside of the region, M&A activity and valuations in the mid-tier space fell by over US$50m - US$150m 22% one-third across the globe, while Greater China US$151m - US$300m witnessed an uptick in M&A of 6.0% and 5.0% US$301m - US$500m in volume and value terms in that order. More promisingly, over the first six months of 2010, 65% deal flow and valuations grew by 13.0% and 24.0% respectively year-on-year. In the first half of 2010, 65.0% of mid-market acquisitions fell into the US$50m-US$150m range, in keeping with the longer term average Sector split by volume, H2 2009-H1 2010 over the preceding four-and-a-half years. The 5% US$151m-US$300m deal size segment fell 4% Manufacturing slightly in relative terms to account for 22.0% 5% 23% Energy & Resources Consumer Business of mid-market deal flow in Greater China, down 5% from just 24.0% over the longer term. In the Technology, Media & upper mid-market segment (US$301m-US$500m) Telecommunications (TMT) there was a slight increase in the share of total 8% Real Estate deals, up to 13.0%, up three percentage points Financial Services from the longer term figure. Transportation Casting a look towards the breakdown of 9% Construction transaction activity by sector, Manufacturing 20% Pharma, Medical & Biotech has been the most active industry for deal- Other making over H2 2009-H1 2010 comprising 10% 23.0% of total deal volumes. Not surprisingly, 11%

Ride the wave: Asian mid-market M&A spotlight 37 Sector split by value, H2 2009-H1 2010 Manufacturing deals also led the way in terms of valuations, accounting for 23.0% of the total. 3% 3% 5% Sector splits for Greater China mid-market 23% Manufacturing M&A over the more recent H2 2009-H1 2010 8% timeframe was broader similar to figures for the Energy & Resources longer 2005-H1 2009 period. Indeed, the most Technology, Media & Telecommunications (TMT) noticeable shift came in the Financial Services 8% Consumer Business niche in which the deal volume share fell to just Financial Services 8.0% against 11.0% over the longer term. In terms of valuations, Financial Services deals also Transportation accounted for 8.0%, compared with around 9% Construction 12.0% over the preceding four-and-a-half years. 20% Pharma, Medical & Biotech Other 10% Private Equity 11% Private equity buyout trends Since 2005, mid-market private equity buyouts in Greater China have totalled 111 deals worth 16 2,000 a collective US$15.3bn. Similar to wider regional 14 1,800 trends, buyout activity registered brisk growth 1,600 over 2006 and 2007 before a sharp abatement 12 1,400 in deal-making as the global financial crisis hit in 10 1,200 late 2008. 8 1,000 However, unlike the wider mid-market in alue (US$m)

6 800 V Greater China, private equity deal-making has

Number of deals 600 not recovered with the same vigour since the 4 onset of the financial crisis, with total activity 400 2 and valuations down by 38.0% and 51.0% 200 0 respectively year-on-year in 2009. Even as the 0 global economic recovery has progressed over the first half of 2010, growth in mid-market Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) buyout volumes remained flat over year-earlier levels with just seven transactions worth Private equity exit trends US$548m being announced. 4 800 The lagged recovery in acquisition activity reflects the heavy role that foreign investment funds play 700 in driving new deals in the Greater China market. 3 600 Investors from markets such as the US, Japan and 500 the UK have undoubtedly felt the acute impact of the economic downturn and have largely 2 400 eschewed brokering new deals in China and alue (US$m)

300 V beyond, opting to focus on preserving value in

Number of deals existing investments. Overseas financial investors 1 200 have undertaken over half of total mid-market 100 buyouts in the region since 2005, a substantially 0 0 higher proportion than the share of acquisitions that foreign acquirers comprise in the wider

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Greater China mid-market. Number of deals Value (US$m)

38 Greater China

Greater China’s exit market for mid-cap assets Inbound M&A trends is relatively small with just 32 deals worth 30 4,500 US$4.9bn coming to market since 2005. Exit 4,000 activity has not been significantly impacted by 25 the crisis with financial investors undertaking 3,500 seven divestments of portfolio companies worth 20 3,000 a combined US$1.15bn over the H2 2009–H1 2,500 2010 period, up by three transactions compared 15 2,000 alue (US$m)

to the preceding four quarters and up by 55.0% V 10 1,500

in value terms. Number of deals 1,000 In terms of exit strategies in the Greater 5 China mid-market, sales to strategic investors 500 predominate, accounting for roughly four-in-five 0 0 of every portfolio company divestment in Greater China since 2005. Although secondary buyouts Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 account for 20.0% of total exits, there have been Number of deals Value (US$m) relatively few in the mid-cap space recently with only one such transaction – in Q4 2009 – being Geographic volume split of inbound M&A, H2 2009-H1 2010 announced in the past two years. 2% 5% 2% 2% 2% 38% North America Cross-border mid-market M&A review 5% Japan Inbound M&A flows into the Greater China Southeast Asia mid-market have totalled some 317 transactions 7% Germanic since 2005, collectively valued at US$47.9bn. In France aggregate, this investment has accounted for UK & Ireland just under a quarter of total mid-market M&A Nordic in the region over the past five-and-a-half years. Iberia However, as time has progressed, foreign acquirers 15% Italy have played an increasingly diminished role in the Greater China mid-market, seeing the respective Other share of total transactions and valuations fall 22% from 40.0% in 2005 to just 15.0% over the first half of 2010. This trend reflects, not necessarily Geographic value split of inbound M&A, H2 2009-H1 2010 the reduced attractiveness of mid-cap assets in 2% 2% the Greater China market, but the weakened 5% position in which many foreign acquirers have 6% North America fallen as a result of the crisis and, moreover, the 29% Japan comparatively stronger position of domestic firms to drive deals in their home market. 7% Southeast Asia France North American bidders were the most active Iberia mid-market investors in Greater China in H1 2010, 8% South Korea brokering 38.0% of total inbound transactions and Nordic a lower share (29.0%) of aggregate valuations. A distant second, Japanese acquisitions in the region Germanic 9% accounted for 22.0% of total inbound mid-market Italy Other transactions and valuations over H2 2009-H1 22% 2010 respectively. 10%

Ride the wave: Asian mid-market M&A spotlight 39 Outbound M&A trends Historically, acquisitions from Southeast Asian bidders – principally based in Singapore – ranked 14 3,000 second to North American acquirers. Indeed, 12 2,500 while North American buyers accounted for just less than 40.0% of total inbound activity 10 2,000 and deal value over the 2005-H1 2009 period, 8 Southeast Asian deal-makers on the buy-side 1,500 accounted for 12.0% of transactions and 6 alue (US$m) valuations. Meanwhile, Japanese bidders were V 1,000 Number of deals 4 the third-most active over the period, accounting for around 8.0% of total inbound investment. 2 500 Greater China acquisitions of mid-market 0 0 assets overseas have totalled 178 transactions worth a combined US$31.9bn since 2005. Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 It is noteworthy that outbound M&A activity Number of deals Value (US$m) stemming from the region has grown at a fairly steady pace in recent years, averaging growth Geographic volume split of outbound M&A, H2 2009-H1 2010 of 19.0% per annum over the 2005-H1 2009 period for both M&A volumes and valuations. 14% 23% Remarkably perhaps, compared to the same North America timeframe 12 months previous, H1 2010 2% Southeast Asia 2% outbound mid-market acquisitions rose by over Australasia 75.0% in both volume and value terms with 20 5% UK & Ireland deals worth US$3.7bn coming to market. CEE 4% North America and Southeast Asia were the most SEE targeted markets for mid-market acquisitions South America undertaken abroad by Greater China firms over 7% 18% Middle East H2 2009-H1 2010, each accounting for around Africa a fifth of total activity. In terms of deal value, Southeast Asia again leads the way with a 22.0% 11% Other share, followed by purchases of North American 14% assets (18.0%). Meanwhile, Australasia, a popular overseas market for Energy & Resources Geographic value split of outbound M&A, H2 2009-H1 2010 acquisitions, comprised 14.0% of total outbound mid-cap buys and 10.0% of deal value over the 9% 1% period. 22% 5% Southeast Asia It is noteworthy that the proportion of North America Australasian acquisitions to overall mid-market 6% UK & Ireland overseas transactions has risen as little as it has South America over the past 12-month period, with volumes Australasia rising just 1.0% and valuations falling over 9% CEE the H2 2009-H1 2010 period compared to South Asia the previous four-and-a-half years. Elsewhere, 18% SEE the share for North America acquisitions also declined slightly over the H2 2009-H1 2010 in 10% Central Asia terms of both volumes and values related to the Other longer term, while the proportion of Southeast 10% 10% Asian buys remained broadly unchanged.

40 Greater China

Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Dec-09 C General Motors India Pvt Manufacturing India Shanghai Automotive China Motors Liquidation Company US 500 Ltd (50.0% stake) Industry Corporation (Group) Apr-10 P Tian An China Investments Real Estate Hong Allied Properties (HK) Ltd Hong Sun Hung Kai & Co Ltd Hong Kong 491 Company Ltd (38.06% Kong Kong stake) Jun-10 P Apollo Solar Energy Manufacturing Hong Hanergy Holdings Group China 490 Technology Holdings Ltd Kong Ltd (51.57% stake) Dec-09 P Upper Value Investments Construction China TCC International Hong Prosperity Minerals Holdings Ltd Hong Kong 490 Ltd Holdings Ltd Kong Dec-09 P Sundy Group Real Estate China Liaoning Baike Group China Guo Yijuan (private investor); China 486 (Holding) Co Ltd Shenzhen Pingan Property Investment Co Ltd; Zhejiang Sundy Company Nov-09 C Yantai Raffles Shipyard Ltd Manufacturing Singapore Bright Day Ltd Hong Bright Touch Investment Ltd; DnB Norway 477 (81.7% stake) Kong NOR; Leung Kee Holdings Ltd Dec-09 P Bank of East Asia Ltd Financial Hong Negocio de Finanzas e Spain 477 (5.99% stake) Services Kong Inversiones I, SL Mar-10 C Shenzhen Zhonghai Real Estate China China State Construction China China State Construction China 472 Investment Management Engineering Corporation Engineering Corporation Co Ltd Ltd Jul-09 C Expand Wide Ltd Energy & China Best Project Holdings Ltd Hong 472 Resources Kong Jul-09 P Jinhai Heavy Industry Manufacturing China Grand China Logistics China Shanghai Zhouji (Group) Co Ltd China 468 (50.0% stake) Group Nov-09 C Universal Scientific Industrial TMT Taiwan Advanced Semiconductor Taiwan 459 (USI) (82.37% stake) Engineering Inc Jun-10 P Lee & Man Paper Manufacturing Hong Nippon Paper Group Inc Japan Gold Best Holdings Ltd British 457 Manufacturing Ltd (12.0% Kong Virgin stake) Islands Mar-10 C ACL Bank Public Company Financial Thailand Industrial and Commercial China 453 Ltd (80.74% stake) Services Bank of China Ltd Jan-10 C Hutchison TMT Hong Hutchison Whampoa Ltd Hong 450 Telecommunications Kong Kong International Ltd (32.93% stake) Nov-09 C Taifook Securities Group Ltd Financial Hong Haitong Securities Co Ltd China 445 Services Kong Sep-09 P Danone-Wahaha JV (39 Consumer China Hangzhou Wahaha China Danone SA France 439 Companies) (51.0% stake) Business Group Co Ltd Aug-09 C Have Result Investments Ltd Energy & Hong EPI (Holdings) Ltd Hong City Smart International Hong Kong 431 Resources Kong Kong Investment Ltd; TCL Peak Winner Investment Ltd Apr-10 P Jushi Group Co Ltd (49.0% Construction China China Fiberglass Co Ltd China China National Building Material China 430 stake) Co Ltd; Pearl Success International Co Ltd; Surest Finance Ltd; ZhenShi Holding Group Co Ltd Apr-10 C Sigma Enterprises Ltd Transportation China COSCO Pacific Ltd Hong AP Moeller - Maersk A/S Denmark 429 (13.71% stake) Kong Jun-10 P Feixiang Chemicals Manufacturing China Rhodia SA France Bain Capital LLC US 428 (Zhangjiagang) Co Ltd (87.50% stake) May-10 P Hynix-Numonyx TMT China Hynix Semiconductor Inc South Numonyx BV Switzerland 427 Semiconductor Ltd (20.71% Korea stake) Jan-10 P Huaneng Power Energy & China China Huaneng Group China 418 International Inc (2.93% Resources stake) Sep-09 P Dalian Port Corporation Ltd Transportation China Dalian Port (PDA) China Dalian Port Corporation Ltd China 411 (certain assets) Company Ltd Feb-10 C Shell Electric Mfg. (Holdings) Consumer Hong China Overseas Land and Hong 408 Company Ltd (56.24% Business Kong Investment Ltd Kong stake) Dec-09 P China Merchants Transportation China Qingdao Qianwan United China China Merchants International China 407 International Container Container Terminal Co Ltd Container Terminal (Qingdao) Terminal (Qingdao) Co Co Ltd; Qingdao New Qianwan Ltd(five berths,storage Container Terminal Co Ltd yards,ancillary facilities and machinery); Qingdao New Qianwan Container Terminal Co Ltd (four berths, storage yards, ancillary facilities and machinery) C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 41 The largest mid-market transaction over the H2 Heat Chart 2009-H1 2010 period saw Chinese trade player mergermarket’s Heat Chart is based on our Shanghai Automotive Industry Corporation (SAIC) intelligence database and tracks all companies acquire a 50.0% stake in General Motors India that are reportedly up for sale in the Greater from its US-based parent company for US$500m. China region. The intelligence derives from The deal highlights the emergence of China as a range of sources, including press reports, the largest producer and consumer of vehicles company statements and our own proprietary worldwide, the growth ambition of domestic intelligence. The data does not differentiate firms and the pursuit of new technologies and between small and large transactions nor skills that overseas M&A can help attain. between near-term and long-term deals. Similarly, it does not differentiate between rumored and confirmed intelligence. Top 10 acquirers

Volume Value Hot Warm Cold of deals of deals 120 75 30 (US$m) 105 60 15 China Resources (Holdings) 17 3,092 90 45 0 China Petroleum & 11 3,434 Chemical Corporation The Carlyle Group 9 1,111 Greater China China Merchants Holdings 7 1,359 Manufacturing 409 China Resources Gas Group 7 1,318 Consumer Business 195 Aluminum Corporation Of 7 1,086 TMT 183 China Energy & Resources 156 Morgan Stanley 7 810 Financial Services 153 Goldman Sachs 7 556 Pharma, Medical & Biotech 129 Temasek Holdings 6 1,468 Real Estate 111 PetroChina Company 6 1,160 Transportation 63 Business Services 56 Tourism, Hospitality & Leisure 56 Construction 38 Agriculture 20 Defence 1 Other 4 TOTAL 1,574

42 China Mid-market M&A trends Overview Unsurprisingly, China is the largest arena for 90 14,000 mid-market deal activity in Greater China with 80 983 transactions collectively worth US$144.5bn 12,000 coming to market over the 2005-H1 2010 70 period, accounting for around one-quarter of 10,000 Asian mid-market deal volumes and values. Over 60 2006-2007, there was a strong upward swing 50 8,000 in Chinese mid-market deal flow, with annual average increases in volumes and valuations

40 6,000 alue (US$m) rising by 66.0% and 75.0%, respectively. V

Number of deals 30 Similar to global trends, mid-market M&A activity 4,000 fell in 2008 as a result of the financial crisis. 20 Over the year, volumes and values contracted 2,000 by 9.0% and 6.0% respectively, well below the 10 18.0% decline in overall M&A activity witnessed 0 0 across the Greater China region, suggesting that small-cap China-based assets remained relatively

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 attractive throughout the downturn. Number of deals Value (US$m) Moreover, since the beginning of 2009 – when quarterly M&A activity troughed – to the end of H1 2010, Chinese deal-making has recovered robustly, witnessing some 314 transactions worth a combined US$45.3bn. Over 2009, activity grew Deal size split by volume, H2 2009-H1 2010 by 11.0% while valuations rose by just 5.0%. Yet while the economic recovery has progressed over 11% the first half of 2010, mid-market activity has remained broadly flat with volumes falling 4.0% and valuations dropping 1.0% year-on-year.

21% US$50m - US$150m US$151m - US$300m US$301m - US$500m Over 2006-2007, there

68% was a strong upward swing in Chinese mid-market deal flow, with annual average increases in volumes and valuations rising by 66% and 75%, respectively.

44 China

In the year to June 2010, the lower-end of the Sector split by volume, H2 2009-H1 2010 mid-cap M&A market dominated with activity in the US$50m-US$150m segment accounting 3% 4% Manufacturing for over two-thirds of deal flow. At the same 5% time, deals in the US$151m-US$300m range 24% Energy & Resources comprised 21.0% of the total, while those in the 5% Consumer Business upper mid-market US$301m-US$500m deal size Technology, Media & 6% range comprised 11.0% of the total. Notably, the Telecommunications (TMT) deal size split by activity over the H2 2009-H1 Real Estate 2010 period varies little from longer term trends. Transportation 10% Construction Given China’s designation as the 'workshop Financial Services of the world', it is not surprising that the Manufacturing sector is the most active space 20% Pharma, Medical & Biotech for deal-making, accounting for 24.0% of 10% Other deal volumes and values over the H2 2009-H1 2010 period in that order. Energy & Resources 13% transactions closely followed accounting for approximately one-fifth of total mid-market activity in both volume and value terms. Meanwhile, small-cap acquisitions in the Consumer Business space represented 13.0% and 11.0% of total mid-cap activity and valuations. Looking at longer term trends, sector splits for the 2005-H1 2009 period by transaction volumes and values are broadly similar among Manufacturing and Energy & Resources Sector split by value, H2 2009-H1 2010 transactions, distantly followed by Consumer Business deals. 4% 1% 5% Manufacturing 24% Energy & Resources 6% Real Estates Consumer Business 9% Technology, Media & Telecommunications (TMT) Transportation Construction 10% Financial Services

19% Pharma, Medical & Biotech Other 11% 11%

Ride the wave: Asian mid-market M&A spotlight 45 Private equity buyout trends Private Equity

12 1,400 Not surprisingly, China’s private equity market is the most active in the Greater China region with total mid-market buyouts amounting to 83 1,200 10 transactions worth US$10.1bn over the 2005-H1 2010 period. Indeed, this level of deal-making 1,000 8 accounted for 36.0% of all private equity buyouts by volume and 38.0% of buyout deal 800 values in China over the timeframe. 6 After seeing brisk activity over 2007 and 2008, 600 alue (US$m) V buyout investments in Chinese mid-cap assets Number of deals 4 floundered in the first quarter of 2009 as the 400 fallout from the global financial crisis stymied 2 deal flow. The ensuing global economic recovery 200 however, saw an uptick in deal activity and valuations with the year as a whole witnessing a 0 0 total of 14 buyouts worth US$1.7bn. However, in spite of the general economic Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 recovery and upturn in deal-making, the asset Number of deals Value (US$m) class has not been driving significant deal flow in the mid-market. Indeed, over the first half of 2010, financial investors have been surprisingly inactive, brokering just five deals worth US$434m in this particular space. Private equity exit trends The market for portfolio divestments has seen 3 700 a total of 21 transactions worth US$3.6bn between 2005 and the end of H1 2010. Similar to the buyout market, exits lagged in the wake 600 of the financial crisis in late 2008, with no transactions being brokered over Q4 2008 and 500 Q1 2009. However, exits over 2009 as a whole 2 eventually picked up with five sales, worth 400 US$540m being announced over the course of the year, broadly in keeping with historical

300 alue (US$m) trends. Furthermore, the first half of 2010 has V also witnessed robust deal flow, with four Number of deals 1 200 sales, valued at a cumulative US$740m, being announced. 100

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

46 China

Cross-border mid-market M&A review Inbound M&A trends Cross-border deal activity is an increasingly 40 5,000 important feature in the Chinese M&A market 35 4,500 with foreign players clambering to get a 4,000 30 foothold in the fast-growing Chinese economy. 3,500 Equally, domestic firms are also looking to 25 3,000 source deals abroad in order to secure supply 20 2,500 lines of important raw material inputs and to 2,000 alue (US$m) acquire top-notch management and technology 15 V

Number of deals 1,500 capabilities. 10 1,000 Casting a look to recent trends, inbound M&A 5 500 investment has seen a total of 402 mid-market deals worth US$56.6bn brokered over the past 0 0 five-and-a-half years, accounting for around Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 40.0% of all Chinese mid-market deal volumes Number of deals Value (US$m) and values over the same timeframe. However, these proportions fell in 2009 to around Geographic volume split of inbound M&A, H2 2009-H1 2010 one-third of overall deal volume and value as 1% foreign players were either less able or less 1% 1% confident in undertaking acquisitions in the 1% 1% Chinese market. 3% 4% Greater China Over the first half of 2010, transaction activity North America was broadly flat over year-earlier levels with 8% 29 deals in total. That said, deal value was up Southeast Asia by US$1bn compared to H1 2009 while the Germanic quarterly average deal size hit US$237m in Q2 Japan 2010, the highest level in the past five-and-a-half UK & Ireland 16% years. Nordic France Far and away the largest cross-border investors 64% into the mainland Chinese market come from Italy neighboring Hong Kong. Combined with a small South Korea number of transactions undertaken by Taiwanese bidders, M&A investment in the Chinese mid-cap Geographic value split of inbound M&A, H2 2009-H1 2010 space from buy-side parties in the city-state accounted for just under two-thirds of total deal 1% <1% 2% volumes and values over the H2 2009-H1 2010 3% 3% period. Notably, this is substantially higher than 4% Greater China the proportions over the preceding four-and-a- 4% North America half years which saw Hong Kong and Taiwanese Southeast Asia acquisitions in China comprise roughly 41.0% of 5% overall inbound volumes and valuations. France South Korea Over the 2005-H1 2010 period, overseas Nordic mid-market acquisitions undertaken by 13% Germanic businesses based in mainland China have numbered 91 transactions worth a combined Japan 65% US$16.6bn. Remarkably, outbound deal flow has Italy actually increased in the period following the UK & Ireland

Ride the wave: Asian mid-market M&A spotlight 47 Outbound M&A trends collapse of Lehman Brothers in September 2008, whereas businesses in most other markets found 9 2,500 sourcing assets abroad an ever-more challenging 8 endeavour. 7 2,000 Indeed, the total number of foreign mid-cap buys 6 1,500 in 2009 stood at 22 takeovers worth US$5.1bn, 5 up by 16.0% and 52.0% annually and a peak in 4 both volume and value terms. Over the first six alue (US$m) 1000 V months of 2010, outbound year-on-year deal 3 Number of deals activity was up by 75.0% to 14 deals worth 2 500 US$2.3bn. 1 Over H2 2009-H1 2010, the most popular 0 0 markets targeted by Chinese firms for mid-cap purchases overseas were North America and Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) the other markets of Greater China, together accounting for exactly half of overall outbound deal flow. Interestingly, while purchases of Hong Geographic volume split of outbound M&A, H2 2009-H1 2010 Kong and Taiwanese assets accounted for more 7% than one-third of all outbound valuations in the 4% period, Chinese investors only spent a paltry US$473m on North American assets over the 4% Greater China 31% North America period. 4% Southeast Asia It is noteworthy that the share of total outbound UK & Ireland North American deal value over the 2005-H1 7% CEE 2009 period was a much higher proportion at Australasia around one-quarter of total overseas mid-cap 7% Middle East takeovers. Perhaps the fall in the share of the Africa region’s deal value reflected shrinking valuations in the North American market, where the global SEE 7% financial crisis was comparatively severe. 18% Other 11%

Geographic value split of outbound M&A, H2 2009-H1 2010

2% 6%

6% Greater China 35% Southeast Asia 6% South Asia North America 7% CEE South America 7% UK & Ireland Australasia SEE 9% Other 13% 9%

48 China

Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Dec-09 C General Motors India Pvt Ltd Manufacturing India Shanghai Automotive China Motors Liquidation Company US 500 (50.0% stake) Industry Corporation (Group) Jun-10 P Apollo Solar Energy Manufacturing Hong Hanergy Holdings Group China 490 Technology Holdings Ltd Kong Ltd (51.57% stake) Dec-09 P Upper Value Investments Ltd Construction China TCC International Hong Prosperity Minerals Holdings Ltd Hong Kong 490 Holdings Ltd Kong Dec-09 P Sundy Group Real Estate China Liaoning Baike Group China Guo Yijuan (private investor); China 486 (Holding) Co Ltd Shenzhen Pingan Property Investment Co Ltd; Zhejiang Sundy Company Mar-10 C Shenzhen Zhonghai Real Estate China China State Construction China China State Construction China 472 Investment Management Engineering Corporation Engineering Corporation Co Ltd Ltd Jul-09 C Expand Wide Ltd Energy & China Best Project Holdings Ltd Hong 472 Resources Kong Jul-09 P Jinhai Heavy Industry Manufacturing China Grand China Logistics China Shanghai Zhouji (Group) Co Ltd China 468 (50.0% stake) Group Mar-10 C ACL Bank Public Company Financial Thailand Industrial and Commercial China 453 Ltd (80.74% stake) Services Bank of China Ltd Nov-09 C Taifook Securities Group Ltd Financial Hong Haitong Securities Co Ltd China 445 Services Kong Sep-09 P Danone-Wahaha JV (39 Consumer China Hangzhou Wahaha China Danone SA France 439 Companies) (51.0% stake) Business Group Co Ltd Apr-10 P Jushi Group Co Ltd (49.0% Construction China China Fiberglass Co Ltd China China National Building Material China 430 stake) Co Ltd; Pearl Success International Co Ltd; Surest Finance Ltd; ZhenShi Holding Group Co Ltd Apr-10 C Sigma Enterprises Ltd Transportation China COSCO Pacific Ltd Hong AP Moeller - Maersk A/S Denmark 429 (13.71% stake) Kong Jun-10 P Feixiang Chemicals Manufacturing China Rhodia SA France Bain Capital LLC US 428 (Zhangjiagang) Co Ltd (87.5% stake) May-10 P Hynix-Numonyx TMT China Hynix Semiconductor Inc South Numonyx BV Switzerland 427 Semiconductor Ltd (20.71% Korea stake) Jan-10 P Huaneng Power Energy & China China Huaneng Group China 418 International Inc (2.93% Resources stake) Sep-09 P Dalian Port Corporation Ltd Transportation China Dalian Port (PDA) China Dalian Port Corporation Ltd China 411 (certain assets) Company Ltd Dec-09 P China Merchants Transportation China Qingdao Qianwan United China China Merchants International China 407 International Container Container Terminal Co Ltd Container Terminal (Qingdao) Terminal (Qingdao) Co Co Ltd; Qingdao New Qianwan Ltd(five berths,storage Container Terminal Co Ltd yards,ancillary facilities and machinery); Qingdao New Qianwan Container Terminal Co Ltd (four berths, storage yards, ancillary facilities and machinery) Sep-09 C Legend Holdings Ltd (29.0% TMT China China Oceanwide China Chinese Academy of Sciences China 403 stake) Holdings Group Co Ltd Holdings Co Ltd Nov-09 P MMX Mineracao e Energy & Brazil Wuhan Iron and Steel China 400 Metalicos SA (21.52% stake) Resources Company Ltd Nov-09 P Harbin Dongan Auto Engine Manufacturing China Aviation Industry China AviChina Industry and Technology China 395 Co Ltd (54.51% stake) Corporation of China Co Ltd Oct-09 C Shanghai ZhongXi Pharma, China Shanghai Pharmaceutical China 386 Pharmaceutical Co Ltd Medical & Co Ltd Biotech Aug-09 P Shanghai Shangtou Real Real Estate China Shanghai AJ Co Ltd China Shanghai International Group China 382 Estate Co Ltd ; Shanghai Corporation Ltd Tongda Real Estate Co Ltd Jun-10 P Chongqing Brewery Co Ltd Consumer China Carlsberg A/S Denmark Chongqing Beer Group Co Ltd China 349 (12.25% stake) Business Apr-10 P Shandong Century Electric Energy & China Huadian Power China Zhengda Energy Development China 346 Power Development Co Ltd Resources International Corporation (China) Co. Ltd (84.31% stake) Ltd Jan-10 C Sino-Ocean Land Holdings Construction China China Life Insurance China Sinochem International China 340 Ltd (7.51% stake) Company Ltd Corporation C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 49 Aside from Shanghai Automotive Industry Heat Chart Corporation’s US$500m acquisition of a 50.0% mergermarket’s Heat Chart is based on our stake in General Motors India in December 2009, intelligence database and tracks all companies the largest mainland Chinese transaction over that are reportedly up for sale in China. The the H2 2009-H1 2010 period came to market intelligence derives from a range of sources, in June 2010 and saw Hanergy Holdings, the including press reports, company statements Chinese cleantech business, spend US$490m to and our own proprietary intelligence. The acquire a 51.57% stake in Apollo Solar Energy data does not differentiate between small Technology, the Hong Kong-based solar panel and large transactions nor between near-term plant manufacturer. The deal was completed at a and long-term deals. Similarly, it does not significant 65.0% discount to Apollo Solar Energy differentiate between rumored and confirmed Technology’s share price one day prior to the intelligence. deal announcement. Third up was the acquisition by TCC International Hot Warm Cold Holdings, the Hong Kong-based cement 120 75 30 producer and subsidiary of Taiwan Cement Corporation, of Upper Value Investments, the 105 60 15 British Virgin Islands-based holding company of 90 45 0 cement production businesses in China, from Prosperity Minerals Holdings for US$490m in December 2009. The acquisition will expand China TCC’s annual production capacity to over Manufacturing 389 40m tonnes in 2010 and explore new market Consumer Business 164 opportunities beyond southern China. TMT 155 Energy & Resources 135 Financial Services 124 Pharma, Medical & Biotech 120 Real Estate 106 Transportation 57 Tourism, Hospitality & Leisure 49 Business Services 43 Construction 37 Agriculture 18 Other 1 TOTAL 1,398

50 China

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 2,303 2,780 3,458 4,416 4,909 GDP (%, y/y change) 10.4 11.7 13.0 9.6 8.7 FDI (US$bn) 79.1 78.1 138.4 147.8 78.2 CNY:US$ (period average) 8.2 8.0 7.6 7.0 6.8 Prime lending rate (%, per annum) 5.58 6.12 7.47 5.31 5.31 Money market rate (%, period average) 1.67 2.13 2.38 2.53 1.07

Source: National Bureau of Statistics of China, http://www.stats.gov.cn; Economist Intelligence Unit (EIU)

In 2009, robust economic activity in the Chinese That the savings ratio remained practically market buttressed otherwise depressed global unchanged is all the more interesting given that growth in the aftermath of the international domestic demand growth was robust at 13.8% financial crisis in late 2008. Indeed, despite year-on-year, fuelled by rising household and posting the lowest rate of real GDP growth in government spending. Household consumption, over five years at 8.7% - against a contraction of which expanded by 9.4% in the year, was 2.2% in global growth – the pace of economic bolstered by two primary factors. expansion was nevertheless respectable and First, although the national rate of much faster than any other large economy in the unemployment is high – hovering at around world. a tenth of the workforce in recent years – That said, with China’s main export markets urban labor markets are tightening with fewer in crisis the country’s dynamic manufacturing rural workers willing to relocate to the main export industries clearly suffered in the year as production centers in coastal cities, which is in turn pushing up real wages. Second, the relaxed overseas sales of goods and services sputtered monetary policy of the People’s Bank of China amid a marked retrenchment in global demand. helped spur domestic credit growth to 30.7% In the year, export volumes contracted sharply by in 2009, up from 11.7% in the preceding year, 8.4%, while imports fell by a more modest 1.9%. according to EIU estimates. As such, Chinese As a result, net exports made a 4.1 percentage consumers and businesses enjoyed much better point detraction from overall real GDP growth in access to credit than witnessed in recent years. the year, according to data from the EIU. Meanwhile, gross fixed capital formation also The more pronounced fall in export volumes and grew robustly over last year, increasing by receipts over those of imports caused a sharp 19.1% as businesses took advantage of better narrowing in the merchandise trade balance, credit access to increase capital spending, down US$111bn over year-earlier levels to property companies expanded the number of US$250bn in 2009. This was the main factor new development projects and the public sector behind the drop in the current account surplus to stepped up investment outlays into civil works 6.1% of GDP from 9.6% in 2008. Nonetheless, and infrastructure development projects. This the surplus in 2009 was still significantly large, increase in government capital spending came helping to sustain China’s high domestic savings alongside a strong upswing in government ratio at just over 50.0% of GDP in the year – consumption spending, up 10.1% year-on- almost exactly the same proportion as recorded year, as part of the government fiscal stimulus in 2008. measures in response to the economic downturn.

Ride the wave: Asian mid-market M&A spotlight 51 Stock market activity and mid-market M&A trend While demand-side pressures in the domestic economy increased over last year, the consumer 7,000 90 price index nevertheless fell by 0.7%, according 80 6,000 to data from the National Statistics Bureau. 70 However, consumer prices have started to pick 5,000 60 up considerably in 2010 with headline inflation registering a 3.1% increase year-on-year in 50 4,000 the month of May – notably, this is above the 40 3,000 government’s 3.0% target ceiling set for the year.

Deals by volume 30 While this partially reflects transitory inflation in

2,000 SSE Composite Index 20 foods, one of the principal drivers is the bustling pace of economic activity with industrial output 10 1,000 up 16.5% year-on-year in that particular month. 0 0 Looked at alongside a strong revival in exports

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 and growing industrial action – which could result in wage increases – this raises credible Deals by volume SSE Composite Index fears that the Chinese economy is overheating. Source: mergermarket/Bloomberg The Real Estate sector, in particular, is seen as a key risk area after fresh investment in the sector rose by 38.2% year-on-year in May following months of strong growth. Accordingly, the government has adopted a more conservative stance on fiscal and monetary policy to help ease upward price pressures, while also introducing measures to inhibit speculative investing in the property market. Such measures ought to help moderate the pace of growth with the World Bank expecting real GDP to expand by 9.5% this year, below the EIU and IMF’s projections of 9.9% and 10.0%, respectively.

The government has adopted a more conservative stance on fiscal and monetary policy to help ease upward price pressures, while also introducing measures to inhibit speculative investing in the property market.

52 Hong Kong Mid-market M&A trends Overview Mid-market M&A activity within Hong Kong 25 4,500 has totalled some 225 transactions, worth a 4,000 collective US$37.7bn, over the past five-and-a- 20 3,500 half-years. The majority of this activity came 3,000 to market in 2007, when 60 deals, valued at 15 US$9.9bn, were announced. Since then however, 2,500 annual mid-market acquisitions by volume and 2,000 value have fallen, with 34 buys, worth US$6bn, 10 alue (US$m) V

Number of deals 1,500 being recorded in 2009. The bulk of this deal flow actually came in the second half of 2009, 5 1,000 when more than three-quarters of the year’s 500 transactions, as well as 81.0% of the year’s M&A 0 0 valuations, were announced. And FY 2010 deal flow is shaping up well with H1 2010 activity Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 amounting to 24 deals worth US$4.8bn – a far Number of deals Value (US$m) cry from the eight deals worth US$1.1bn which were announced in the same period the year Deal size split by volume, H2 2009-H1 2010 preceding. Over the past four quarters, more than 22% half (52.0%) of all Hong Kong mid-market acquisitions fell into the US$50m-US$150m space, with a further 26.0% being worth between US$151m and US$300m. In US$50m - US$150m comparison, over the preceding four-and-a-half US$151m - US$300m years, 60.0% of all mid-market deals fell into the smallest deal size category, with another 27.0% US$301m - US$500m falling in the US$151m-US$300m range. 52% 26%

Sector split by volume, H2 2009-H1 2010 FY 2010 deal flow is 8% Energy & Resources 4% 26% Financial Services shaping up well with H1 4% Manufacturing 2010 activity amounting 4% Business Services Consumer Business to 24 deals worth 8% Real Estate US$4.8bn – a far cry from Agriculture Technology, Media & the eight deals worth Telecommunications (TMT) 8% 16% Transportation US$1.1bn which were Other announced in the same 8% 14% period the year preceding.

54 Hong Kong

Most mid-market transactions over the H2 Sector split by value, H2 2009-H1 2010 2009-H1 2010 period were Energy & Resources, 4% Financial Services or Manufacturing deals, with 3% Energy & Resources 4% the three sectors together accounting for 28 Financial Services 4% 26% acquisitions. Indeed, mid-market acquirers spent Manufacturing some US$3.6bn on Energy & Resources and 7% Real Estate Financial Services assets over the timeframe, Consumer Business equating to around 46.0% of the overall spend. Technology, Media & 7% Telecommunications (TMT) Transportation Private Equity Business Services Over the three-year period stretching from 2007 8% Construction to 2009, mid-market acquisitions in Hong Kong 20% Other were remarkably consistent with four deals coming to market each year, worth, on average, 17% a total of US$632m. Indeed, over the second half of 2009, three transactions, worth a total Private equity buyout trends of US$225m, were announced, followed by a 3 duo of buyouts in Q2 2010, worth a cumulative 700 US$114m. 600

Meanwhile, just eight mid-market private equity 500 exits have taken place in Hong Kong over the 2 2005-H1 2010 period, with most of them 400 occurring in 2005 and the first quarter of 2006. 300 alue (US$m)

Indeed, since then, just two private equity firms V

Number of deals 1 have sold out of Hong Kong-based investments 200 with these exits coming to the market in Q4 2007 and Q2 2009. 100 0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) Private equity exit trends

3 350

300

250 2 200

150 alue (US$m) V

Number of deals 1 100

50

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 55 Inbound M&A trends Cross-border mid-market M&A review

10 1,800 Foreign bidders have undertaken 91 mid-market acquisitions in Hong Kong since the beginning 9 1,600 of 2005, collectively worth US$14.9bn. Annual 8 1,400 inbound cross-border deal activity spiked in 7 1,200 2007 with a total of 27 deals worth US$4bn 6 1,000 announced. Quarterly deal flows then remained 5 fairly subdued over 2008 and the first half of 800 alue (US$m)

4 V 2009 before another surge in activity took place 600 Number of deals 3 in the second half of the year. Over Q3 and Q4 2 400 2009, some 10 transactions worth US$2.1bn, 1 200 came to market. 0 0 Over the past four quarters, the bulk of inbound interest has stemmed from Greater China Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 bidders, with acquisitions emanating from Number of deals Value (US$m) the region accounting for eight transactions, worth US$1.9bn. Japanese acquirers made an additional six buys, worth a total of US$995m, Geographic volume split of inbound M&A, H2 2009-H1 2010 while North American businesses acquired three 6% Hong Kong-based companies for a cumulative US$316m.

17% Interestingly, over the previous four-and-a-half- year period, it was North American bidders that 44% dominated Hong Kong’s mid-market M&A space, Greater China with 22 acquisitions worth US$3.5bn, originating Japan from the region. This represents a 30.0% share of all inbound acquisitions by volume over the North America timeframe and this figure swells to 32.0% when Iberia looking at M&A valuations. While inbound acquisitions over the prior five- and-a-half-year period amounted to just 87 33% transactions worth US$13.8bn, mid-market acquisitions of foreign assets by Hong Kong- Geographic value split of inbound M&A, H2 2009-H1 2010 based firms totalled 288 deals, worth a significant US$42.7bn making this specific market 9% segment larger than both domestic and inbound cross-border activity. 2007 and 2009 were both particularly active years, with more than 60 13% transactions coming to market on each occasion. 51% Indeed, Q3 2009 was the most active quarter Greater China for outbound mid-market acquisitions by Hong Japan Kong-based bidders since Q1 2005, with 25 purchases worth US$3.6bn announced. Iberia North America

27%

56 Hong Kong

More than two-thirds of all Hong Kong-based Outbound M&A trends mid-market cross-border acquisitions since the 30 4,000 beginning of H2 2009 have been of Greater 3,500 China targets, with 49 deals worth US$7.6bn 25 coming to market. Acquisitions of Australasian 3,000 and Southeast Asian targets were also numerous, 20 2,500 accounting for a further nine deals worth US$1.9bn. 15 2,000 alue (US$m)

1,500 V Outbound trends by Hong Kong bidders over 10 Number of deals the 2005-H1 2009 period were broadly similar, 1,000 with 68.0% of all outbound acquisitions being 5 500 focused on the Greater China region, with deal valuations comprising 61.0% of total outbound 0 0 deals by value.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) Geographic volume split of outbound M&A, H2 2009-H2 2010 1% 1% 1% 1% 1% 4% 6% Greater China North America 6% Australasia Southeast Asia UK & Ireland 8% CEE SEE South America South Korea 71% Central Asia

Geographic value split of outbound M&A, H2 2009-H2 2010 1% 1% 3% 1% 3% 4% Greater China More than two-thirds of 4% North America all Hong Kong-based Southeast Asia 8% UK & Ireland mid-market cross-border Australasia acquisitions since the South America 9% CEE beginning of H2 2009 Central Asia have been of Greater South Korea China targets. 66% SEE

Ride the wave: Asian mid-market M&A spotlight 57 Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Apr-10 P Tian An China Investments Real Estate Hong Allied Properties (HK) Ltd Hong Sun Hung Kai & Co Ltd Hong Kong 491 Company Ltd (38.06% Kong Kong stake) Dec-09 P Upper Value Investments Ltd Construction China TCC International Hong Prosperity Minerals Holdings Ltd Hong Kong 490 Holdings Ltd Kong Jun-10 P Apollo Solar Energy Manufacturing Hong Hanergy Holdings Group China 490 Technology Holdings Ltd Kong Ltd (51.57% stake) Nov-09 C Yantai Raffles Shipyard Ltd Manufacturing Singapore Bright Day Ltd Hong Bright Touch Investment Ltd; DnB Norway 477 (81.7% stake) Kong NOR; Leung Kee Holdings Ltd Dec-09 P Bank of East Asia Ltd Financial Hong Negocio de Finanzas e Spain 477 (5.99% stake) Services Kong Inversiones I, SL Jul-09 C Expand Wide Ltd Energy & China Best Project Holdings Ltd Hong 472 Resources Kong Jun-10 P Lee & Man Paper Manufacturing Hong Nippon Paper Group Inc Japan Gold Best Holdings Ltd British 457 Manufacturing Ltd (12.0% Kong Virgin stake) Islands Jan-10 C Hutchison TMT Hong Hutchison Whampoa Ltd Hong 450 Telecommunications Kong Kong International Ltd (32.93% stake) Nov-09 C Taifook Securities Group Ltd Financial Hong Haitong Securities Co Ltd China 445 Services Kong Aug-09 C Have Result Investments Ltd Energy & Hong EPI (Holdings) Ltd Hong City Smart International Hong Kong 431 Resources Kong Kong Investment Ltd; TCL Peak Winner Investment Ltd Apr-10 C Sigma Enterprises Ltd Transportation China COSCO Pacific Ltd Hong AP Moeller - Maersk A/S Denmark 429 (13.71% stake) Kong Feb-10 C Shell Electric Mfg. (Holdings) Consumer Hong China Overseas Land and Hong 408 Company Ltd (56.24% Business Kong Investment Ltd Kong stake) Apr-10 P Sul Americana de Metais S.A Energy & Brazil Honbridge Holdings Ltd Hong Lit Mining Cooperatief U.A.; Brazil 390 Resources Kong Votorantim Novos Negocios Ltda Nov-09 P MTG Laminate (BVI) Ltd Manufacturing Hong Top Mix Investments Ltd Hong Meadville Group Hong Kong 359 Kong Kong May-10 P Hong Kong Air Cargo Transportation Hong China National Aviation Hong Cathay Pacific Airways Ltd; CITIC Hong Kong 328 Terminals Ltd (40.0% stake) Kong Corporation (Group) Ltd; Kong Pacific Ltd; Swire Pacific Ltd Hutchison Port Holdings Ltd; Jardine Matheson Holdings Ltd; Mosgen Ltd; The Wharf (Holdings) Ltd Apr-10 C Seabank Power Ltd (50.0% Energy & United Cheung Kong Hong BG Group plc United 322 stake) Resources Kingdom Infrastructure Holdings Kong Kingdom Ltd Apr-10 P HNA Airport Holding Transportation China Hainan Meilan Hong HNA Group Co Ltd; Kingward China 322 (Group) Company Ltd International Airport Kong Investment Ltd (54.5% stake) Company Ltd Jun-10 P Wiseking Mining Investment Energy & Hong Computech Holdings Ltd Hong 308 Co Ltd (86.0% stake) Resources Kong Kong Mar-10 P Spring Vast Ltd Energy & Russia FinTronics Holding Hong Truffle Rich Holdings Ltd British 300 Resources Company Ltd Kong Virgin Islands Oct-09 P Cosway (M) Sdn Bhd Consumer Malaysia Berjaya Holdings (HK) Ltd Hong Biofield Sdn Bhd; Cosway Malaysia 287 Business Kong Corporation Berhad; Madison County LLC Sep-09 C PineBridge Investments Financial US Bridge Partners LP Hong American International Group Inc US 277 Services Kong Jun-10 P Pearl Sharp Ltd Financial Hong Easywin International Hong Mr. Leung Ngai Man (Private Hong Kong 272 Services Kong Holdings Ltd Kong investor) Jul-09 C Prosperity Minerals Holdings Construction Hong Prosperity International Hong Max Start Holdings Ltd; Max Will Hong Kong 265 Ltd (55.07% stake) Kong Holdings (H.K.) Ltd Kong Profits Ltd; Prosperity Minerals Group Ltd ; Wong Ben Koon (Private Investor) Nov-09 P Asia Iron Holdings Ltd Energy & Hong Chongqing Chonggang China Sinom (Hong Kong) Ltd Hong Kong 260 (60.0% stake) Resources Kong Minerals Development Investment Ltd Jul-09 C CITIC Capital Holdings Ltd Financial Hong China Investment China 258 (40.0% stake) Services Kong Corporation C = Completed; P = Pending

58 Hong Kong

The largest Hong Kong mid-market transaction Heat Chart to take place over the past four quarters was mergermarket’s Heat Chart is based on our the US$491m acquisition of a 38.06% stake in intelligence database and tracks all companies Tian An China Investments Company by Allied that are reportedly up for sale in Hong Kong. Properties, the Hong Kong firm engaged in The intelligence derives from a range of sources, property investment and development. The including press reports, company statements vendor in this case was Sun Hung Kai, the and our own proprietary intelligence. The listed Hong Kong-based Financial Services data does not differentiate between small company, who swapped 573 million shares and large transactions nor between near-term in Tian An for 2.3 trillion shares in Allied and long-term deals. Similarly, it does not Properties, representing a premium of 30.2% differentiate between rumored and confirmed over Tian An’s share price one day prior to the intelligence. deal announcement. The deal will allow Allied Properties to exert some measure of direct control over Tian An as well as enabling Sun Hot Warm Cold Hung Kai to concentrate on its core Financial 120 75 30 Services business. 105 60 15 The aforementioned Upper Value Investments 90 45 0 and Apollo Solar Energy Technology acquisitions aside, the fourth-largest mid-market acquisition in Hong Kong saw Bright Day, the Hong Hong Kong Kong subsidiary of China International Marine Consumer 23 Containers launched a tender offer to acquire the TMT 21 remaining 81.7% stake in Yantai Raffles Shipyard, the Singaporean marine manufacturing company, Energy/Mining/Utilities 18 in November 2009. Financial Services 17 Industrials and Chemicals 13 Business Services 10 Tourism, Hospitality & Leisure 7 Pharma/Med/Biotech 5 Transportation 5 Real Estate 4 Agriculture 2 Construction 1 Defence 1 Other 3 TOTAL 130

Ride the wave: Asian mid-market M&A spotlight 59 Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 178 190 207 215 211 GDP (%, y/y change) 7.1 7.0 6.4 2.2 -2.8 FDI (US$bn) 33.6 45.1 54.4 59.6 42.0 HKD:US$ (period average) 7.8 7.8 7.8 7.8 7.8 Discount window base rate (%, per annum) 5.75 6.75 5.75 0.50 0.50

Source: Hong Kong Census and Statistics Department, http://www.censtatd.gov.hk; Economist Intelligence Unit (EIU)

Hong Kong has a remarkably open economy with Despite a low-interest rate environment and exports and imports each accounting for 194.0% rising domestic credit growth – estimated by the and 187.0% of GDP in 2009. Accordingly, the EIU at over 30.0% annually – uncertainty and slowdown in global growth in the year stifled declining business activity also caused companies activity in Hong Kong’s trade-dependent sectors to curtail capital spending, resulting in a 1.8% with exports and imports each falling by 10.1% contraction in gross fixed investment. and 8.8% year-on-year. The full effects of the Meanwhile, monetary conditions were relatively contraction in trade activity caused net exports favorable in the year. Given weak economic to act as a significant drag on growth, detracting activity, price pressures were muted with 3.6 percentage points from real GDP in the year, headline inflation up just 1.3% at the end of according to data from the EIU. Consequently, 2009. Moreover, the exchange rate remained the rate of change in output growth in 2009 fell stable throughout the year in response to the by 2.8%. exchange rate management of the Hong Kong While the government stepped up spending with Monetary Authority, which uses a currency a 2.4% increase in consumption expenditure by board to maintain stability of the Hong Kong the public sector, the state budget registered a Dollar. In 2009, the exchange rate averaged surplus of 0.8% of GDP. This reflected an increase HK$7.75:US$1.00, marking an appreciation of in government revenue – up by 2.6 percentage 0.5% compared to 2008. points to 21.5% of GDP – which allowed The modest appreciation of the currency had spending to increase without jeopardizing the little effect on the performance of Hong Kong’s government’s robust fiscal position. external accounts, which suffered more due to Elsewhere, household spending – the largest the drop in global demand. With global trade contributor to growth with around 60.0% of dwindling, the city-state’s dynamic export GDP in recent years – fell by 0.4% in 2009 as service industry saw the balance on the services consumers cut back spending in the face of account fall by US$3.0bn to US$42.0bn in the rising uncertainty and worsening labor market year. However, this more than made up for conditions. Indeed, the rate of unemployment the merchandise trade deficit of US$26.9bn to rose to a four-year high of 5.2% and wages sustain an overall current account surplus at deteriorated by 1.5% in real terms in the year. 8.7% of GDP.

60 Hong Kong

Over the first quarter of 2010, economic activity Stock market activity and mid-market M&A trend has started to pick up with an 8.2% expansion 25 35,000 in economic output over year-earlier levels. In the quarter, household spending rose by 6.5% 30,000 year-on-year, while gross fixed investment 20 was up 10.5%, fuelled by the initiation of a 25,000 15 number of big infrastructure projects such as 20,000 the rail transport service into Guangzhou, China. Growing external demand, particularly from 10 15,000 Hang Seng Index

neighboring China, boosted sales of Hong Kong’s Deals by volume 10,000 goods and services, each rising by 16.7% and 5 17.9% compared to the first quarter of 2009. 5,000 In this respect, the aim of increasing economic integration with mainland China through the 0 0 Closer Economic Partnership Arrangement will serve the country well as the neighboring market Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 continues to be an engine of global economic Deals by volume Hang Seng Index growth. Source: mergermarket/Bloomberg Overall, economic activity is expected to continue its strong rebound with the IMF forecasting 5.0%, a figure slightly more conservative than the EIU’s 5.6% projection.

Over the first quarter of 2010, economic activity has started to pick up with an 8.2% expansion in economic output over year-earlier levels.

Ride the wave: Asian mid-market M&A spotlight 61 Taiwan Taiwan

Overview Mid-market M&A trends The Taiwanese mid-market has seen a total of 12 2,500 124 transactions collectively worth US$18.3bn brokered over the 2005-H1 2010 period, accounting for just under one-tenth of overall 10 2,000 deal volume and value in the Greater China region in the period. Not dissimilar to other 8 markets in the region and further afield, deal 1,500 activity boomed over the 2006-2007 period, subsequently falling as the global financial crisis 6

began to impact deal-making. alue (US$m) 1,000 V

For instance, in 2008 the total number of Number of deals 4 mid-cap transactions brokered in Taiwan fell by just over 40.0% year-on-year in both volume and 500 value terms to 19 transactions worth US$3.2bn. 2 The decline was most severe in the third quarter of the year when just one transaction was 0 0 announced. However, the deal market saw a strong upward movement in activity in Q4 with Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 six deals worth US$1.1bn brokered – mainly Number of deals Value (US$m) by US and Japanese acquirers – even as the economic malaise in the wake of the collapse of Lehman Brothers remained at its lowest ebb. In 2009, deal activity remained fairly buoyant, falling by just two transactions to 17 deals worth Deal size split by volume, H2 2009-H1 2010 US$3bn with a particularly strong showing in the final quarter of the year, which accounted for 11% 47.0% and 56.0% of annual deal volumes and values. Over the first half of 2010, deal-making has remained relatively strong with volumes up by 29.0% year-on-year and valuations dropping just 6.0%. US$50m - US$150m 21% US$151m - US$300m US$301m - US$500m

68%

Ride the wave: Asian mid-market M&A spotlight 63 Sector split by volume, H2 2009-H1 2010 Transactions in the US$50m-US$150m deal size segment comprised the largest share of overall 5% mid-cap M&A in Taiwan, accounting for over 5% two-thirds of activity over the H2 2009-H1 2010 32% 5% period. In the period, deal flow in the US$151m- Technology, Media & US$300m range accounted for 21.0% of total Telecommunications (TMT) deals, almost twice as much as the share for Manufacturing transactions in the upper mid-market US$301m- 11% Financial Services US$500m segment. As a result, trends over the Pharma, Medical & Biotech 12 months to June 2010 are closely in line with Energy & Resources those of the preceding four-and-a-half-year Tourism, Hospitality & Leisure period. Real Estate The Taiwanese economy encompasses large 16% and well-developed computer technology and industrial electronics subsectors and these niches 26% have helped to drive deal-making in the TMT and Manufacturing spaces. Indeed, TMT transactions accounted for just under one-third of overall mid-market deal volume and 45.0% of aggregate value over the H2 2009-H1 2010 period. Remarkably, all of these transactions came to market in the computer semiconductors and hardware segments. In comparison, computer technology accounted for close to three-in-four TMT transactions between 2005 and H1 2009. Sector split by value, H2 2009-H1 2010 Over the past four quarters, deal flow in the Manufacturing space accounted for just over 3% 3% 6% one-quarter of total mid-cap deal volumes 45% and values, making it the second-most active 6% Technology, Media & industrial sector. And while the industrial Telecommunications (TMT) electronics niche only accounted for one-quarter Manufacturing of activity by volume, it comprised over half of deal values in Taiwan’s Manufacturing 13% Financial Services mid-market M&A space. Energy & Resources Pharma, Medical & Biotech Tourism, Hospitality & Leisure Real Estate

24%

64 Taiwan

Private Equity Private equity buyout trends Private equity activity accounts for a relatively 6 1,800 small proportion of Taiwanese mid-market M&A with just 11 buyouts worth US$2.6bn brokered 1,600 over the past five-and-a-half years. Accordingly, 5 divestments of private equity owned portfolio 1,400 companies have also been relatively few and 4 1,200 far between in the mid-cap space, totalling just three exits worth US$530m. 1,000 3

800 alue (US$m) V

Number of deals 2 600

400 1 200

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Private equity exit trends

2 400

350

300

250

1 200 alue (US$m) V 150 Number of deals

100

50

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 65 Inbound M&A trends Cross-border mid-market M&A review 6 1,400 Cross-border investment into the Taiwanese mid-market plays an important role in driving 1,200 5 deal flow. Indeed, inbound cross-border deal 1,000 flow has accounted for nearly 40.0% of the 4 wider mid-market space in Taiwan since 2005. 800 In terms of raw numbers, a total of 47 deals 3 worth US$7bn have been undertaken by foreign

600 alue (US$m) V 2 investors. While inward M&A investment into Number of deals 400 Taiwan’s mid-cap market was reasonably robust over the 2006-2008 period, foreign acquirers 1 200 have been less active in the island-state’s market 0 0 since the acute onset of the global financial crisis in late 2008.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) In 2009, for instance, annual deal activity and aggregate valuations fell by one-half and Geographic volume split of inbound M&A, 2005-H1 2010 two-thirds, respectively, to just five transactions worth US$564m. The situation has improved 2% 2% little over the first half of 2010 with just two 4% transactions announced in the period, collectively 4% 35% North America valued at US$168m. 4% Japan Looking at the principal foreign investors in 6% Greater China the Taiwanese mid-market over the past five- UK & Ireland and-a-half years, North American acquirers Benelux have been the most active inbound investors 6% Germanic with a 35.0% and 41.0% share of overall deal Nordic volumes and values respectively. Not surprisingly, France acquirers from the Asia-Pacific region also figured prominently, with Japan accounting for 22.0% of 15% Southeast Asia South Korea activity, ahead of Hong Kong and China-based acquirers. 22%

Geographic value split of inbound M&A, 2005-H1 2010

2% 2% 2% 3% 3% 41% North America 5% Japan Greater China 5% South Korea Benelux France UK & Ireland 15% Southeast Asia Nordic Germanic

22%

66 Taiwan

Taiwanese takeovers of foreign mid-market Outbound M&A trends companies have totalled 22 transactions worth 30 4,000 an aggregate US$3.1bn between 2005 and H1 3,500 2010, with the majority of this activity focused 25 on overseas TMT targets. Indeed, overseas 3,000 acquisitions in the sector accounted for more 20 2,500 than half of transaction volumes and more than 80.0% of total outbound deal value over the 15 2,000 alue (US$m) period. 1,500 V 10 Number of deals The principal overseas markets targeted by 1,000 Taiwanese investors since 2005 have been North 5 America and Greater China – particularly the 500 Hong Kong market – each accounting for more 0 0 than one-third of volumes and around one-third of valuations. Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) In terms of acquirers, Prime View International, the listed manufacturer of TFT-LCD and e-Paper Geographic volume split of outbound M&A, 2005-H1 2010 display products, has been the most active 5% bidder of mid-cap assets overseas, being 5% involved on the buy-side in two takeovers worth 5% a combined US$498m. The first saw the firm lead a consortium of buyers in the acquisition of 4% 36% Greater China BOE Hydis Technology, the South Korean maker North America of TFT-LCD panels, for US$283m back in 2007. 4% South Korea More recently in mid-2009, Prime View acquired UK & Ireland the US-based E Ink Corp, a manufacturer of 9% Germanic EPD technologies, for a total consideration of Benelux US$215m. Japan Southeast Asia

32%

Geographic value split of outbound M&A, 2005-H1 2010

2% 2% 2% 3% 3% North America 5% Japan Greater China 5% 41% South Korea Benelux France UK & Ireland 15% Southeast Asia Nordic Germanic

22%

Ride the wave: Asian mid-market M&A spotlight 67 Top 25 deals 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Mar-07 C Ho-Ping Power Company (40.0% Energy & Taiwan OneEnergy Ltd Hong Hong Kong Hong Kong 500 stake) Resources Kong Jul-07 C Nien Made Enterprise Manufacturing Taiwan Global Viewcomp Holdings B.V. Taiwan Taiwan 475 Nov-09 C Universal Scientific Industrial (USI) TMT Taiwan Advanced Semiconductor Taiwan Taiwan 459 (82.37% stake) Engineering Inc Apr-07 C Citibank Taiwan Financial Taiwan Citibank Overseas Investment US US 431 Services Corporation Jul-07 C Ta Chong Bank (36.90% stake) Financial Taiwan Corsair Capital LLC; The Carlyle US US 426 Services Group LLC Sep-06 C Epitech Technology Corporation TMT Taiwan Epistar Corporation Taiwan Taiwan 423 Oct-08 C Inotera Memories Inc (35.60% TMT Taiwan Micron Technology Inc US US Germany 400 stake) Mar-08 C Taiwan Broadband TMT Taiwan Macquarie Korea Opportunities Fund South South Korea Australia 366 Communications (60.0% stake) Korea May-06 C Jih Sun Financial Holdings Co Ltd Financial Taiwan Shinsei Bank Ltd Japan Japan 360 (31.80% stake) Services Oct-09 C Cyntec Co Ltd (64.40% stake) Manufacturing Taiwan Delta Electronics Incorporated Taiwan Taiwan 358 Sep-07 C Analog Devices Inc. (Cellular TMT US MediaTek Inc Taiwan Taiwan US 350 operations) Mar-09 C Phoenix Precision Technology Manufacturing Taiwan Unimicron Technology Corp Taiwan Taiwan 347 Corporation Jun-05 C Siemens AG (mobile phone TMT Germany Qisda Corporation Taiwan Taiwan Germany 323 business) Apr-08 C Lite-On Technology Corporation TMT Taiwan Wistron Corporation Taiwan Taiwan Taiwan 303 (Digital Display business) Sep-07 C Cosmos Bank Taiwan (71.55% Financial Taiwan GE Capital Taiwan Ltd (General US US 299 stake) Services Electric); SAC Private Capital Group Apr-09 P He Jian Technology (Suzhou) Co TMT China United Microelectronics Corporation Taiwan Taiwan China 285 Ltd (85.0% stake) Nov-07 C BOE Hydis Technology Co., Ltd TMT South Prime View Consortium Taiwan Taiwan 283 Korea Apr-09 C Jih Sun Financial Holdings Co Ltd Financial Taiwan Capital Target Ltd; SIPF BV US US 278 (34.20% stake) Services Aug-07 C HannStar Display (third generation TMT Taiwan Wintek Corporation Taiwan Taiwan Taiwan 273 TFT-LCD 550mm x 660mm plant) Apr-05 C Mingtai Fire & Marine Insurance Financial Taiwan Mitsui Sumitomo Insurance Group Japan Japan Taiwan 266 Co Ltd Services Holdings Inc Sep-06 C Far Eastern Geant Company Ltd Consumer Taiwan Far Eastern Department Stores Ltd Taiwan Taiwan France 254 (50.0% stake) Business Oct-08 C Shin Kong Financial Holding Co Financial Taiwan The Dai-ichi Mutual Life Insurance Japan Japan 245 Ltd (8.91% stake) Services Company Jul-09 P Chunghwa Picture Tubes Ltd TMT Taiwan Compal Electronics Inc; Tatung Taiwan Taiwan 241 (22.57% stake) Company Oct-05 C Tatung Company (Desktop PC TMT Taiwan Elitegroup Computer Systems Taiwan Taiwan Taiwan 237 division) Company Ltd (ECS) Feb-06 C Systex Corporation (81.28% stake) TMT Taiwan Sysware Corporation Taiwan Taiwan 237 C = Completed; P = Pending

68 Taiwan

The largest transaction brokered in the Heat Chart Taiwanese market over the past four quarters, mergermarket’s Heat Chart is based on our saw Advanced Semiconductor Engineering, the intelligence database and tracks all companies domestic manufacturer of integrated circuit that are reportedly up for sale in Taiwan. The packages, acquire the outstanding 82.37% stake intelligence derives from a range of sources, it did not already own in Universal Scientific including press reports, company statements Industrial for US$459m in November 2009. The and our own proprietary intelligence. The acquisition was made through its subsidiaries J&R data does not differentiate between small Holding and ASE Test and ranks as the third- and large transactions nor between near-term largest transaction undertaken in Taiwan since and long-term deals. Similarly, it does not 2005. differentiate between rumored and confirmed Over this wider period, the largest mid-cap intelligence. transaction came to market in the Energy & Resources sector with One Energy Ltd, the Hot Warm Cold Hong Kong-based holding company engaged in power generation businesses in Southeast Asia 120 75 30 and Taiwan, acquiring a 40.0% stake in Ho-Ping 105 60 15 Power Company, a Taiwanese holding company 90 45 0 with interests in the power generation niche, for US$500m in March 2007. Taiwan Financial Services 12 Consumer Business 8 Manufacturing 7 TMT 7 Pharma, Medical & Biotech 4 Business Services 3 Energy & Resources 3 Real Estate 1 Transportation 1 TOTAL 46

Ride the wave: Asian mid-market M&A spotlight 69 Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 376 393 403 379 433 GDP (%, y/y change) 4.7 5.4 6.0 0.7 -1.9 FDI (US$bn) 16.3 74.2 77.7 54.3 28.0 CNY:US$ (period average) 32.2 32.5 32.8 31.5 33.1 Prime lending rate (%, per annum) 2.25 2.75 3.38 2.00 1.25 Money market rate (%, period average) 1.30 1.56 1.97 1.93 0.12

Source: National Statistics, Republic of China (Taiwan), http://www.stat.gov.tw; Economist Intelligence Unit (EIU)

Taiwan’s economic performance in 2009 was labor-intensive infrastructure projects, which similar in many respects to trends underway in helped to mitigate against rising unemployment other small-and medium-sized economies in the – the rate reached 5.9% last year, up from region. With depressed external demand, exports 4.1% in 2008. The government measures were levels fell by 9.1% year-on-year at the same time supportive of household consumption spending, that domestic businesses cut back investment which grew by a modest 1.4%. However, expenditure – which fell by 11.1% – causing the this also partly reflected the base effect from economy to fall into recession, contracting by the previous year when private consumption 1.9%. expenditure contracted by 0.6%. To offset the deteriorating economic situation, In May 2010, the government cut corporate the government undertook aggressive fiscal taxes for the second time in the past 12 months stimulus measures at the same time that the to 17.0% from 20.0% in order to spur economic central bank eased interest rates. Indeed, activity and boost FDI into the country. While this the government’s countercyclical spending may go some way to achieving these aims, the saw public sector consumption rise by 3.6% government has little fiscal manoeuvrability with in the year. However, this caused a sharp a sovereign debt ratio which is currently deemed deterioration in public finances with the budget high by credit ratings agencies. deficit widening to 3.9% of GDP, compared to an average deficit of 0.5% per annum in the preceding four years. While public expenditure rose, the government also had a smaller revenue haul due to the sluggish economy and a host of tax breaks implemented across the economy. As a result, the total tax haul was just 15.8% of GDP in 2009, compared to an average of 18.0% per Taiwan’s economic annum from 2005-2008. In addition to the personal income tax cuts, performance in 2009 was the government also undertook a number of similar in many respects measures to alleviate the effects of the recession on the household sector such as providing to other small-and subsidies on interest payments of new mortgages and providing consumer vouchers. Elsewhere, medium-sized economies the government also increased spending into in the region.

70 Taiwan

Nevertheless, Taiwan’s economic position in 2010 Stock market activity and mid-market M&A trend is improving. Despite the deteriorating trade 12 12,000 environment in 2009, the country maintained a large current account surplus at 11.1% of GDP 10 10,000 in 2009 and data from Q1 2010 shows a robust rebound in trade activity. Indeed, exports and 8 8,000 imports expanded by 41.6% and 48.8% year-on- year in the first quarter in real terms. Moreover, 6 6,000

household consumption rose by 3.1% annually TWSE Index 4 4,000 in the quarter, while gross fixed investment saw Deals by volume remarkably high growth of 77.5%. Overall, the 2 2,000 official Taiwanese government projection for growth is 6.1%, slightly less optimistic than the 0 0 EIU’s 8.5% forecast.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Deals by volume TWSE Index Source: mergermarket/Bloomberg

Ride the wave: Asian mid-market M&A spotlight 71 Japan

Japanese outbound mid-market M&A continues at a pace, with Japanese corporates acquiring companies in the US easily because of the hard Yen. Furthermore, they are seeking revenue growth through acquisitions in high growth economies such as China and Southeast Asia. Hitoshi Karasuno, Deloitte Japan Japan

Overview Mid-market M&A trends

Despite Japan’s general economic malaise of 45 8,000 recent years, the country remains one of the largest M&A markets in the Asia-Pacific region. 40 7,000 Since the beginning of 2005, the Japanese 35 mid-market has witnessed a total of 624 6,000 transactions, carrying an aggregate disclosed 30 value of US$97.2bn. 5,000 25 Deal flow in Japan peaked at the height of the 4,000

global M&A boom in 2007 when a total of 138 20 alue (US$m) V transactions worth US$20.7bn came to market. 3,000 Number of deals 15 Interestingly, activity over the first three quarters 2,000 of 2008 remained broadly comparable to the 10 same timeframe 12 months previous, although the global financial crisis significantly stifled 5 1,000 activity in the fourth quarter when just 17 deals were announced. Mid-market M&A activity has 0 0 since seen a modest recovery, although deal- making in 2010 is still down on 2007 numbers. Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) Looking at the sector breakdown of mid-market M&A in the 12 months to the end of June 2010, the TMT and Consumer Business sectors led the way in volume terms, seeing a total of 22 and 21 transactions respectively, and collectively accounting for 45.0% of overall activity. Deal size split by volume, H2 2009-H1 2010 Elsewhere, the Manufacturing and Financial 9% Services niches have also seen robust levels of deal churn with an 18.0% and 13.0% respective share of the mid-market M&A pie. The split by deal value is a similar story with TMT and Consumer Business responsible for 45.0% of US$50m - US$150m mid-market valuations over the past 12 months. 31% It is therefore unsurprising that the largest US$151m - US$300m announced deal in the Japanese mid-market over US$301m - US$500m this time was a TMT sector play with Quantum Entertainment Corporation, a wholly-owned 60% subsidiary of Quantum Leaps Corporation, a consortium comprising 13 companies, acquiring listed TV broadcaster Yoshimoto Kogyo Co in a take private transaction valued at US$458m.

Ride the wave: Asian mid-market M&A spotlight 73 Sector split by volume, H2 2009-H1 2010 The recent sector breakdown of mid-market deal-making is broadly in keeping with longer 2% 3% 3% term trends. Since the first quarter of 2005, the 4% Technology, Media & Consumer Business space has seen the greatest 23% Telecommunications (TMT) level of activity in both volume and value terms, 5% Consumer Business with a total of 125 deals announced, collectively Manufacturing valued at US$18.2bn. The Manufacturing sector 7% Financial Services has been the second-most active sector, followed Real Estate by TMT and Financial Services. Remarkably, the Business Services largest mid-market transaction in 2010 was witnessed in the Pharma, Medical & Biotech 13% Tourism, Hospitality & Leisure sector and saw German company Boehringer Construction Ingelheim acquire the remaining 39.8% that it 22% Pharma, Medical & Biotech didn't already own in SS Pharmaceutical Co, its Other Japan-based listed subsidiary, for US$367m. 18% In terms of the deal size breakdown of activity, since the second half of 2009, deal-making has largely retrenched to the lower end of the Japanese mid-market. The US$50m-US$150m range has been responsible for 60.0% of overall numbers, ahead of the US$151m-300m (31.0%) and US$301m-500m (9.0%) ranges. While these figures are indicative of falling valuations and an austere financing environment, it should be noted that there is no significant departure from Sector split by value, H2 2009-H1 2010 longer term trends, with 63.0% of mid-market deals since 2005 falling in the lower band. 2% 5% With regard to the raw numbers, 392 of the 3% Consumer Business 624 mid-market M&A transactions announced 4% 23% Technology, Media & in Japan over this time have been valued 5% Telecommunications (TMT) US$50m-US$150m. Financial Services 7% Manufacturing Private Equity Real Estate Business Services Private equity funds have been somewhat active Pharma, Medical & Biotech in the Japanese mid-market since 2005 with a 13% Transportation total of 90 buyouts worth US$14.4bn. However, 22% Energy & Resources deal activity was significantly down in 2008 and 2009 because of the volatile economic Other situation. Given the size of the wider market, 16% buy-side activity from the asset class has not been particularly impressive, accounting for just 19.0% of Japanese M&A activity in volume terms. This figure pales when compared to other large economies in the Asia-Pacific region, with buyouts responsible for roughly one-quarter of mid-market activity in India, for example.

74 Japan

The relative lack of private equity buyouts in Private equity buyout trends Japan is certainly interesting, particularly as a number of large funds have a presence in the 9 1,400 country. A contributing factor is the business 8 culture with the majority of firms unwilling to 1,200 take on investment from the asset class, often 7 viewing third party investors as unwelcome 1,000 outsiders. Moreover, low interest rates mean that 6 companies can borrow cheaply while there is 5 800 also a history of banks and large conglomerates

propping up ailing businesses. 4 alue (US$m)

600 V

Despite these obstacles, the longer term outlook Number of deals 3 for private equity investment in Japan is arguably 400 positive. The domestic market has an abundance 2 of small- and medium-sized firms that possess 200 world-class technology but perhaps lack the 1 necessary funds and managerial nous required 0 0 to grow both domestically and internationally. Furthermore, the country is also in the midst of Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 a generational shift with the founders of many Number of deals Value (US$m) private businesses approaching retirement age. Private equity funds could take advantage of situations where no succession plan is in place and, as a result, move to broker an increased number of transactions in the coming months. Even where a succession plan is well mapped Private equity exit trends out, it is likely that the younger generation of Japanese business owners will be more receptive 6 700 to taking on a private equity investor going forward. 5 600 Rather predictably, private equity sell-side activity has been subdued in recent years with 38 exits 500 4 announced since 2005. Just seven deals worth US$779m have come to the market over the last 400 18 months, illustrative of the deterioration of sale 3 alue (US$m) conditions since the acute onset of the economic 300 V

downturn with valuations falling and the majority Number of deals 2 of would-be buyers eschewing acquisitions due 200 to the lack of market visibility. 1 100

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 75 Inbound M&A trends Cross-border mid-market M&A review

7 1,400 The reluctance of domestic firms to relinquish control of their business to outside investors has 6 1,200 not only adversely impacted upon acquisitions 5 1,000 by private equity houses. Cross-border inbound investment has been muted in recent times with 4 800 just 62 deals worth US$10.6bn brokered over the last five-and-a-half years. In stark contrast, Japan- 3 600 alue (US$m) V based firms have actively targeted cross-border Number of deals 2 400 acquisition opportunities, with 226 outbound deals announced over the same period, carrying 1 200 an aggregate disclosed value of US$35.5bn. 0 0 Looking at inbound trends, deal activity peaked over 2007 and 2008 when a total of 29 deals Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) were announced. Deal flow understandably fell away in 2009 as the global economic downturn hit, although it is remarkable that the first half Geographic volume split of inbound M&A, H2 2009-H1 2010 of 2010 has witnessed a recovery with foreign 7% investors seemingly ready, willing and able to return to the Japanese mid-market. Indeed, the 8% first six months of 2010 witnessed eight such transactions, surpassing the six deals that came North America to the market over the whole of 2009. 8% Germanic The geographic breakdown of inbound cross- Australasia border M&A in Japan shows that North American Southeast Asia 8% firms have been the most active acquirers of Greater China domestic assets since 2005. Over this period, 61% South Korea US and Canadian companies have collectively 7% undertaken 32 investments worth US$6.1bn in Japan, representing more than half of overall inbound investment in both volume and value terms. This trend can also be seen when just looking at deals announced over the last 12 Geographic value split of inbound M&A, H2 2009-H1 2010 months with eight such transactions coming to 3% 3% the market. 3% European firms have also been relatively active 9% in the mid-market space in Japan, highlighted North America to good effect by Boehringer Ingelheim’s Germanic acquisition. However, it is the UK & Ireland which Australasia leads the way when looking at deal volume with five such purchases brokered since 2005. 17% Southeast Asia Tellingly, the largest such deal also took place South Korea in the Pharma, Medical & Biotech sector with Greater China 65% GlaxoSmithKline acquiring the 15.0% stake it did not already hold in GlaxoSmithKline plc Japan from Sumitomo Chemical Company for a consideration of US$280m.

76 Japan

While outbound cross-border M&A from Japan Outbound M&A trends has outpaced inbound deal-making, the overall 16 3,000 shape of investment is unusual with activity remaining steady over the last 18 months. 14 2,500 Between 2005 and 2008, outbound activity 12 was remarkably stable, averaging 40 deals, 2,000 cumulatively worth US$6.1bn, being announced 10 each year. 8 1,500

6 alue (US$m) Diverging from wider markets, 2009 and the first 1,000 V half of 2010 has witnessed a markedly resilient Number of deals 4 outbound M&A mid-market with a total of 59 500 deals worth US$10bn having been announced 2 over this 18 month period. Moreover, it is 0 0 notable that some significant outbound deals have been brokered in recent times, the largest Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 transaction being Hisamitsu Pharmaceutical Number of deals Value (US$m) US$341m acquisition of Noven Pharmaceuticals, the US-based developer of transdermal and Geographic volume split of outbound M&A, H2 2009-H1 2010 transmucosal drug-delivery systems and technologies, in Q3 2009. 2% 5% 2% The North American market has been the 5% North America 31% Greater China preferred investment location of Japanese firms 5% undertaking cross-border M&A, both in the last Southeast Asia 12 months and over the wider five-and-a-half- South Asia 7% year period. Since 2005, Japan-based acquirers Germanic have been involved in 63 deals in North America, CEE collectively valued at US$9.4bn. Intriguingly, the Australasia 10% largest mid-market transaction came to market UK & Ireland in 2009 and was a direct product of the global France financial crisis with Mitsubishi UFJ Financial Other Group acquiring a 1.19% stake in Morgan 12% 21% Stanley for US$440m via a public offering. Post- deal, Morgan Stanley used the proceeds of the Geographic value split of outbound M&A, H2 2009-H1 2010 deal to partly pay back the TARP funds previously received from the US government. 4% 2% 4% Japanese firms have also brokered a number 5% North America of outbound cross-border deals in neighboring Greater China 31% geographies in the Asia-Pacific region. Greater 6% Southeast Asia China, Southeast Asia and, to a lesser extent, South Asia South Asia led the way in terms of deal volume. 6% Australasia Looking at valuations, the top two outbound Germanic deals valued in the mid-market range both CEE involved the acquisition of Australia-based SEE assets. The most notable transaction saw Mitsui 10% & Co acquire a 19.9% stake in Sims Group, France the Australian metal recycler, from Hugo Neu Other 19% Corporation for US$449m in Q1 2007. 13%

Ride the wave: Asian mid-market M&A spotlight 77 Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Sep-09 C Yoshimoto Kogyo Computer Japan Quantum Entertainment Corporation Japan 458 Co Ltd software Jun-10 P Lee & Man Paper Manufacturing Hong Kong Nippon Paper Group Inc Japan Gold Best Holdings Ltd British 457 Manufacturing Ltd (other) Virgin (12.0% stake) Islands Jul-09 C Hitachi Plant Industrial Japan Hitachi Ltd Japan 408 Technologies Ltd products and (31.12% stake) services Sep-09 C The Kagawa Bank, Ltd Financial Japan Tokushima Bank, Ltd Japan 393 Services Jun-10 P Japan Single- Real Estate Japan Crescendo Investment Corporation Japan Apamanshop Sublease Co Japan 389 Residence REIT Inc Ltd; K K DaVinci Advisers; Lehman Brothers Japan Inc Feb-10 C SS Pharmaceutical Co Medical: Japan Boehringer Ingelheim GmbH Germany 367 Ltd (39.8% stake) Pharmaceuticals Jun-10 P Intelligence Ltd Services (other) Japan Kohlberg Kravis Roberts & Co US Usen Corporation Japan 358 Feb-10 P Mitsui Oil Exploration Energy Japan Mitsui & Co Ltd Japan Bank of Tokyo-Mitsubishi Japan 352 Co Ltd (12.85% stake) UFJ Ltd; Mitsui Chemicals Inc; Mizuho Corporate Bank Ltd; Sumitomo Mitsui Banking Corporation Aug-09 C Ozeki Co., Ltd (68.8% Consumer: Japan Himawari Japan 343 stake) Foods Jul-09 C Noven Medical: US Hisamitsu Pharmaceutical Co., Inc. Japan 341 Pharmaceuticals Inc Pharmaceuticals Jul-09 C The Timken Company Automotive US JTEKT Corporation Japan The Timken Company US 330 (needle bearings business) Mar-10 C GS Paper & Packaging Manufacturing Malaysia Oji Paper Company Ltd Japan CVC Asia Pacific Ltd Japan 311 Sdn Bhd (other) Jun-10 P Fiba Sigorta AS Financial Turkey Sompo Japan Insurance Inc Japan Fiba Holding AS Turkey 309 Services Aug-09 C Elpida Memory Inc Computer: Japan Development Bank of Japan Inc Japan 306 (2.07% stake) Semiconductors Dec-09 C San Miguel Brewing Consumer: Philippines San Miguel Brewery Inc Japan San Miguel Corporation Philippines 300 International Ltd Other Jun-10 P Kotak Mahindra Financial India Sumitomo Mitsui Banking Japan 294 Group (4.5% stake) Services Corporation Jul-09 C Hitachi Systems & Computer Japan Hitachi Ltd Japan 278 Services Co, Ltd software (48.80% stake) Sep-09 C Kracie Holdings Ltd Consumer: Japan Hoyu Co Ltd Japan Advantage Partners LLP; Japan 275 (60.0% stake) Other MKS Partners Ltd; Unison Capital Inc Oct-09 C Orix Securities Financial Japan Monex Group Inc Japan ORIX Corporation Japan 259 Corporation Services Dec-09 C Kowa Spinning Co Ltd Manufacturing Japan Kowabo Japan 258 (94.3% stake) (other) Mar-10 C Telco Construction Automotive India Hitachi Construction Machinery Japan Tata Motors Ltd India 257 Equipment Company Co Ltd Ltd (20.0% stake) Oct-09 C BMB Corp Consumer: Japan Xing Inc Japan Usen Corporation Japan 256 Retail Mar-10 P eBank Corporation Financial Japan Rakuten Inc Japan 253 (32.78% stake) Services Dec-09 C AkaRx Inc Medical: US Eisai Co. Ltd Japan InterWest Partners LLC; US 252 Pharmaceuticals Sutter Hill Ventures Jun-10 P Cadbury Wedel Sp zoo Consumer: Poland Lotte Co Ltd Japan Kraft Foods Inc US 247 Foods C = Completed; P = Pending

78 Japan

Although a number of large-cap inbound and Heat Chart outbound cross-border deals have been brokered mergermarket’s Heat Chart is based on our in recent times, the mid-market M&A landscape intelligence database and tracks all companies in Japan continues to be dominated by domestic that are reportedly up for sale in Japan. The plays. This is reinforced to good effect by the intelligence derives from a range of sources, fact that 18 of the top 25 deals announced in including press reports, company statements the mid-market since 2005 involve both Japanese and our own proprietary intelligence. The bidders and targets. Indeed, the largest deal data does not differentiate between small overall was the abovementioned US$458m and large transactions nor between near-term acquisition of Yoshimoto Kogyo by Quantum and long-term deals. Similarly, it does not Entertainment Corporation, announced in differentiate between rumored and confirmed September 2009. intelligence. In terms of industry sectors, the Financial Services, Pharma, Medical & Biotech and Consumer Business sectors all feature Hot Warm Cold prominently among the 25 largest mid-market 120 75 30 deals in Japan since 2005. However, it is the 105 60 15 Manufacturing niche which leads the way with 90 45 0 five such deals making the grade. In this regard, the most noteworthy transaction came to the market in the third quarter of 2009 and saw Japan Hitachi, the listed electronics manufacturer, Industrial and Chemicals 73 buying a 31.12% stake it did not already own Consumer 38 in Hitachi Plant Technologies, the listed thermal and water plant facilities services provider, for TMT 26 a consideration of US$408m. The offer was a Business Services 24 part of a consolidation exercise implemented Financial Services 23 by Hitachi where it moved to buyout minority Tourism, Hospitality & Leisure 18 shareholders in five listed subsidiaries. Real Estate 12 Energy & Resources 9 Top 10 acquirers Pharma, Medical & Biotech 8 Construction 6 Volume Value of Transportation 3 of deals deals (US$m) Agriculture 1 Mitsubishi Corporation 33 6,253 TOTAL 241 Sumitomo Corporation 31 5,672 Mitsui & Co 13 2,546 Itochu Corporation 11 1,830 Hitachi 10 1,842 Advantage Partners 10 1,511 Canon Inc 8 947 Aeon Co 7 1,374 Toyota Group 7 1,356 Goldman Sachs 6 1,310

Ride the wave: Asian mid-market M&A spotlight 79 Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 4,554 4,364 4,377 4,887 5,066 GDP (%, y/y change) 1.9 2.0 2.3 -1.2 -5.2 FDI (US$bn) 3.2 -6.8 22.2 24.6 16.2 JPY:US$ (period average) 110.2 116.3 117.8 103.4 93.6 Overnight call rate (%, per annum) 0.00 0.25 0.50 0.10 0.10 Money market rate (%, period average) 1.38 1.48 1.83 1.84 1.48

Source: Bank of Japan, http://www.boj.or.jp/en/; Economist Intelligence Unit (EIU)

Japan’s wider economic problems are numerous, both are overshadowed by one monumental significant and well-documented. Domestic issue – the state of public finances. Last year private consumption remains fragile and has Japan’s government debt was 189.3% of GDP, fallen over the last two years. Indeed, 2009 making it the largest in the developed world. saw a 1.1% decline in private consumption and Going forward, the government will rightly this trend has been underpinned by an ageing place a huge emphasis on fiscal tightening with population that has a relatively high propensity Naoto Kan, the new prime minister, very keen to to save. Elsewhere, the wider Japanese economy tackle this issue during his first months in office. remains reliant on export-led growth, particularly Kan came to power in June 2010 following the in the TMT and Automotive sectors, with national resignation of Yukio Hatoyama just eight months champions such as Nintendo, Canon and Toyota after the Democratic Party of Japan defeated the all leading the charge. ruling coalition in a general election. Unsurprisingly, Japanese export activity took a Deflation also continues to plague the Japanese significant hit in 2009 as demand in key export economy and it is telling that the Bank of Japan markets such as the United States and the does not expect the consumer price index to European Union fell as a result of the global rise until the fiscal year ending March 2012. A economic downturn and the strengthening of prolonged period of deflation has served to stifle the Japanese Yen. The export of goods and bank lending and the central bank has recently services fell a considerable 24.2% in 2009 moved to unveil a US$33bn loan programme in and the overall impact on the economy was a bid to boost growth. As part of the scheme, significant with 2009 GDP falling by 5.2%. In the Bank of Japan will make low interest funds stark contrast, the Asia-Pacific region as a whole available to financial institutions for lending to grew by 0.5% over the same timeframe. domestic corporates, ultimately aiming to kick- While the issues surrounding private start demand and rid the economy of entrenched consumption and export levels are significant, deflation.

80 Japan

Although Japan is currently facing a number of Stock market activity and mid-market M&A trend significant challenges, preliminary Q1 2010 GDP 45 20,000 figures were encouraging, showing that the 18,000 economy grew by 1.2% in the first quarter of the 40 year, representing annual growth of just below 35 16,000 5.0%. While Japan’s preliminary data always 30 14,000 12,000 comes with a slight health warning and is often 25 subject to a downward revision, it is noteworthy 10,000 20 that the economy has now grown for four 8,000 Nikkei 225 Index

Deals by volume 15 straight quarters as exports and consumption 6,000 continue to rebound. 10 4,000 Against this backdrop of modest growth, 5 2,000 Prime Minister Kan should find it slightly less 0 0 burdensome tackling the public debt. The government is planning release a fiscal plan Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 shortly which will also aim to reassure investors Deals by volume Nikkei 225 Index and ratings agencies as Japan aims to avoid Source: mergermarket/Bloomberg comparisons with Greece. In summary, and to paraphrase the Financial Times, the Japanese economy is in need of the mother of all austerity plans.

While Japan’s preliminary data always comes with a slight health warning and is often subject to a downward revision, it is noteworthy that the economy has now grown for four straight quarters as exports and consumption continue to rebound.

Ride the wave: Asian mid-market M&A spotlight 81 South Asia South Asia

Overview Mid-market M&A trends

Since the beginning of 2005, the South Asian 35 6,000 mid-market has seen 351 M&A transactions, worth a collective US$52.9bn. The South Asian 30 5,000 M&A market is sizeable and accounts for around 9.0% of overall deal-making in the Asia-Pacific 25 region in terms of both volume and value. 4,000

The bulk of recent deal flow came to market in 20 2007 when 89 deals worth US$11.9bn were 3,000 announced. Unsurprisingly, South Asian activity 15 alue (US$m) fell throughout the financial crisis and recovered V only slightly over the latter half of 2009 and Number of deals 2,000 10 the first quarter of 2010. Since then, M&A transactions have come off slightly with deal flow 1,000 5 in the second quarter of the year amounting to just 15 transactions worth US$2.2bn, down on the 16 deals that came to market in the same 0 0 quarter in 2009. Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 In the 12 months from the second half of 2009, Number of deals Value (US$m) 12 Manufacturing sector acquisitions have been announced in South Asia, accounting for 18.0% of all regional purchases. A further 16.0% of the deals were concentrated in the TMT space, while Financial Services and Energy & Resources buys both comprised 14.0% of total activity Deal size split by volume, H2 2009-H1 2010 respectively. 13% Interestingly, the proportion of South Asian Manufacturing acquisitions by volume over the past four quarters has risen compared to the 2005-H1 2009 period. Over that timeframe, just 17.0% of M&A deals were buys of Manufacturing assets. Similarly, 15.0% of deals US$50m - US$150m 25% were TMT transactions, while 16.0% were of US$151m - US$300m Financial Services assets. US$301m - US$500m

62%

Ride the wave: Asian mid-market M&A spotlight 83 Sector split by volume, H2 2009-H1 2010 Meanwhile, TMT transactions by deal value accounted for some US$2.2bn of total 3% 4% investment over the past four quarters, meaning 3% 18% Manufacturing that it comprised 20.0% of the total amount 9% Technology, Media & spent on mid-market M&A in South Asia over the Telecommunications (TMT) period. Elsewhere, Manufacturing and Energy & Energy & Resources Resources acquisitions both comprised a further Financial Services 18.0% (US$2bn) of the market in that order. 9% Pharma, Medical & Biotech However, over the wider 2005-H1 2009 period, Transportation it was actually the Financial Services sector that 16% Construction dominated M&A deals by value, with bidders 10% Business Services spending US$8bn (19.0%) on such assets Consumer Business across the region. TMT investments amounted to another US$7.3bn (17.0%) while Energy & 14% Other 14% Resources spends were somewhat lower than of late, comprising just 13.0% of the overall amount, equating to US$5.4bn. 62.0% of all South Asian M&A transactions over the past four quarters fell into the US$50m- US$150m deal size range, while a further 25.0% were valued at between US$151m and US$300m. Just 13.0% of transactions were worth between US$301m and US$500m. However, deal size data for the 2005-H1 2009 Sector split by value, H2 2009-H1 2010 period varied compared to the past year. Over the timeframe, some 69.0% of transactions – 2% 3% around 197 deals in total – were valued between 5% 20% Technology, Media & US$50m and US$150m. Of the remainder, 20.0% 6% Telecommunications (TMT) were acquisitions in the US$151m-US$300m Energy & Resources range while 11.0% fell into the US$301m- Manufacturing US$500m category. The recent retrenchment to 9% Financial Services the lower end of the mid-market is undoubtedly a product of the financial crisis which has Pharma, Medical & Biotech not only reduced the availability of leverage Construction at acceptable terms but also pushed down Transportation 9% 18% corporate valuations. Real Estate Tourism, Hospitality & Leisure 10% Other 18%

84 South Asia

Private Equity Private equity buyout trends

The South Asian mid-market has seen significant 14 1,600 activity from financial investors in recent times with some 89 buyouts, worth a total 12 1,400 of US$10.5bn, being announced since the beginning of 2005. Unsurprisingly, the bulk of 1,200 10 this deal flow came at the height of the buyout boom in 2007 where 32 deals, worth a total of 1,000 8 US$3.6bn, were announced. Notably, over the wider period, regional private equity deal flow 800 alue (US$m) comprised some 19.0% of total Asian financial 6 V 600 investments by volume and 15.0% in terms of Number of deals valuations. 4 400 The spurt of deal-making in Q4 2009 and Q1 2 2010, which saw a total of nine purchases worth 200 US$872m being conducted, seems to have continued over Q2 2010 with six further deals, 0 0 worth US$757m coming to market. Indeed, the first half of 2010 has witnessed 10 acquisitions Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 worth US$1.25bn, being announced, more than Number of deals Value (US$m) double the deal flow over the latter half of 2009 and higher than historical means for the whole period in question. Looking at exit activity, private equity houses have sold 24 South Asian portfolio companies Private equity exit trends since 2005, reaping a total of US$3.5bn in the process. Compared to buyout numbers, regional 4 600 sell-side activity represents a smaller piece of the overall pie in the Asia-Pacific region, accounting 500 for 13.0% of the wider market in terms of deal volume and 12.0% of valuations. 3 400

2 300 alue (US$m) V

Number of deals 200 1 100

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 85 Inbound M&A trends Cross-border mid-market M&A review

25 4,000 Inbound cross-border deal activity has resulted in 196 transactions, worth US$29.9bn, coming 3,500 20 to market over the past five-and-a-half years, 3,000 accounting for approximately 11.0% of both the volume and value of overall Asia-Pacific inbound 15 2,500 mid-market acquisitions. 2,000 Interest from foreign acquirers peaked in 2007, 10 alue (US$m) 1,500 V when 57 acquisitions, worth US$8.0bn were Number of deals 1,000 announced. Since this time, annual levels of 5 inbound activity have fallen with 47 and 30 deals 500 being brokered in 2008 and 2009 respectively. 0 0 Nonetheless, a mini-spike in quarterly volumes took place at the end of 2009 and the first Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 quarter of 2010, with 13 inbound buys being Number of deals Value (US$m) undertaken over each quarter, collectively worth US$4.4bn. This trend has not sustained itself Geographic volume split of inbound M&A, H2 2009-H1 2010 since then with quarterly numbers having fallen over Q2 2010. 5% 3% 5% In terms of the geographic breakdown of 52% North America South Asian inbound activity, more than 50.0% 5% Japan of all acquisitions since the second half of Southeast Asia 2009 have stemmed from North American 5% UK & Ireland acquirers. Japanese and Southeast Asian bidders have accounted for a further four and three 5% Germanic acquisitions apiece, equating to an 12.0% Benelux and 8.0% share of inbound M&A flows in that Middle East order. North American bidders’ preoccupation 8% France with South Asian targets is also present over Greater China the longer 2005-H1 2009 period with US and 12% Canadian firms responsible for 39.0% of all inbound acquisitions.

Geographic value split of inbound M&A, H2 2009-H1 2010 While inbound acquisitions of South Asian assets have tailed off slightly since the end of 2009, 3% 3% outbound activity has increased over the first 3% half of 2010, driven by the acquisitive aspirations 4% 43% North America of cash-rich Indian firms. A total of seven deals 8% Southeast Asia worth cumulative of US$1.6bn were conducted Japan over the first six months of the year, up from the France three deals worth US$652m that were brokered Greater China over the same timeframe 12 months previous. 11% UK & Ireland Looking at outbound trends stretching back to Middle East 2005, South Asian mid-market outbound M&A Benelux activity has resulted in 125 purchases, worth a Germanic total of US$19.4bn being announced. Activity 12% peaked in 2008 when 31 deals were finalized, carrying an aggregate disclosed value of US$5bn. 13%

86 South Asia

As a result, South Asian outbound investments Outbound M&A trends over the whole period comprised around 7.0% of 16 2,500 overall outbound Asian M&A bids in both value and volume terms. 14 2,000 Mirroring inbound geographic trends, the bulk 12 of outbound investment by volume over the past 10 1,500 four quarters has been located in North America. Furthermore, South Asian bidders also bought 8

1,000 alue (US$m) two targets apiece in the UK & Ireland, the 6 V

Germanic region and Africa. These proportions Number of deals 4 are broadly in line with historical figures for 500 outbound M&A investment from South Asia. 2 Over the 2005-H1 2009 period, 27.0% of all 0 0 outbound acquisitions by South Asian businesses targeted North American firms. Likewise, buys Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 of companies situated in the UK & Ireland, the Number of deals Value (US$m) Germanic region or Africa made up 11.0%, 9.0% and 8.0% of total outbound deal flow in that Geographic volume split of outbound M&A, H2 2009-H1 2010 order. 7% Somewhat unsurprisingly, it is a similar story 7% when looking at the breakdown of outbound 29% acquisitions by deal value, with buys in North North America America accounting for over 25.0% of the total 7% UK & Ireland since the second half of 2009. Middle Eastern Germanic acquisitions make up 15.0% of valuations despite Africa the fact that just one outbound transaction was 7% Middle East announced. The deal in question saw India-based South America Jindal Steel & Power agree to acquire Shadeed Iron & Steel, the Oman-based steel manufacturer, Southeast Asia for a total consideration of US$464m. Other 14% 15%

14% Geographic value split of outbound M&A, H2 2009-H1 2010

10%

4% 26% North America 5% Africa Middle East 8% Germanic South America UK & Ireland Southeast Asia 12% Other 20%

15%

Ride the wave: Asian mid-market M&A spotlight 87 Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Dec-09 C General Motors India Pvt Ltd Automotive India Shanghai Automotive Industry China Motors US 500 (50.0% stake) Corporation (Group) Liquidation Company Nov-09 C DLF Assets Private Ltd (36.0% Real Estate India K P Singh & Family (Private India D E Shaw & Co US 500 stake) Investors) May-10 P Shadeed Iron & Steel LLC Industrial products Oman Jindal Steel & Power Ltd India Al Ghaith United 464 and services Holding PJSC Arab Emirates Sep-09 C Oil India Ltd (10.0% stake) Energy India Bharat Petroleum Corporation India Government of India 463 Ltd; Hindustan Petroleum India Corporation Ltd; Indian Oil Corporation Ltd Jul-09 C Kenya Petroleum Refineries Ltd Energy Kenya Essar Energy Overseas Ltd India BP Africa Ltd; United 450 (50.0% stake) Chevron Global Kingdom Energy Inc; Shell Petroleum Co Ltd May-10 P Areva T&D India (20.0% stake) Energy India Consortium of Alstom Holdings France 439 and Schneider Electric Feb-10 P Essar Telecom Infrastructure Telecommunications: India Transcend Infrastructure Ltd US Essar India 432 (ETIPL) Hardware Investments Ltd; Essar Securities Ltd; Essar Telecom Infrastructure Holding Overseas Ltd Dec-09 C Orchid Chemicals & Medical: India Hospira Inc US Orchid Chemicals India 400 Pharmaceuticals Ltd (Generic Pharmaceuticals & Pharmaceuticals injectable pharmaceuticals Ltd business) Oct-09 P Bharti Airtel Ltd (1.52% stake) Telecommunications: India Singapore Telecommunications Singapore 385 Carriers Ltd Nov-09 P IVRCL Strategic Resources Construction India IVR Prime Urban Developers Ltd India IVRCL India 371 & Services Ltd; IVRCL Water Infrastructures & Infrastructures Ltd Projects Ltd Apr-10 P Atlas Energy Resources (Marcellus Energy US Reliance Industries Ltd India Atlas Energy Inc US 339 Shale) (40.0% stake) Aug-09 P H & R Johnson (India) Ltd; RMC Construction India Prism Cement Ltd India 322 Readymix (India) Private Ltd Jan-10 P Warid Telecom International Ltd Telecommunications: Bangladesh Bharti Airtel Ltd India Abu Dhabi United 300 (70.0% stake) Carriers Group Arab Emirates Jun-10 P Kotak Mahindra Group (4.5% Financial Services India Sumitomo Mitsui Banking Japan 294 stake) Corporation Mar-10 C 21st Century Infra Tele Ltd Telecommunications: India Wireless-TT Info-Services Ltd India Tata Teleservices India 290 Hardware (Maharashtra) Ltd Nov-09 C Escada AG Consumer: Other Germany Mittal family India 284 Mar-10 C Telco Construction Equipment Automotive India Hitachi Construction Machinery Japan Tata Motors Ltd India 257 Company Ltd (20.0% stake) Co Ltd Oct-09 P Zee News Ltd - regional general Media India Zee Entertainment Enterprises Ltd India 252 entertainment business Nov-09 P Vale Do Ivai SA Consumer: Foods Brazil Shree Renuka Sugars Ltd India 240 Oct-09 P Cairn India Ltd (2.3% stake) Energy India Petroliam Nasional Berhad Malaysia Cairn Energy plc United 240 Kingdom May-10 C Godrej Sara Lee Ltd (51.0% stake) Chemicals and India Godrej Consumer Products Ltd India Sara Lee US 233 materials Corporation Mar-10 C Coffee Day Resorts (25.0% stake) Leisure India KKR India Advisers Private Ltd; US 213 New Silk Route Partners LLC; Standard Chartered Private Equity Dec-09 P DLF Wind Power Private Ltd Energy India GDF Suez SA France DLF Ltd India 203 Feb-10 P Northgate Capital (65.0% stake) Financial Services US Religare Enterprises Ltd India 200 Apr-10 P GMR Energy Ltd (Undisclosed Energy India Claymore Investments (Mauritius) Mauritius 200 Economic Interest) Pte Ltd C = Completed; P = Pending

88 South Asia

Indian firms have dominated activity at the The third-largest South Asian mid-market top of the mid-market in recent times with the transaction was the abovementioned May 2010 most significant South Asian deal over the past US$464m acquisition of Shadeed Iron & Steel, 12 months being the US$500m acquisition of the Omani steel-making company, by Jindal Steel a 50.0% stake in General Motors India, the & Power, the Indian steel and power firm, from Indian vehicle manufacturer, by the Shanghai Al Ghaith Holding, the UAE-based business. Automotive Industry Corporation (SAIC), the Given the austere financing environment, it is Chinese automobile manufacturer, in December remarkable that Jindal Steel & Power secured 2009. The deal saw beleaguered US auto- around US$400m in debt financing from a manufacturer General Motors dispose of the mixture of Indian and international banks in asset in order to recoup capital and emerge from order to undertake the transaction – a clear Chapter 11 bankruptcy. In return, SAIC received demonstration that leverage is available for two General Motors manufacturing facilities in fundamentally sound firms with robust balance India which will produce cars and utility vehicles sheets. for the domestic market. However, the Chinese firm missed out on the real gem in the crown as far as they were concerned – GM’s Indian research center. Other notable deals included the US$500m buy of a 36.0% stake in DLF Assets Private, the India- based commercial property services provider, by KP Singh & Family. US-based investment firm DE Shaw was the vendor in this case with the deal represented a good piece of business given that the company had previously bought a 40.0% stake in DLF for US$400m two years ago.

It is remarkable that Jindal Steel & Power secured around US$400m in debt financing from a mixture of Indian and international banks in order to undertake the transaction – a clear demonstration that leverage is available for fundamentally sound firms with robust balance sheets.

Ride the wave: Asian mid-market M&A spotlight 89 Top 10 acquirers Heat Chart mergermarket’s Heat Chart is based on our Volume Value of intelligence database and tracks all companies of deals deals (US$m) that are reportedly up for sale in South Asia. IDFC Private Equity 8 1,018 The intelligence derives from a range of sources, including press reports, company statements The Blackstone Group 7 645 and our own proprietary intelligence. The Tata Group 6 745 data does not differentiate between small Goldman Sachs 5 896 and large transactions nor between near-term and long-term deals. Similarly, it does not Temasek Holdings 5 789 differentiate between rumored and confirmed The Aditya Birla Group 5 598 intelligence. TPG Capital 5 501

Deutsche Bank 5 469 Hot Warm Cold Standard Chartered 120 75 30 Private Equity 4 508 105 60 15 Warburg Pincus 4 424 90 45 0

South Asia Industrial and Chemicals 98 Financial Services 73 Consumer Business 71 Energy & Resources 62 TMT 59 Pharma/Med/Biotech 45 Business Services 44 Construction 31 Tourism, Hospitality & Leisure 27 Real Estate 24 Transportation 23 Government 3 Agriculture 1 Defence 1 TOTAL 562

90 India Mid-market M&A trends Overview

35 6,000 Since the beginning of 2005, Indian mid-market M&A transactions have totalled some 327 deals 30 worth US$47.8bn, accounting for the lion’s share 5,000 of South Asian deal flow. Indeed, Indian M&A volumes make up 93.0% of all regional deals 25 4,000 as well as 90.0% of all mid-market valuations over the period, a proportion which rises when 20 looking at deal flow over the past four quarters. 3,000 Since Q3 2009, just two non-Indian mid-market alue (US$m)

15 V transactions have been undertaken in South Asia.

Number of deals 2,000 Somewhat intuitively, Indian mid-market quarterly 10 deal trends largely mirror regional activity, with deal flow peaking in 2007 before retrenching 5 1,000 in 2008 and the first three quarters of 2009. A secondary spike occurred in Q4 2009 and 0 0 Q1 2010 when deal flow rose above historical quarterly averages although activity since tailed off Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 in the second quarter of the year. Number of deals Value (US$m) Since the second half of 2009, 13.0% of deals have been worth more than US$300m, while 63.0% have fallen into the US$50m-US$150m range. However, it is remarkable that Indian mid-market deal values have actually risen over Deal size split by volume, H2 2009-H1 2010 the course of the economic downturn. Over the 2005-H1 2009 period, just one-in-ten transactions 13% were worth more than US$300m while 71.0% of transactions were valued at between US$50m and US$150m. As a market which is uniquely skewed towards smaller-sized investments, a study of Indian M&A US$50m - US$150m deals in the US$15m to US$50m space is perhaps 24% US$151m - US$300m pertinent here. Such deals do indeed comprise US$301m - US$500m a substantial proportion of the country’s overall M&A segment – while mid-market transactions 63% over the past five-and-a-half years comprised some 327 transactions, Indian deal flow in the US$15m-US$50m range amounted to a massive 456 acquisitions, worth a cumulative US$12.8bn. Similar to the larger market, the bulk of such deals took place in 2007 and 2008, with a total of 216 transactions, worth US$6bn being announced over these two years. However, over 2009, deal activity fell dramatically, recording just 67 transactions worth US$1.9bn. Quarterly activity touched a low point in Q3 of that year, when just 11 acquisitions, worth US$312m were

92 India

announced, however deal flow has quickly picked Sector split by volume, H2 2009-H1 2010 (US$50m-US$500m) up since then, with H1 2010 activity broadly in line with long-term historical averages for the previous 3% 4% 3% five-and-a-half years. 19% Manufacturing Over the whole period, quarterly mean deal sizes 9% Energy & Resources have remained remarkably stable, staying within Technology, Media & the US$26m-US$30m range, although this upper Telecommunications (TMT) band was breached in Q1 2010 when the average Financial Services 9% deal size hit US$32m. Pharma, Medical & Biotech Transportation Manufacturing, TMT and Financial Services deals 15% Construction in this particular deal size space made up the Business Services bulk of acquisitions by volume, accounting for 10% 48% of all transactions over the 2005-H1 2010 Consumer Business period. This percentage was broadly similar to the 15% Other same figures for H1 2010, when the three sectors 13% comprised 45% of the overall market. In terms of foreign investment, US bidders were the most likely to buy Indian firms over the whole period, accounting for 40% of all inbound bids worth between US$15m and US$50m. Bidders emanating from the UK also accounted for a further 15%. Two acquisitions in India over the 2009-H1 2010 period were worth US$50m, the first of these Sector split by value, H2 2009-H1 2010 (US$50m-US$500m) being the 11.7% stake acquisition in S Tel, the Indian Telecoms services provider, by Sahara 3% India Investment Corp, the Indian investment 2% 5% 19% firm. The deal, which took place in Q2 2009, Technology, Media & also represented an exit for two private equity 6% Telecommunications (TMT) firms – Sky City Foundations, a local private equity Energy & Resources Manufacturing house, and Telecom Investment, its Mauritian 9% counterpart. The second deal took place in Q4 Financial Services 2009 and witnessed India’s Power Corporation Pharma, Medical & Biotech Limited, acquire Dishergarh Power Supply Construction 19% Company from Life Insurance Corporation of 9% Transportation India, United India Insurance Company Limited Real Estate and Andrew Yule & Company, via a scheme of Tourism, Hospitality & Leisure auction. 10% Other Returning to the wider US$50m-US$500m 18% market, Manufacturing acquisitions accounted for 19.0% of all Indian mid-market transactions by volume over the past four quarters, while Energy & Resources purchases made up another 15.0%. This is broadly in keeping with trends seen over the previous four-and-a-half-year period when Manufacturing buys accounted for 17.0% of total Indian mid-market M&A volumes.

Ride the wave: Asian mid-market M&A spotlight 93 Private equity buyout trends Manufacturing transactions by M&A value also accounted for 18.0% of overall mid-market 14 1,600 investment in India over the H2 2009-H1 2010 period, worth a total of US$2bn. TMT transactions 1,400 12 had a 19.0% share of the overall market while 1,200 Energy & Resources investments were cumulatively 10 valued at US$1.9bn – also equating to 19.0% 1,000 of the market. Interestingly, the relative amount 8 spent on acquisitions in these three sectors all 800 increased over the H2 2009-H1 2010 period alue (US$m)

6 V compared to the preceding four-and-a-half-year 600

Number of deals timeframe, when the collective percentage share 4 for the three came to just 45.0% of the market 400 total – compared to a 60.0% share subsequent.

2 200

0 0 Private Equity Private equity investment in the South Asian Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 market is largely concentrated in India, borne out Number of deals Value (US$m) by the fact that just two buyouts in the region, worth US$418m, involved the acquisition of a non-Indian target company. The acquisitions in question took place in Pakistan in 2005 and 2008. At the same time, no private equity exits have occurred in Pakistan and Sri Lanka. Private equity exit trends Given India’s position as one of the world’s most 4 600 vibrant markets for venture capital investment, private equity deal-making at the lower end of 500 the market is telling. Private equity buyout activity 3 in the US$50m-US$500m deal size category has 400 totaled some 87 transactions worth US$10.1bn since the beginning of 2005. Notably, this is dwarfed by announced private equity investment 2 300

alue (US$m) in the US$15m-US$50m deal size range which, V over the same timeframe, has witnessed a total of Number of deals 200 184 investments, worth a cumulative US$5.1bn. 1 100 Just over one-in-five of these deals by volume were acquisitions of Indian Manufacturing firms, accounting for 20.3% of all growth-capital 0 0 investments by value over the period. TMT and

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Construction sector buyouts were also prevalent, Number of deals Value (US$m) comprising 15% and 11% of the market in terms of volume respectively. However, over H1 2010, Consumer Business, Financial Services and Pharma, Medical & Biotech transactions have, collectively, made up 50% of all private equity deal-making in this arena.

94 India

US bidders made up the vast majority of all foreign Inbound M&A trends private equity bidders making acquisitions in this 20 particular space, accounting for 53% of overall 3,500 18 buyout flow over the past five-and-a-half years. 3,000 UK-based financial investors have also undertaken 16 17% of all bids over the same period. 14 2,500 12 Aside from the aforementioned exit by Sky 2,000 City Foundations and Telecom Investment, the 10

1,500 alue (US$m) largest private equity deal to take place in this 8 V sub-segment over 2009 and H1 2010 was the Number of deals 6 1,000 US$49m acquisition by TA Associates, the US 4 500 private equity firm, of an undisclosed stake 2 in Micromax Informatics, the Indian mobile 0 0 communication equipment maker, in January

2010. Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) Given the fund raising by private equity which has happened in this area, this growth capital segment Geographic volume split of inbound M&A, H2 2009-H1 2010 of the market is expected to remain extremely active. However, the key issues limiting progress 3% 3% in this arena, some of them quite similar to large 6% private equity buyouts and M&A transactions, are 52% North America valuations expectations, corporate governance, 6% Japan families giving up control, the regulatory Southeast Asia environment and the ability of a bidder to add 6% value. UK & Ireland Germanic Cross-border mid-market M&A review 6% Benelux Inbound mid-market investments into India since France the beginning of 2005 has totalled some 179 8% Middle East transactions, worth a total of US$26.2bn. Again, Greater China inbound investment into South Asia is largely centered in the region’s largest economy with 10% the bulk of this activity being announced in 2007 and the first half of 2008 when 78 inbound deals, Geographic value split of inbound M&A, H2 2009-H1 2010 worth US$10.8bn, were transacted. Deal flow has 3% 1% since been subdued with the economic downturn 3% 4% curbing the appetites of many foreign acquirers 44% North America with companies forced to focus on preserving 8% value in their core markets. Southeast Asia Japan In terms of deal volume, more than half (52.0%) France of all inbound cross-border M&A activity in India 11% Greater China over the past four quarters has stemmed from UK & Ireland North American bidders, while Japanese and Benelux Southeast Asian acquirers have also shown an interest in Indian assets of late. Germanic 12% Middle East Unsurprisingly perhaps, North American acquirers also lead the way when looking at the split of 14%

Ride the wave: Asian mid-market M&A spotlight 95 Outbound M&A trends deals by deal value, investing US$2.6bn over H2 2009 and H1 2010 and making up 44.0% of the 16 2,500 market in the process. Southeast Asian bidders 14 spent a further US$800m while Japanese acquirers 2,000 12 spent US$707m on Indian assets.

10 Over the 2005-H1 2010 period, Indian acquirers 1,500 have undertaken 125 outbound purchases, worth 8 a cumulative US$19.4bn. Indian companies have alue (US$m) 6 1,000 V been responsible for all outbound deals emanating

Number of deals from South Asia with activity topping out in 2008 4 500 when 31 transactions worth US$5bn came to the 2 market. Outbound cross-border M&A activity has since dropped, although there have been small 0 0 signs of recovery in recent quarters.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Acquisitions of North American targets made Number of deals Value (US$m) up just under one-third of the outbound M&A market over the past four quarters, while buys Geographic volume split of outbound M&A, H2 2009-H1 2010 of businesses located in the Germanic region, as 7% well as in Africa, each accounted for a further 7% 14.0% share of the market. Looking at the longer- 30% term, India’s love affair with North America has North America remained strong, with outbound deal flow into 7% UK & Ireland the region accounting for 27.0% of the total for Germanic the 2005-H1 2009 period. 7% Africa Middle East South America Southeast Asia 14% South Asia 14%

14%

Geographic value split of outbound M&A, H2 2009-H1 2010

4% 5%

8% 26% North America Africa Middle East 10% Germanic South Asia South America UK & Ireland 12% Southeast Asia 20%

15%

96 India

Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Dec-09 C General Motors India Pvt Ltd Automotive India Shanghai Automotive Industry China Motors US 500 (50.0% stake) Corporation (Group) Liquidation Company Nov-09 C DLF Assets Private Ltd (36.0% Real Estate India K P Singh & Family (Private India D E Shaw & Co US 500 stake) Investors) May-10 P Shadeed Iron & Steel LLC Industrial products Oman Jindal Steel & Power Ltd India Al Ghaith United 464 and services Holding PJSC Arab Emirates Sep-09 C Oil India Ltd (10.0% stake) Energy India Bharat Petroleum Corporation Ltd; India Government of India 463 Hindustan Petroleum Corporation India Ltd; Indian Oil Corporation Ltd Jul-09 C Kenya Petroleum Refineries Ltd Energy Kenya Essar Energy Overseas Ltd India BP Africa Ltd; United 450 (50.0% stake) Chevron Global Kingdom Energy Inc; Shell Petroleum Co Ltd May-10 P Areva T&D India (20.0% stake) Energy India Consortium of Alstom Holdings France 439 and Schneider Electric Feb-10 P Essar Telecom Infrastructure Telecommunications: India Transcend Infrastructure Ltd US Essar India 432 (ETIPL) Hardware Investments Ltd; Essar Securities Ltd; Essar Telecom Infrastructure Holding Overseas Ltd Dec-09 C Orchid Chemicals & Medical: India Hospira Inc US Orchid Chemicals India 400 Pharmaceuticals Ltd (Generic Pharmaceuticals & Pharmaceuticals injectable pharmaceuticals Ltd business) Oct-09 P Bharti Airtel Ltd (1.5% stake) Telecommunications: India Singapore Telecommunications Singapore 385 Carriers Ltd Nov-09 P IVRCL Strategic Resources Construction India IVR Prime Urban Developers Ltd India IVRCL India 371 & Services Ltd; IVRCL Water Infrastructures & Infrastructures Ltd Projects Ltd Apr-10 P Atlas Energy Resources Energy US Reliance Industries Ltd India Atlas Energy Inc US 339 (Marcellus Shale) (40.0% stake) Aug-09 P H & R Johnson (India) Ltd; RMC Construction India Prism Cement Ltd India 322 Readymix (India) Private Ltd Jan-10 P Warid Telecom International Ltd Telecommunications: Bangladesh Bharti Airtel Ltd India Abu Dhabi United 300 (70.0% stake) Carriers Group Arab Emirates Jun-10 P Kotak Mahindra Group (4.5% Financial Services India Sumitomo Mitsui Banking Japan 294 stake) Corporation Mar-10 C 21st Century Infra Tele Ltd Telecommunications: India Wireless-TT Info-Services Ltd India Tata Teleservices India 290 Hardware (Maharashtra) Ltd Nov-09 C Escada AG Consumer: Other Germany Mittal family India 284 Mar-10 C Telco Construction Equipment Automotive India Hitachi Construction Machinery Japan Tata Motors Ltd India 257 Company Ltd (20.0% stake) Co Ltd Oct-09 P Zee News Ltd - regional general Media India Zee Entertainment Enterprises Ltd India 252 entertainment business Nov-09 P Vale Do Ivai SA Consumer: Foods Brazil Shree Renuka Sugars Ltd India 240 Oct-09 P Cairn India Ltd (2.3% stake) Energy India Petroliam Nasional Berhad Malaysia Cairn Energy plc United 240 Kingdom May-10 C Godrej Sara Lee Ltd (51.0% Chemicals and India Godrej Consumer Products Ltd India Sara Lee US 233 stake) materials Corporation Mar-10 C Coffee Day Resorts (25.0% Leisure India KKR India Advisers Private Ltd; US 213 stake) New Silk Route Partners LLC; Standard Chartered Private Equity Dec-09 P DLF Wind Power Private Ltd Energy India GDF Suez SA France DLF Ltd India 203 Feb-10 P Northgate Capital (65.0% stake) Financial Services US Religare Enterprises Ltd India 200 Apr-10 P GMR Energy Ltd (Undisclosed Energy India Claymore Investments (Mauritius) Mauritius 200 Economic Interest) Pte Ltd C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 97 Notable Indian mid-market deals not already Heat Chart discussed above include the US$463m partial mergermarket’s Heat Chart is based on our privatisation of Oil India by Bharat Petroleum intelligence database and tracks all companies Corporation (BPC), Indian Oil Corporation (IOC) that are reportedly up for sale in India. The and Hindustan Petroleum Corporation (HPC), intelligence derives from a range of sources, all of which are state owned. The three bidders including press reports, company statements acquired a 10.0% stake in Oil India with IOC and our own proprietary intelligence. The spending US$231m for a 5.0% holding and HPC data does not differentiate between small and BPC spending half that amount in return for a and large transactions nor between near-term 2.5% stake. and long-term deals. Similarly, it does not Elsewhere, Essar Energy, the Indian subsidiary differentiate between rumored and confirmed of Essar Oil, acquired a 50.0% stake in Kenya intelligence. Petroleum Refineries, the Kenyan petroleum refinery, from Shell, Chevron and BP Africa. The transaction saw Shell and BP Africa sell out of Hot Warm Cold a 17.1% stake each, while Chevron divested 120 75 30 a 15.8% holding. The Kenyan government 105 60 15 continued to hold a 50.0% stake in the company 90 45 0 post-deal. Remarkably, this was the second time that Essar Energy has bid for this particular asset after the Kenyan government previously backed India out of a proposed US$400m deal back in the first quarter of 2008. Industrials and Chemicals 98 Financial Services 72 Consumer Business 68 Energy/Mining/Utilities 57 TMT 57 Pharma/Med/Biotech 45 Business Services 43 Construction 31 Leisure 27 Real Estate 23 Transportation 20 Government 3 Agriculture 1 Defence 1 TOTAL 546

98 India

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 837 958 1,187 1,260 1,287 GDP (%, y/y change) 9.3 9.4 9.6 5.1 6.8 FDI (US$bn) 7.6 20.3 25.1 41.2 34.6 INR:US$ (period average) 44.1 45.3 41.3 43.5 48.4 Policy rate (%, end of period) 5.25 6.00 6.00 5.00 3.25 Money market rate (%) 6.3 7.3 7.8 6.5 4.8

Source: Reserve Bank of India, http://www.rbi.org.in; Economist Intelligence Unit (EIU) Note: GDP figures are for fiscal years commencing 1 April of each year.

The future is seemingly bright for the between negative and positive business subcontinent’s largest single geographical entity sentiment), investment in India is set to continue with India’s Central Statistical Organization to increase in the coming months. recently announcing that the economy, The Indian Rupee also recently caused eyebrows compared to the same period in 2009, expanded to be raised as it rose against the US Dollar by 8.6% in Q1 2010. This translates into a year-on- around 7.3% from July 2009 to mid-March 2010. year growth rate of 7.4%, with the Economist However, since then, the Rupee has weakened Intelligence Unit (EIU) forecasting GDP to grow and is currently valued at around INR46.6 to by 7.7% for 2010 – ultimately meaning that the the Dollar at the time of writing. Many market economy is heading back to where it was prior commentators are ascribing this rapid fall in value to the collapse of Lehman brothers in September to the wider currency crisis afflicting the Euro, 2008. and suggest that robust long-term fundamentals Nevertheless, a booming economy brings with are still in place. Concurrently, EIU economists it rising inflationary pressures, something which have forecast that the Rupee will stand at the Reserve Bank of India is taking very seriously INR44.5 against the Dollar at the end of 2010 indeed, not least because government inflation and continue to strengthen by around 1.6% over figures for April 2010 stood at 9.6%. As a result, 2011. economists are pencilling in another lending rate The Bombay Stock Exchange’s recent rise of 1.0% in the imminent future from the performance has been impressive, rising by current 3.75% rate and this would represent the approximately 23.0% over the July 2009-March third such rise since mid-March 2010. Such hikes 2010 period to hit 18,000 points. The market has are expected to pull back inflation to around retrenched mildly since then but growth drivers 5-6.0% by the end of the year. are still in place and many brokerage houses Q1 2010 FDI into India rose by 17.7% year- remain bullish on Indian equities. Indeed, the on-year and with HSBC’s May 2010 Purchasing Index may well reach the 19,000 mark by the Manager’s Index survey surging to a 27-month end of the year. high of 59 (a score of 50 being the threshold

Ride the wave: Asian mid-market M&A spotlight 99 Stock market activity and mid-market M&A trend An upcoming wave of full and partial privatisations could also boost mid-market 35 7,000 activity over the rest of 2010, as both state 30 6,000 and national authorities look to boost their accounts and reduce budgetary deficits through 25 5,000 the sale of state-run assets. In this regard, the

20 4,000 Y Index aforementioned acquisition of a stake in Oil India is a case in point. Potential privatisations over the 15 3,000 second half of 2010 could see the government

Deals by volume sell out of a 10.0% stake in Engineers India, the 10 2,000 S&P CNX NIFT state-run engineering-consultancy company. 5 1,000 Another potential partial privatisation is transportation company Shipping Corporation 0 0 of India which is likely to see the government divest a 20.0% stake in the business in return for Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 around US$282m. Deals by volume S&P CNX NIFTY Index Mid-market private equity activity in the country Source: mergermarket/Bloomberg could also be ramped up following increased interest from foreign investors looking for lucrative opportunities outside of traditional areas of activity in Europe and North America. It would seem that some have already made their minds up – in May 2010, private equity giant KKR invested US$166m into Dalmia Cement, the Indian cement firm, for an undisclosed stake, the second mid-market acquisition the buyout firm has made in India this year. Nonetheless, despite the hype, India is still a land of extreme contrasts, none more so visible than the current security issue plaguing the country’s vast rural hinterland. India’s Prime Minister has already called the Maoist rebels, responsible for a trio of recent attacks that have killed over 250 people in April and May this year, the most potent internal threat to India's national security. And with the rebel cause already holding sway Mid-market private equity activity in over large swathes of the rural population, the country could also be ramped up how the government go about dealing with the issue could have an important impact on following increased interest from foreign the attractiveness of India as an investment investors looking for lucrative destination. opportunities outside of traditional areas of activity in Europe and North America.

100 Pakistan Mid-market M&A trends Overview

5 1,400 Since the beginning of 2005, Pakistan mid-market M&A has totalled some 20 1,200 transactions worth a total of US$4.6bn. The bulk 4 of these deals came to market in 2007, when 1,000 seven acquisitions took place – four of them in 3 800 the first quarter of the year alone. Since then, deal flow has slowly come to a standstill with no

600 alue (US$m) 2 V transactions being announced in the second half

Number of deals 400 of 2009 and just one coming to market in the 1 first half of 2010. 200 Over the whole period, 71.0% of all mid-market 0 0 transactions have been valued between US$50m- US$300m, with 42.0% of these falling into the Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 US$50m-US$150m range. Number of deals Value (US$m) In volume terms, Financial Services transactions accounted for 33.0% of overall mid-market M&A Deal size split by volume, 2005-H1 2010 in Pakistan, with 24.0% of deals being witnessed in the Energy & Resources sector. The Financial Services sector also leads the way when looking 29% at valuations with a 34.0% share of activity since 2005. Elsewhere, the Energy & Resources sector makes up 27.0% in this regard with a total of US$1.3bn spent on M&A. US$50m - US$150m US$151m - US$300m US$300m - US$500m

42%

29%

Sector split by volume, 2005-H1 2010

5% 10% 33%

Financial Services Energy & Resources 14% Manufacturing Technology, Media & Telecommunications (TMT) Consumer Business Construction 14%

24%

102 Pakistan

Private Equity Sector split by value, 2005-H1 2010 Just two mid-market private equity deals have 8% 1% taken place in Pakistan over the 2005-H1 2010 period. The first of these was the US$57m 34% 10% acquisition of a 47.6% stake in NIB Bank by Bugis Investment, a subsidiary of Singaporean Financial Services sovereign wealth fund Temasek, in the third Energy & Resources quarter of 2005. The second was the US$361m Technology, Media & acquisition of a 50.0% stake in KES Power, the Telecommunications (TMT) electrical energy transmission and distribution 20% Consumer Business company, by Abraaj Capital Holdings, the Manufacturing UAE-based private equity firm, in late 2008. Construction No mid-market private equity exits have been announced in Pakistan in recent years. 27%

Private equity buyout trends

2 400

350

300

250

1 200 alue (US$m) V 150 Number of deals

100

50

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Ride the wave: Asian mid-market M&A spotlight 103 Inbound M&A trends Cross-border mid-market M&A review

5 1,400 Mid-market acquisitions of Pakistan assets by overseas bidders actually makes up the bulk of 1,200 4 total mid-market M&A flows over the 2005-H1 1,000 2010 period, accounting for 14 purchases, worth a total of US$3.1bn – roughly two-thirds 3 800 of overall volumes and values. However, foreign M&A interest in Pakistan mid-cap assets has 600 alue (US$m) 2 V seemingly waned of late and no deals have been Number of deals 400 conducted since Q2 2009. 1 200 Inbound activity has typically stemmed from the Middle East and Southeast Asia, with such 0 0 acquirers brokering a total of four transactions worth US$946m since 2005. Meanwhile, over Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 this same timeframe, Pakistan-based acquirers Number of deals Value (US$m) have undertaken no outbound mid-market transactions. Geographic volume split of inbound M&A, 2005-H1 2010

16% 14% Middle East Southeast Asia 7% South Asia 14% UK & Ireland Germanic 7% Benelux Africa 7% SEE Japan 14% 7% Other

7% 7%

Geographic value split of inbound M&A, 2005-H1 2010

3% 4% 6% 15% UK & Ireland Middle East 8% South Asia Greater China 14% Germanic 9% Africa Benelux Southeast Asia South Korea 13% 14% Other

14%

104 Pakistan

Top 25 deals 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Aug-06 C Union Bank Ltd Financial Pakistan Standard Chartered Bank (Pakistan) United 487 Services Ltd Kingdom Nov-05 C Karachi Electric Supply Energy & Pakistan Hasan Associates Private Ltd Pakistan Government of Pakistan 426 Corporation Ltd (73.0% Resources Pakistan stake) Jan-07 C Paktel Ltd (88.9% stake) TMT Pakistan China Mobile Communications China Millicom Luxembourg 424 Corporation International Cellular SA Jan-07 C Lakson Tobacco Company Consumer Pakistan Philip Morris International Inc Switzerland 404 (60.0% stake) Business May-07 C Pakistan Industrial Credit & Financial Pakistan NIB Bank Ltd Pakistan 372 Investment Corporation Ltd Services (PICIC) (70.0% stake) Oct-08 C KES Power Ltd (50.0% stake) Energy & Pakistan Abraaj Capital Holdings Ltd United Arab 361 Resources Emirates Jun-07 C Pakistan Mobile TMT Pakistan Orascom Telecom Holding SAE Egypt Saif Telecom (Pvt) Pakistan 290 Communications Ltd (11.3% Ltd stake) Jun-05 C National Refinery Ltd (51.0% Energy & Pakistan Attock Petroleum Ltd Pakistan 277 stake) Resources Mar-07 C Prime Commercial Bank Ltd Financial Pakistan ABN AMRO Netherlands 241 Services May-05 C Pak Arab Fertilizers (Pvt) Ltd Manufacturing Pakistan Reliance Exports Ltd Pakistan International Pakistan 237 (94.8% stake) Petroleum Investment Company; National Fertilizers Corporation Aug-07 C Worldcall Telecom Ltd TMT Pakistan Oman Telecommunications Oman 221 (60.0% stake) Company Saoc Jan-08 C Saudi Pak Commercial Bank Financial Pakistan Bank Muscat; International Finance Oman Saudi Pak Industrial Pakistan 213 Ltd (86.5% stake) Services Corporation; Nomura European and Agricultural Investment Ltd; Shaukat Tarin Investment (private investor) Company (SPIAIC) May-05 C Laraib Energy Ltd Energy & Pakistan Ranhill Power Berhad Malaysia 120 Resources Jan-07 C Crescent Commercial Bank Financial Pakistan Samba Financial Group Saudi Arabia 98 (68.5% stake) Services Oct-05 C Habibullah Coastal Power Energy & Pakistan H.E.I., Ltd; Habibullah Energy Ltd Pakistan El Paso Cgp US 90 (Private) Company Resources Company May-09 C Pakistan PTA Ltd (75.0% Manufacturing Pakistan KP Chemical Corp South Korea ICI Omicron BV Netherlands 79 stake) Sep-08 C Coca Cola Beverages Pakistan Consumer Pakistan Coca Cola Icecek AS Turkey The Coca-Cola US 77 Ltd (49.0% stake) Business Company Aug-06 C Javedan Cement Ltd (96.3% Construction Pakistan Haji Ghani Usman & Group Pakistan State Cement Pakistan 61 stake) Corporation of Pakistan (Pvt) Ltd Jul-05 C NIB Bank Ltd (47.6% stake) Financial Pakistan Bugis Investments (Mauritius) Pte Ltd Singapore 57 Services Apr-08 P Indus Motor Company Ltd Manufacturing Pakistan Toyota Motor Corporation; Toyota Japan Overseas Pakistan Pakistan 57 (12.5% stake) Tsusho Corporation Investors AG May-10 C Godrej Sara Lee Ltd (51.0% Chemicals and India Godrej Consumer Products Ltd India Sara Lee Corporation US 233 stake) materials Mar-10 C Coffee Day Resorts (25.0% Leisure India KKR India Advisers Private Ltd; New US 213 stake) Silk Route Partners LLC; Standard Chartered Private Equity Dec-09 P DLF Wind Power Private Ltd Energy India GDF Suez SA France DLF Ltd India 203 Feb-10 P Northgate Capital (65.0% Financial US Religare Enterprises Ltd India 200 stake) Services Apr-10 P GMR Energy Ltd (Undisclosed Energy India Claymore Investments (Mauritius) Mauritius 200 Economic Interest) Pte Ltd C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 105 The largest mid-market transaction to be Heat Chart conducted in Pakistan since 2005 saw Standard mergermarket’s Heat Chart is based on our Chartered, the listed UK banking group, agree to intelligence database and tracks all companies acquire an 80.9% stake in Pakistan counterpart that are reportedly up for sale in Pakistan. The Union Bank for US$487m in August 2006. Under intelligence derives from a range of sources, the terms of the agreement, Standard Chartered including press reports, company statements paid US$413m for an 80.1% stake in the bank and our own proprietary intelligence. The and subsequently made a mandatory offer for data does not differentiate between small the remaining Union shares. Ultimately, Standard and large transactions nor between near-term Chartered took a 95.4% stake in Union Bank and long-term deals. Similarly, it does not once the offer was complete. differentiate between rumored and confirmed The second-largest mid-market Pakistan intelligence. acquisition took place in the final quarter of 2005 and saw a consortium of investors led by domestic investment company Hasan Hot Warm Cold Associates Private acquire a 73.0% stake in 120 75 30 Karachi Electric Supply Corporation for US$426m. 105 60 15 The consortium acquired the asset from the 90 45 0 Government of Pakistan after Kanooz Al-Watan, the Saudi Arabia based energy firm, pulled out of a deal after initially having a bid accepted. Pakistan Energy/Mining/Utilities 5 Consumer Business 1 Financial Services 1 TMT 1 Transportation 1 TOTAL 9

106 Pakistan

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 109.9 127.3 143.0 165.2 166.5 GDP (%, y/y change) 7.7 6.2 5.7 2.0 3.7 FDI (US$bn) 2.2 4.3 5.6 5.4 2.5 PKR:US$ (period average) 59.5 60.3 60.7 70.4 81.7 Policy rate (%, end of period) 9.00 9.50 10.00 15.00 12.50 Money market rate (%) 8.0 9.5 9.6 11.0 11.4

Source: State Bank of Pakistan, http://www.sbp.org.pk; Economist Intelligence Unit (EIU). Note: GDP figures are for fiscal years ending 30 June in each year.

While the economic prospects of its larger With the government focusing on expelling the neighbor are shining relatively bright, Pakistan’s Taliban from the country, economic matters future over the short-term is looking decidedly are fast falling by the wayside. Having gone gloomy. The volatile security situation in the to the IMF for a US$10.7bn loan in 2008, the country’s border regions, coupled with weak government has since been unable to hit its economic fundamentals, has meant that the financial stabilisation programme deadlines, EIU is forecasting below-par GDP growth of just writing to the agency in May 2010 explaining 2.8% over 2010. The IMF however, remains that the country missed its 2009/2010 third slightly more bullish, forecasting a 4.5% quarter fiscal deficit and net government expansion over the course of the year. borrowing targets by 0.4% and 0.2% respectively. Repayments on the loan will start in A whole litany of issues face the national fiscal year 2011/2012 with Pakistan having to pay government, not least the low-level insurgency back US$11.5bn over the following three years. that is currently underway across large swathes of the country. The most recent manifestation of this was the May 2010 attack on a Lahore mosque which left 90 members of a religious sect dead. The attack demonstrates that the Taliban can still function as a coherent fighting force long after their defeat at the hands of the Pakistan Army’s offensive in the Swat Valley and South Waziristan last year.

Ride the wave: Asian mid-market M&A spotlight 107 Stock market activity and mid-market M&A trend With an IMF financial austerity programme in place and a resurgent Taliban vying for control in 5 18,000 Pakistan’s frontier provinces, mid-market M&A 16,000 flows are unlikely to be significantly influenced 4 14,000 by policy instruments such as interest and 12,000 exchange rates. Nonetheless, with an interest 3 rate currently standing at 12.5%, borrowing in 10,000 Pakistan is excessively expensive and the cost 8,000 2 is not expected to drop anytime soon. In fact, 6,000 KSE 100 Index Deals by volume market commentators are pencilling in further 1 4,000 rises in inflation over H2 2010, likely precluding any chances of a fall in rates over the period. 2,000 0 0 Foreign acquirers could benefit from a weakening Pakistan Rupee which has

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 depreciated against the US Dollar by around Deals by volume KSE 100 Index 5.5% since the beginning of H2 2009. However, Source: mergermarket/Bloomberg foreign-exchange specialists expect the Pakistan Rupee to stabilise vis-à-vis the Dollar over the second half of the year given the recent deposit of the fifth tranche of the IMF loan, equating to US$1.1bn, as well as the sharp decline in commodity prices. Meanwhile, since the beginning of the second half of 2009, the Karachi Stock Exchange 30 Index rose by a substantial 41.0%, hitting 10,876 in mid-April 2010. The index has subsequently fallen by close to 12.0%, resulting in a broad fall in corporate valuations – an obvious influence when it comes to prospective M&A activity in the public area.

With an IMF financial austerity programme in place and a resurgent Taliban vying for control in Pakistan’s frontier provinces, mid-market M&A flows are unlikely to be significantly influenced by policy instruments such as interest and exchange rates.

108 Sri Lanka Overview Meanwhile, the third quarter of 2008 also saw Automotive, Retail, Electronics and Financial Just three mid-market transactions, worth a total Services conglomerate Al-Futtaim buying a of US$535m, have been undertaken in Sri Lanka 71.0% stake in Associated Motorways. The since the beginning of 2005, with one of them vendor in this case was the Associated Electrical having taken place since H2 2009. Corporation and John Keells Holdings, the Sri The largest mid-market transaction saw the Lankan conglomerates. Al-Futtaim initially was US$298m acquisition of a 35.2% stake in Sri to acquire only a 51.0% stake in the firm, which Lanka Telecom by Usaha Tegas, the Malaysian was held by Associated Electrical Corporation, investment holding company, from NTT, the but ultimately decided to buy an additional Japanese telecoms firm, in April 2008. The deal 20.0% from John Keells. took place at a 22.9% premium over Sri Lanka Telecom’s share price one day prior to the announcement. The second-largest mid-cap deal to be completed was announced in October of 2009 and saw the US$155m sale of Tigo, the provider of cellular network services, by Millicom International, the Luxembourg-based mobile phone operator, to UAE-based Etisalat. The bidder faced stiff competition for the asset, ultimately facing down competition from the likes of Telenor, the Norwegian telecoms operator, Malaysia’s Axiata Group, France Telecom and Singtel, the Singaporean TMT business.

All deals, 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Apr-08 C Sri Lanka TMT Sri Lanka Global Malaysia Nippon Japan 298 Telecom Plc Telecommunications Telegraph and (35.2% stake) Holdings N.V. Telephone Corporation Oct-09 C Tigo (Private) TMT Sri Lanka Emirates United Millicom Luxembourg 155 Limited Telecommunications Arab International Corporation Emirates Cellular SA Jul-08 C Associated Manufacturing Sri Lanka Al-Futtaim Private United Associated Sri Lanka 82 Motorways plc Company LLC Arab Electrical (71.0% stake) Emirates Corporation; John Keells Holdings PLC C = Completed; P = Pending

110 Sri Lanka

Heat Chart The Sri Lankan government’s May 2009 defeat of the Liberation Tigers of Tamil Eelam (LTTE) ended mergermarket’s Heat Chart is based on our a 30-year civil war and set the country on a path intelligence database and tracks all companies of economic reconstruction and development. that are reportedly up for sale in Sri Lanka. The As a result, the EIU has forecast GDP growth of intelligence derives from a range of sources, around 6.8% over 2010 while the IMF expects including press reports, company statements FY2010 expansion of around 6.5% - almost and our own proprietary intelligence. The double last year’s estimated 3.0% growth. data does not differentiate between small and large transactions nor between near-term Other economic growth indicators reinforce and long-term deals. Similarly, it does not this bullish perception, with Sri Lanka’s foreign differentiate between rumored and confirmed exchange reserves back up to reasonable levels, intelligence. inflation falling to single digits, and policy rates remaining historically low in order to stimulate growth and investment. Furthermore, the IMF, Hot Warm Cold who agreed to lend the country US$2.6bn in 120 75 30 mid-2009 to stave off a looming balance of 105 60 15 payments crisis, is likely to release the delayed 90 45 0 third tranche of the loan over the coming months. Delivery of the tranche, worth around US$318m, was previously postponed after the Sri Lanka government was unable to meet its required Consumer Business 2 deficit target of 7.0% of GDP. However, recent Transportation 2 policies to raise revenue, cut spending and move towards a more sustainable initiative of deficit Business Services 1 reduction over 2010 and 2011 have met with the Real Estate 1 IMF’s approval. TMT 1 Nonetheless, while many market commentators TOTAL 7 remain bullish on Sri Lanka, issues do remain. The first of these concerns the relationship between the Sri Lankan government and the IMF, namely the continued need for the country to rely on funding given that its foreign reserves are back up to satisfactory levels. Many in the government are therefore pushing for a cancellation of the loan, which could adversely impact Sri Lanka’s sovereign credit rating and lead to a flight of private capital.

Ride the wave: Asian mid-market M&A spotlight 111 Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 24.4 28.3 32.4 40.7 42.0 GDP (%, y/y change) 6.2 7.7 6.8 6.0 3.5 FDI (US$bn) 0.3 0.5 0.6 0.8 0.5 LKR:US$ (period average) 100.5 103.9 110.6 108.3 114.9 Policy rate (%, end of period) 15.00 15.00 15.00 15.00 n.a. Money market rate (%) 10.2 12.9 30.9 21.2 n.a.

Central Bank of Sri Lanka, http://www.cbsl.gov.lk; Economist Intelligence Unit

Stock market activity and mid-market M&A trend The Sri Lankan Rupee is also proving to be a headache for the authorities with the 5,000 currency set to continue to strengthen due to a 4,500 combination of strong economic fundamentals 4,000 and rising policy rates. Indeed, the EIU is 3,500 forecasting that the currency will end the year at 3,000 around 115.5 Rupees to the US Dollar, around 2,500 30.0% stronger than its value at the beginning of 2,000 June 2010. CSEALL Index 1,500 Political risks in Sri Lanka also abound, with 1,000 the country’s President, Mahinda Rajapaksa, 500 increasingly tightening his reins on power. 0 Rajapaksa has basked in the defeat of the LTTE and has been able to leverage off of the victory Jan 05Apr 05Jul 05Oct 05Jan 06Apr 06Jul 06Oct 06Jan 07Apr 07Jul 07Oct 07Jan 08Apr 08Jul 08Oct 08Jan 09Apr 09Jul 09Oct 09Jan 10Apr 10 considerably, not least by ostracising potential political opponents, such as General Sarath Source: mergermarket/Bloomberg Fonseka, the former head of the Sri Lankan Army. The President’s popularity has ultimately taken him very close to the two-thirds majority required to alter the country’s constitution in parliament. With such a prospect becoming increasingly likely with elections looming in November 2010, Rajapaksa could seek to remove the two-term presidency limit as soon as this majority is reached, before moving to consolidate his power base even further.

112 Southeast Asia

It has been a choppy year for mid-market M&A across the Southeast Asian region. We’ve seen strength in selected sectors, such as Energy & Resources and Financial Services, against a generally uncertain backdrop. As expectations for growth normalise, we’re confident volumes and values will recover to trend growth in M&A. Jeff Pirie, Deloitte Singapore Mid-market M&A trends Overview

45 7,000 While mid-market M&A activity in the Southeast Asian region was significant between 2004 40 6,000 and 2008, growth was served a blow with the onset of the financial crisis. Levels contracted 35 substantially in the aftermath of the Lehman 5,000 30 collapse with regional M&A activity dropping in the fourth quarter of 2008 to a mere 11 25 4,000 deals worth US$1.7bn. Since then, deal flow has tended to fluctuate substantially from 20 3,000 alue (US$m) V quarter to quarter, mirroring uncertainty in the

Number of deals 15 macroeconomic environment. 2000 10 After a slow start, it is notable that M&A activity in the Southeast Asian mid-market made a 5 1,000 stronger comeback, with 77 deals worth a total of US$14.5bn being announced, the majority 0 0 of them coming in the second half of the year. In fact, the third and fourth quarters of 2009 Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 showed M&A levels akin to those witnessed in Number of deals Value (US$m) the period prior to the global financial meltdown, suggesting that markets have started to stabilise. However, the first two quarters of 2010 showed a recurring weakness in the market with only 18 deals worth US$3.9bn being announced in the first quarter and 18 transactions worth US$3.2bn Deal size split by volume, H2 2009-H1 2010 coming to market in Q2. M&A drivers such as accessing new markets and 23% customers and facilitating growth, continue to exist and there are indicators suggesting that they will be increasingly willing to engage in M&A transactions as economic visibility and US$50m - US$150m corporate performance improves. US$151m - US$300m The deal size split over the second half of 53% US$300m - US$500m 2009 and the first half of 2010 saw the bulk of deal flow (53.0%) take place in the US$50m- 24% US$150m space. Of the remainder, 24.0% of transactions fell into the US$151m-US$300m category, while 23.0% were valued at US$300m or more. Interestingly, these deal size splits illustrate that mid-market valuations over the past four quarters are starting to rise again – over the 2005-2009 period, a cumulative 38.0% of transactions were valued at over US$150m compared to 47.0% over the H2 2009-H1 2010 period.

114 Southeast Asia

The Energy & Resources space continues to Sector split by volume, H2 2009-H1 2010 dominate M&A activity in Southeast Asia. Over the course of the second half of 2009 and the 9% Energy & Resources first half of 2010, the sector made up 22.0% of 4% 22% total deal volume and 31.0% in terms of value – Manufacturing 6% both figures represent only marginal shifts from Financial Services longer-term trends. Consumer Business Indeed, the largest mid-market deal to be 7% Technology, Media & Telecommunications (TMT) announced in the region fell into this space and Real Estate saw PT Multi Daerah Bersaing, an Indonesia- 14% based joint venture created by the provincial 7% Construction government of Nusa Tenggara Barat and PT Agriculture Pharma, Medical & Biotech Multicapital Indonesia, pay US$494m for a 7% 14.0% stake in Indonesia-based gold and Other 13% copper miner PT Newmont Nusa Tenggara. The 11% agreement followed the acquisition of 10.0% of Newmont Nusa Tenggara for US$391m on 16 November 2009, and is a result of the international arbitration ruling over a dispute between the Indonesian government and foreign investors in Newmont Nusa Tenggara. Another hot sector in the region is Financial Services, which accounts for 13.0% of total deal volume and 15.0% in terms of total deal value. Elsewhere, Manufacturing comprises 14.0% of Sector split by value, H2 2009-H1 2010 total deal volume while the Consumer Businesses space represents a 12.0% share of total deal 5% value. These sectors have historically seen the 4% bulk of deal activity in the region and looks set to 4% Energy & Resources do so going forward. 4% Financial Services 31% Consumer Business 5% Manufacturing Real Estate Construction 8% Agriculture Technology, Media & Telecommunications (TMT) Pharma, Medical & Biotech 12% 15% Other 12%

Ride the wave: Asian mid-market M&A spotlight 115 Private equity buyout trends Private Equity

6 1,000 Over the past five-and-a-half years, private equity funds have executed 37 buyouts with 900 a total value of US$7.6bn in the Southeast 5 800 Asian region. In the same time frame, just 14 investments worth US$2.6bn were exited by 700 4 private equity investors. It has to be expected 600 that in the years to come this number will have to increase significantly. LPs are increasingly seen 3 500 to be putting pressure on GPs to monetize their alue (US$m) 400 V investments and return funds to investors. The Number of deals 2 fact that the market is showing signs of recovery, 300 valuations are stabilising and trade players are 200 emerging as strong buyers will help private equity 1 funds exit their portfolio businesses that have 100 reached their investment horizon. 0 0 Buyout trends have historically fluctuated dramatically, both in terms of value and volume, Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 and these trends have only been reinforced by Number of deals Value (US$m) the recent financial crisis. Buyout activity in the Southeast Asian mid-market came to a total halt in the last quarter of 2008 and the first quarter of 2009 when not a single transaction was announced. Since then, however, eight such deals with a total value of US$1.8bn have been Private equity exit trends announced. 4 900

800

700 3 600

500 2

400 alue (US$m) V

Number of deals 300 1 200

100

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

116 Southeast Asia

Cross-border mid-market M&A review Inbound M&A trends

Southeast Asian businesses in the mid-market 18 4,000 space have long attracted the attention of 16 3,500 foreign buyers and the data shows an upward 14 trend in terms of the number of deals struck 3,000 12 since the beginning of 2005. In 2005, 22 such 2,500 transactions were announced with the figure 10 2,000 climbing to 32 in 2006 before peaking at 51 8 deals at the height of the M&A boom in 2007. 1,500 alue (US$m) 6 V As M&A activity petered out in the aftermath of Number of deals 1,000 the financial crisis, inbound M&A activity into the 4 Southeast Asian mid-market was also hit with 2 500 just 24 deals announced in 2009. Over H1 2010, 0 0 14 such deals have been announced, with a total value of close to US$3.1bn. Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) Looking at the development trend of inbound M&A activity into the Southeast Asian Geographic volume split of inbound M&A, H2 2009-H1 2010 mid-market in terms of value, one has to recognize the highly-fluctuating levels of value. 3% 3% Particularly after the financial crisis, the total 3% worth of these deals has gone up and down 3% 29% Greater China from month to month. 7% North America The biggest outside investor into the Southeast Japan Asian mid-market continues to be China. UK & Ireland Indeed, over the second half of 2009 and the Middle East first half of 2010, Greater China acquirers were 14% Benelux responsible for 29.0% of inbound M&A activity Australasia into the region’s mid-market in terms of volume South Korea and 30.0% in terms of value. In actual figures, Chinese buyers spent US$1.7bn on 8 deals in the South Asia 21% region and a total of 27 deals worth US$5.1bn 17% over the wider period since 2005. As in previous years, bidders from both North Geographic value split of inbound M&A, H2 2009-H1 2010 America and Japan continue to consider this 2% 2% 1% space to be fertile hunting ground for acquisition 4% opportunities. North American buyers spent 7% US$1.3bn on six deals, while Japanese buyers Greater China 30% took part in five deals with an aggregated value North America of US$889m. Japan UK & Ireland Since the second half of 2009, these three 15% countries jointly are responsible for around Middle East two thirds of inbound deal flow in terms of Australasia volume and around 69.0% of total valuations. South Asia Geographic proximity to the region is one Benelux explanatory factor behind Chinese buyers’ South Korea 15% 24%

Ride the wave: Asian mid-market M&A spotlight 117 Outbound M&A trends continued commitment to the region, while North American and Japanese bidders like 16 3,000 to buy targets there as a way of creating a 14 cheap manufacturing base. Automotive players 2,500 12 from these two countries, in particular, have 2,000 historically been doing deals in the region in an 10 effort to reduce their manufacturing cost. 8 1,500 While many Southeast Asian businesses are alue (US$m)

6 V attracting the attention of foreign buyers, they 1,000

Number of deals are also looking outside of their region for 4 attractive investment opportunities. The level 500 2 of outbound cross-border activity peaked in the 0 0 final quarter of 2007 when 14 such transactions with a total value of US$2.5bn were announced.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Since then, deal flow, in terms of volume, has Number of deals Value (US$m) remained comparatively consistent with an average of six deals being announced each Geographic volume split of outbound M&A, H2 2009-H1 2010 year – with the exception of the second quarter of 2009 when not a single bidder from the 11% Southeast Asian mid-market struck a deal outside 20% Greater China 4% the region. Australasia 4% Meanwhile, the value trend of such deals, since North America the high point in the above mentioned final South Asia quarter of 2007, has been somewhat erratic – 7% Germanic declining between then and the second quarter Middle East of 2009 before seeing a tentative recovery. South Korea 7% 18% Looking back over the second half of 2009 and UK & Ireland the first half of 2010, it is noticeable that the France focal point for outbound Southeast Asian buyers 7% Other from the mid-market has shifted. While for many 11% years their focus was on Greater China, they are 11% now looking to other countries and regions to do deals. Geographic value split of outbound M&A, H2 2009-H1 2010 For example, over the course of the 2005-H1 6% 2% 2009 period, around 31.0% of all outbound 4% M&A activity in terms of volume and 24.0% 22% South Asia by value was conducted in Greater China. 6% Greater China In contrast, Southeast Asian buyers are now Australasia primarily looking towards Australasia and UK & Ireland South Asia to do deals. Over the course of the 8% North America second half of 2009 and the first half of 2010, South Korea investments by Southeast Asian mid-market Middle East buyers into Australasia made up 18.0% of the 17% 11% Germanic total number of deals and investments into South Africa Asia were worth 22.0% of the total value of announced outbound deals. Other

11% 13%

118 Southeast Asia

Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Nov-09 P PT Newmont Nusa Energy & Indonesia PT Multi Daerah Bersaing Indonesia Newmont Mining US 494 Tenggara (14.0% stake) Resources Corporation; Sumitomo Corporation Nov-09 C Yantai Raffles Shipyard Ltd Manufacturing Singapore Bright Day Ltd Hong Bright Touch Investment Norway 477 (81.7% stake) Kong Ltd; DnB NOR; Leung Kee Holdings Ltd Nov-09 P Manila Electric Company Energy & Philippines Metro Pacific Investments Corp Philippines First Philippine Holdings Philippines 469 (6.7% stake) Resources Corporation Mar-10 C ACL Bank Public Company Financial Thailand Industrial and Commercial Bank of China 453 Ltd (80.7% stake) Services China Ltd Apr-10 C 345-MW San Roque Energy & Philippines San Miguel Corporation Philippines Power Sector Assets & Philippines 450 Multipurpose Hydroelectric Resources Liabilities Management Power Project Corporation Mar-10 C Asian Genco Pte Ltd Energy & Singapore Morgan Stanley Infrastructure US 425 (44.0% stake) Resources Partners LP Oct-09 C Sarawak Energy Berhad Energy & Malaysia Delegateam Sdn Bhd Malaysia 419 Resources Apr-10 P Cascal NV Energy & United SembCorp Industries Ltd Singapore Biwater plc United 417 Resources Kingdom Kingdom Aug-09 C GE Capital (Thailand) Financial Thailand Bank of Ayudhya Public Company Thailand GE Capital Global Banking US 399 Co Ltd Services Ltd Sep-09 C PT Newmont Nusa Energy & Indonesia PT Multi Daerah Bersaing Indonesia Newmont Mining US 391 Tenggara (10.0% stake) Resources Corporation; Sumitomo Corporation Oct-09 P Bharti Airtel Ltd (1.5% TMT India Singapore Telecommunications Ltd Singapore 385 stake) Nov-09 C PT Delta Dunia Makmur Real Estate Indonesia PT Northstar Pacific Partners US Amicorp Trustees Indonesia 385 Tbk (40.0% stake) (Singapore) Ltd; Credence Trust (Singapore) Pte Ltd; Lion Trust (Singapore) Ltd Mar-10 P Overseas Union Enterprise Real Estate Singapore Lippo Group Indonesia Usaha Tegas Sdn Bhd Malaysia 368 Ltd (23.9% stake) Aug-09 C Calaca coal-fired power Energy & Philippines DMCI Holdings Inc Philippines Power Sector Assets & Philippines 362 plant Resources Liabilities Management Corporation Oct-09 C Malayan Sugar Consumer Malaysia Felda Global Ventures Holdings Malaysia PPB Group Berhad Malaysia 357 Manufacturing Company Business Sdn Bhd Bhd Aug-09 C Padiberas Nasional Berhad Agriculture Malaysia Tradewinds (M) Berhad Malaysia Gandingan Bersepadu Hong Kong 355 (81.1% stake) Sdn Bhd; Wang Tak Company Ltd Mar-10 P National Grid Corporation Energy & Philippines OneTaipan Holdings Philippines Enrique Razon (private Philippines 350 of the Philippines (30.0% Resources investor) stake) Dec-09 C PT Multi Bintang Indonesia Consumer Indonesia Asia Pacific Breweries Ltd Singapore Heineken NV Netherlands 342 Tbk Business Oct-09 P PT Bank Mestika Dharma Financial Indonesia RHB Capital Berhad Malaysia PT Mestika Benua Mas Indonesia 332 (80.0% stake) Services Jan-10 P UBG Berhad (89.8% stake) Real Estate Malaysia PetroSaudi International Ltd Saudi Cahya Mata Sarawak Malaysia 321 Arabia Berhad Mar-10 C GS Paper & Packaging Manufacturing Malaysia Oji Paper Company Ltd Japan CVC Asia Pacific Ltd Japan 311 Sdn Bhd Jan-10 P UOB Life Assurance Ltd Financial Singapore Prudential plc United United Overseas Bank Ltd Singapore 308 Services Kingdom Oct-09 C Manila Electric Company Energy & Philippines Metro Pacific Investments Corp Philippines Beneficial Trust Fund Philippines 303 (10.2% stake) Resources Apr-10 P PT Carrefour Indonesia Consumer Indonesia PT Trans Retail Indonesia Carrefour SA France 300 (40.0% stake) Business Dec-09 C San Miguel Brewing Consumer Philippines San Miguel Brewery Inc Japan San Miguel Corporation Philippines 300 International Ltd Business C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 119 Indonesian targets continue to feature highly in Heat Chart the run down of the top 25 deals in Southeast mergermarket’s Heat Chart is based on our Asia since the second half of 2009. Indeed, the intelligence database and tracks all companies largest deal – the abovementioned acquisition that are reportedly up for sale in Southeast of a 14.0% stake in Indonesian gold and copper Asia. The intelligence derives from a range miner PT Newmont Nusa Tenggara by PT Multi of sources, including press reports, company Daerah Bersaing, an Indonesia-based joint statements and our own proprietary intelligence. venture created by the provincial government The data does not differentiate between small of Nusa Tenggara Barat and PT Multicapital and large transactions nor between near-term Indonesia – involved both an Indonesian target and long-term deals. Similarly, it does not and bidder. differentiate between rumored and confirmed Furthermore, the Philippines and Singapore also intelligence. feature heavily, although a lack of significant activity in Thailand is noticeable. Once considered a regional powerhouse, recent persistent political Hot Warm Cold unrest in the country seems to have acted as a 120 75 30 deterrent to M&A activity on both the buy and 105 60 15 sell-side. 90 45 0 As discussed above, the Energy & Resources space was by far the most active with regards to deal-making in the Southeast Asian mid-market Southeast Asia and it is little surprise that 10 such deals feature Energy & Resources 88 in the list of top deals. Predictably, Consumer Consumer Business 62 Business transactions also featured heavily. Financial Services 59 Manufacturing 48 Top 10 acquirers TMT 47 Real Estate 33 Volume Value of Transportation 32 of deals deals Business Services 24 (US$m) Tourism, Hospitality & Leisure 24 Pharma, Medical & Biotech 16 Khazanah Nasional Berhad 7 1,214 Agriculture 13 Temasek Holdings Pte Ltd 7 1,083 Construction 10 First Pacific Company Limited 5 1,376 Government 1 Other 4 TPG Capital 5 1,013 TOTAL 461 Permodalan Nasional Berhad 5 889 Hongkong & Shanghai Banking Corp 5 585 Metro Pacific Investments Corp 4 1,430 Mitsubishi Group 4 729 Standard Chartered Private Equity 4 665 IOI Corporation Berhad 4 571

120 Indonesia

M&A transactions in the Energy Resources industries remain attractive with the main players in these deals still emanating from China and other East Asian countries. Related Energy Resources industries are also likely to benefit from this trend. Domestically, the positive trend in GDP per capita is a good sign for future domestic consumption and the Consumer Business sector should benefit from this. We believe that a lot of M&A activity will therefore occur in this area. On the other hand, M&A activity in the Securities industry will flourish, as low investor penetration rates means that there is the opportunity for significant levels of growth in the future. In relation to the Financial Services sector, we see potential for deal-making in medium to small-size banks, due to the development of Islamic banks in Indonesia. Claudia Lauw, Deloitte Indonesia Mid-market M&A trends Overview

9 2,500 Indonesian mid-market M&A transactions totalled 85, worth an aggregated US$16.2bn, over the 8 past five-and-a-half years with the bulk of this 7 2,000 activity actually coming to market in 2009, when 23 deals worth US$4.2bn were announced. This 6 means that over the whole period, Indonesian 1,500 mid-market M&A deals accounted for between 5 18.0%-20.0% of the total volume and value of Southeast Asian acquisitions. However, in

4 alue (US$m) 1,000 V 2009, these proportions jumped to around Number of deals 3 30.0% in terms of both deal volume and value, highlighting the economy’s growing importance 2 500 in this particular sphere of deal-making. 1 Over the H2 2009-H1 2010 period, a combined 74.0% of Indonesian mid-market transactions 0 0 were valued at between US$50m-US$300m, with the bulk of these (some 58.0%) being worth Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 between US$50m-US$150m. In comparison, Number of deals Value (US$m) over the preceding four-and-a-half years, 77.0% of all mid-market deals were worth between US$50m-US$300m.

Deal size split by volume, H2 2009-H1 2010

26%

US$50m - US$150m US$151m - US$300m 58% US$300m - US$500m

16%

122 Indonesia

Energy & Resources transactions have dominated Sector split by volume, H2 2009-H1 2010 Indonesian mid-market acquisitions over the past four quarters, accounting for six transactions 5% 5% worth US$1.4bn. There was also relatively significant investment in Indonesian Consumer 11% Energy & Resources Businesses with the space seeing three deals 31% worth US$762m come to the market. Consumer Business Financial Services Over the 2005-H1 2009 timeframe, mid-market Manufacturing Energy & Resources purchases in Indonesia Pharma, Medical & Biotech were even more prevalent, making up 47.0% 11% Real Estate of all mid-market deal volumes and 48.0% of total M&A values. At the same time however, Agriculture Consumer mid-cap transactions comprised just Construction 3.0% of overall volumes and valuations over the 11% 15% same period. 11%

Sector split by value, H2 2009-H1 2010

2% 4% 2% 6%

Energy & Resources Consumer Business 12% 38% Real Estate Financial Services Pharma, Medical & Biotech Manufacturing Agriculture 16% Construction

20%

Ride the wave: Asian mid-market M&A spotlight 123 Private equity buyout trends Private Equity

2 450 Acquisitions of Indonesian assets by private equity funds have totalled some four buyouts, 400 worth US$1bn over the past five-and-a-half years, with two of them coming to market in 350 2007. The largest of these buyouts was the 300 US$385m acquisition of a 40.0% stake by TPG in Delta Dunia, the Indonesian Real Estate 250 developer, from Texta Indonesia, the Indonesian 1 private holding company, Sinarmas Sekuritas, 200 alue (US$m) V the Indonesian securities brokerage, and Benny Number of deals 150 Wirawansa, an Indonesian businessman. As a result of the transaction, TPG now holds a 100 significant indirect stake in Bukit Makmur Mandiri Utama, the Indonesian coal mining contractor, 50 which in turn has recently been acquired by Delta 0 0 Dunia. Only one private equity exit has taken place in Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 the Indonesian mid-market space, the transaction Number of deals Value (US$m) in question being the sale of a 24.9% stake in Semen Gresik, the Indonesian cement producer, from CEMEX Asia, the regional subsidiary of Cemex, the Mexican producer of cement, aggregates and clinker. As a result of the divestment, Navis Capital Partners, the Malaysian Private equity exit trends private equity firm, partially exited from its investment in CEMEX Asia. 2 400

350

300

250

1 200 alue (US$m) V 150 Number of deals

100

50

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

124 Indonesia

Cross-border mid-market M&A review Inbound M&A trends

Foreign bidders continue to see the attraction 16 1,800 of mid-market targets in Indonesia. Fourty eight 14 1,600 transactions worth US$8.6bn have taken place since the beginning of 2005, indeed activity 12 1,400 1,200 over the past three years remained relatively 10 consistent. During 2007-2009, 11 inbound 1,000 mid-market transactions were announced 8 800 each year, with their average value changing alue (US$m)

6 V remarkably little over the period. However, 600 Number of deals 4 inbound acquisitions have seemingly tailed off of 400 late – just one buy, worth US$120m, has been 2 200 announced over the first half of 2010. 0 0 Indonesian acquisitions by Southeast Asian bidders accounted for 34.0% of all inbound Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 deals by volume and 43.0% by value over the Number of deals Value (US$m) 2005-H1 2010 period, with 16 transactions, Geographic volume split of inbound M&A, 2005-H1 2010 worth US$3.6bn being announced. Bids emanating from businesses located in Greater 6% China accounted for a further six transactions, 4% worth US$960m. Meanwhile, Japanese firms 4% Southeast Asia spent US$531m acquiring five Indonesian assets. Greater China 6% 34% North American and Australasian acquirers spent Japan a collective US$1.3bn between them making four North America acquisitions apiece. 6% Australasia UK & Ireland South Asia 8% Middle East South Korea 8% Other 14% 10% Geographic value split of inbound M&A, 2005-H1 2010

2% 4% 5% Southeast Asia 5% Greater China

5% North America 43% Middle East Japan 6% South Korea South Asia Australasia 9% UK & Ireland Other 10% 11%

Ride the wave: Asian mid-market M&A spotlight 125 Outbound M&A trends Outbound mid-market acquisitions undertaken by Indonesian businesses since the beginning of 2 450 2005 have resulted in 10 deals, worth US$2.2bn 400 being announced, with 30.0% of them coming 350 to market in 2009. The largest of these purchases 300 saw Bumi Resources, the Indonesian natural resources group, acquire Herald Resources, the 250 1 Australian mining company, for US$425m in Q4 200

alue (US$m) 2007. Bumi Resources faced stiff competition 150 V from a Sino-Indonesian consortium consisting of Number of deals 100 Antam Tbk and Shenzhen Zhongjin Lingnan, the Indonesian and Chinese miners respectively, but 50 managed to walk away with the prize. 0 0 Indonesian buyers abroad tended to focus on

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 other Southeast Asian targets, with four deals, Number of deals Value (US$m) worth US$987m having been undertaken since the beginning of 2005. Australasian and Middle Geographic volume split of outbound M&A, 2005-H1 2010 Eastern targets also interested Indonesian bidders, with a further four transactions, worth a 10% cumulative US$843m, being undertaken in these two economies together. 10%

Southeast Asia 40% Middle East Australasia Africa 20% Greater China

20%

Geographic value split of outbound M&A, 2005-H1 2010

5% 10%

Southeast Asia 46% Australasia 16% Middle East Africa Greater China

23%

126 Indonesia

Top 25 deals 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Nov-09 P PT Newmont Nusa Tenggara Energy & Indonesia PT Multi Daerah Bersaing Indonesia Newmont Mining US 494 (14.0% stake) Resources Corporation; Sumitomo Corporation Mar-08 C PT Bakrieland Development Construction Indonesia Bakrie & Brothers Tbk PT Indonesia 479 Tbk (40.0% stake) Feb-08 C XL Axiata Tbk, PT (16.8% TMT Indonesia Indocel Holding Sdn Indonesia Khazanah Nasional Malaysia 441 stake) Berhad Jun-08 C PT Bank UOB Buana Tbk Financial Indonesia United Overseas Bank Singapore PT Sari Dasa Karsa Indonesia 437 (38.9% stake) Services International Investment Pte Ltd Dec-07 C XL Axiata Tbk, PT (16.0% TMT Indonesia Emirates Telecommunications United PT Rajawali Corporation Indonesia 436 stake) Corporation Arab Emirates Aug-05 C PT Bank UOB Buana Tbk Financial Indonesia United Overseas Bank Ltd Singapore PT Sari Dasa Karsa Indonesia 428 (77.0% stake) Services Dec-07 C Herald Resources Ltd Energy & Australia PT Bumi Resources Tbk Indonesia 425 Resources Mar-05 C Adaro Indonesia, PT (41.0% Energy & Indonesia PT Alam Tri Abadi Indonesia New Hope Corporation Australia 406 stake); PT Indonesia Bulk Resources Ltd Terminal (50.0% stake) Mar-05 C Kaltim Prima Coal, PT (32.0% Energy & Indonesia PT Sitrade Nusa Globus Indonesia PT Bumi Resources Tbk Indonesia 400 stake) Resources May-06 C Six oil fileds in Indonesia and Energy & Indonesia China International Petroleum Hong 400 Middle East Resources Investment Union Kong Sep-09 C PT Newmont Nusa Tenggara Energy & Indonesia PT Multi Daerah Bersaing Indonesia Newmont Mining US 391 (10.0% stake) Resources Corporation; Sumitomo Corporation Nov-09 C PT Delta Dunia Makmur Tbk Real Estate Indonesia PT Northstar Pacific Partners US Amicorp Trustees Indonesia 385 (40.0% stake) (Singapore) Ltd; Credence Trust (Singapore) Pte Ltd; Lion Trust (Singapore) Ltd Mar-10 P Overseas Union Enterprise Real Estate Singapore Lippo Group Indonesia Usaha Tegas Sdn Bhd Malaysia 368 Ltd (23.8% stake) Sep-07 C PT Tuban Petrochemical Manufacturing Indonesia PT Silakencana Tirtalestari Indonesia PT Perusahaan Pengelola Indonesia 351 Industries (50.0% stake) Aset Sep-08 C Drayton Pte Ltd Consumer Singapore Indofood Sukses Makmur Indonesia Pastilla Investments Ltd United 350 Business Tbk, PT Kingdom Oct-07 C Jembayan coal mine Energy & Indonesia Straits Asia Resources Ltd Singapore Mitsui Matsushima Indonesia 350 Resources International Pty Ltd; Pacific Communication Corp; Vital Century Investment Dec-09 C PT Multi Bintang Indonesia Consumer Indonesia Asia Pacific Breweries Ltd Singapore Heineken NV Netherlands 342 Tbk Business May-06 C Semen Gresik (Persero) Tbk, Construction Indonesia PT Rajawali Corporation Indonesia Cemex Asia Holding Mexico 337 PT (24.9% stake) Oct-09 P PT Bank Mestika Dharma Financial Indonesia RHB Capital Berhad Malaysia PT Mestika Benua Mas Indonesia 332 (80.0% stake) Services Aug-07 C ConocoPhillips (Pangkah) Ltd Energy & Indonesia Kuwait Foreign Petroleum Kuwait ConocoPhillips Company US 330 Resources Exploration Company Jul-05 C PT Bank Lippo Tbk (52.0% Financial Indonesia Santubong Investments BV Malaysia SwissAsia Global Switzerland 325 stake) Services Oct-08 C PT Makro Indonesia Consumer Indonesia Lotte Shopping Company Ltd South SHV Holdings NV Netherlands 314 Business Korea Oct-05 C PT Tunas Harapan Perkasa Energy & Indonesia Energi Mega Persada Tbk, PT Indonesia PT Mitra Andalan Mandiri Indonesia 309 Resources Apr-10 P PT Carrefour Indonesia Consumer Indonesia PT Trans Retail Indonesia Carrefour SA France 300 (40.0% stake) Business Jun-09 C BP North West Java Ltd Energy & Indonesia Pertamina, PT Indonesia BP plc United 280 Resources Kingdom C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 127 Aside from the previously-mentioned PT Heat Chart Newmont Nusa Tenggara minority stake mergermarket’s Heat Chart is based on our acquisition, the largest mid-market transaction intelligence database and tracks all companies to take place in Indonesia over the past five-and- that are reportedly up for sale in Indonesia. The a-half years was the March 2008 40.0% stake intelligence derives from a range of sources, buy of PT Bakrieland by PT Bakrie & Brothers, including press reports, company statements the Indonesian conglomerate, for US$479m. and our own proprietary intelligence. The The deal, conducted at a large 64.0% discount data does not differentiate between small to Bakrieland’s share price one day prior to the and large transactions nor between near-term deal announcement, also saw Bakrie & Brothers and long-term deals. Similarly, it does not acquire a 35.0% stake in PT Bumi Resources, the differentiate between rumored and confirmed Indonesian coal exporter and a 40.0% stake in PT intelligence. Energi Mega Persada, the Indonesian oil and gas exploration company. Hot Warm Cold 120 75 30 105 60 15 90 45 0

Indonesia Energy & Resources 48 Financial Services 31 Consumer Business 21 TMT 17 Transportation 11 Agriculture 7 Manufacturing 7 Real Estate 6 Construction 4 Business Services 3 Tourism, Hospitality & Leisure 3 Pharma, Medical & Biotech 2 TOTAL 160

128 Indonesia

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 285.9 364.6 432.2 510.5 540.3 GDP (%, y/y change) 5.7 5.5 6.3 6.0 4.5 FDI (US$bn) 8.3 4.9 6.9 9.3 5.3 IDR:US$ (period average) 9,705 9,159 9,141 9,699 10,390 Policy rate (%, end of period) 12.75 9.75 8.00 9.25 6.50 Money market rate (%) 6.80 9.20 6.00 8.50 7.20

Source: The Central Bank of Republic of Indonesia, http://bi.go.id; Economist Intelligence Unit (EIU)

With Q1 2010 economic growth figures showing However, the resurgent economy has not led to a 5.7% increase in GDP compared to the same increases in the economy’s policy rate and central period last year, Indonesia is firmly on the bankers have instead adopted a wait-and-see road to recovery. This is being supported by approach to the ongoing sovereign debt crisis a relatively low and stable rate of inflation, a ravaging Europe. As a result, lending rates in steady current account surplus and low levels Indonesia currently stand at 6.5%, the lowest of private, external and government debt. In level since 2005. However, with inflationary fact, the restrained and transparent nature pressures slowly rearing their ugly head – of President Susilo Bambang Yudhoyono’s consumer prices showed a rise of 4.2% over May stewardship since 2004 has meant that the 2010 – a rate hike in 2010 is not entirely off the economy has developed in leaps and bounds cards. Indeed, one Indonesia-focused JPMorgan since the 1998 Asian Financial Crisis and, as a economist remarked that “future central bank result, many market commentators remain bullish tightening will be gradual and spaced-out, on the economy. The Economist Intelligence Unit and not likely to start until the end of the third (EIU) is forecasting growth of 5.6% over 2010, quarter.” in line with central bank predictions. Citigroup economists, on the other hand, are pencilling in a 5.8% rise over the year.

In fact, the restrained and transparent nature of President Susilo Bambang Yudhoyono’s stewardship since 2004 has meant that the economy has developed in leaps and bounds since the 1998 Asian Financial Crisis and, as a result, many market commentators remain bullish on the economy.

Ride the wave: Asian mid-market M&A spotlight 129 Stock market activity and mid-market M&A trend Since the beginning of H2 2009, the Indonesian Rupiah appreciated against the US Dollar by 9 700 around 12.0%, reaching its zenith in mid-April 8 600 2010 when the Rupiah was worth under 8,000 7 to the Greenback. However, financial turbulence 500 6 in Europe has weighed against the currency and it has slipped a little over 3.0% since then. 5 400 However, sound macroeconomic fundamentals 4 300 have meant that currency specialists are 3 LQ 45 Index expecting the Rupiah to regain its poise against Deals by volume 200 2 the US Dollar before 2010 is out, meaning that it is expected to appreciate by around 2.6% from 1 100 the time of writing and the end of December 0 0 2010.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Meanwhile, the LQ45, the Indonesian stock exchange index, rose in a fairly uniform fashion Deals by volume LQ 45 Index from the beginning of H2 2009 to the end of Source: mergermarket/Bloomberg March 2010, adding some 46.0% over the period. However there has been a fairly mild retrenchment of late, with the market shedding 7.0% since then. The fall in the Indonesian stock market is somewhat mirrored by a corresponding dip in consumer sentiment – the central bank’s consumer confidence index fell in March 2010 to 107.4, down from a four-year high of 115.4 in July 2009. However, in both cases, it could be assumed that external drivers are the main reason for such falls.

130 Malaysia

The New Economic Model, that was launched in March this year, aims to make Malaysia a high-income economy and one of its approaches under the 10th Malaysia Plan is to focus on 12 national key economic areas which have the potential to generate income. Though we foresee that this will stimulate some M&A interest in several of these areas such as the Information and Communications Technology, Business Services and Private Healthcare industries, we believe the Manufacturing, Energy & Resources and Agriculture sectors will remain the primary focus of M&A activity. Tan Theng Hooi, Deloitte Malaysia Mid-market M&A trends Overview

12 2500 Over the past four quarters, Malaysian mid-market activity picked up sharply compared to the previous yearly period, with some 26 10 2000 transactions, worth a total of US$4.7bn, coming to market. In contrast, over H2 2008-H1 2009, 8 just 15 deals worth an overall amount of 1500 US$1.9bn were announced.

6 Over the long-term, the Malaysian mid-market

alue (US$m) M&A space has witnessed some 131 deals, V 1000 worth a cumulative US$20.3bn. As a result, Number of deals 4 the Malaysian mid-cap space constitutes an important component of M&A activity in the 500 2 overall Southeast Asian mid-market, accounting for roughly one-quarter of all M&A deals undertaken across the region since the beginning 0 0 of 2005 by both values and volumes.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Over three-quarters (81.0%) of all mid-cap Number of deals Value (US$m) transactions conducted in Malaysia between H2 2009-H1 2010 were worth US$300m or less, with 31.0% of them falling into the US$151m-US$300m range. However, these proportions look nothing like deal size trends from the 2005-H1 2009 period, when 67.0% of Deal size split by volume, H2 2009-H1 2010 all acquisitions were worth between US$50m and US$150m, 22.0% fell into the US$151m- 23% US$300m range, and just 11.0% could be place in the US$300m-US$500m deal size bracket.

US$50m - US$150m 53% US$151m - US$300m US$300m - US$500m

24%

132 Malaysia

Interestingly, Malaysian mid-market activity over Sector split by volume, H2 2009-H1 2010 the past four quarters has been primarily focused in the Construction space, with four deals, worth 4% 8% 14% US$757m, taking place. Agriculture deals were Construction also prominent over the period, with a trio of Manufacturing acquisitions, cumulatively valued at US$526m, 8% coming to market. Technology, Media & 12% Telecommunications (TMT) However, this interest in Malaysian Construction Real Estate 8% and Agriculture acquisitions has only occurred Agriculture recently. Over the previous four-and-a-half years, Consumer Business Malaysian mid-market acquisitions tended to be Energy & Resources 12% focused on Manufacturing, Financial Services and Financial Services Real Estate transactions, with the three sectors 12% Transportation between them accounting for around 47.0% Pharma, Medical & Research of all activity by volume and 52.0% in terms of 12% 12% value. In comparison, mid-market acquisitions in these three sectors combined over H2 2009-H1 2010 made up just 32.0% of overall volumes and 29.0% of M&A values.

Sector split by value, H2 2009-H1 2010

4% 2% 4% 19% Consumer Business 8% Construction Manufacturing Agriculture Energy & Resources 11% Real Estate 16% Technology, Media & Telecommunications (TMT) Financial Services 11% Pharma, Medical & Research Transportation 14% 11%

Ride the wave: Asian mid-market M&A spotlight 133 Private equity buyout trends Private Equity

4 700 Nine mid-market private equity buyouts have taken place in Malaysia since the beginning of 600 2005, with financial investors spending a total of US$1.9bn in the process. The largest of these 3 transactions saw Primus Pacific Partners, the 500 Hong Kong-based private equity firm acquire a 20.2% stake in EON Capital, the Malaysian 400 company engaged in retail banking, from Hicom 2 Holdings, for US$412m. The transaction, which alue (US$m)

300 V was initially announced in Q1 2008, saw Primus

Number of deals Pacific snap up the stake at a significant 57.9% 200 premium over the target’s share price one day 1 prior to announcement. 100 Interestingly, over the past five-and-a-half years, only two private equity exits have occurred in 0 0 Malaysia, both of them taking place in the first half of 2010. The larger of these two saw CVC Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Capital Partners sell out of Paperbox Holdings Number of deals Value (US$m) Limited, the holding company for GS Paper & Packaging, the Malaysian manufacturer of paper and packaging materials, for US$311m in March 2010.

Private equity exit trends

2 350

300

250

200 1

150 alue (US$m) V Number of deals 100

50

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

134 Malaysia

Cross-border mid-market M&A review Inbound M&A trends

Inbound mid-market M&A into Malaysia has 7 1,200 totalled some 38 acquisitions, worth US$6.5bn over the past five-and-a-half years, with the 6 1,000 most active single year being 2007, when 15 5 M&A deals worth US$2.7bn, came to market. 800 As a result of this, foreign mid-cap investment 4 into Malaysia amounted to 21.0% of all inbound 600 3 regional acquisitions over the whole period by alue (US$m) 400 V both volume and value. Number of deals 2

More recently, the number of Malaysian 1 200 mid-market acquisitions by overseas bidders picked up over H2 2009 and the first quarter of 0 0 2010, with a respectable nine transactions worth US$1.9bn taking place – with the bulk of this Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 deal flow coming to market in H1 2010. Number of deals Value (US$m) Over the past four quarters, Southeast Asian Geographic volume split of inbound M&A, H2 2009-H1 2010 bidders have undertaken four deals valued at 11% a collective US$547m, while Middle Eastern, Australasian and Greater China acquirers each acquired one Malaysian asset apiece, spending 11% a combined US$830m in the process. Such Southeast Asia inbound M&A patterns are not dissimilar to UK & Ireland longer-term trends, with Southeast Asian 45% Middle East acquisitions in Malaysia making up 21.0% of Australasia all inbound acquisitions by volume over the 11% 2005-H1 2009 period, as well as 16.0% of all Japan M&A valuations. Greater China

11%

11%

Geographic value split of inbound M&A, H2 2009-H1 2010

11%

12% 29% Southeast Asia Middle East Japan Greater China Australasia 15% UK & Ireland

17%

16%

Ride the wave: Asian mid-market M&A spotlight 135 Outbound M&A trends Malaysian acquisitions of foreign assets have numbered some 47 transactions, worth 14 2,500 US$8.8bn, meaning that this particular market 12 comprised more than one-third of all Southeast 2,000 Asian outbound acquisitions over the period. 10 Interestingly, Q4 2009 saw a stellar performance 1,500 8 in terms of outbound volumes and values, with six acquisitions, worth US$964m, coming

6 alue (US$m) 1,000 V to market – a record-breaking quarter of deal

Number of deals 4 flow. However, H1 2010 witnessed a sharp 500 retrenchment in activity, with just two further 2 deals, worth US$144m being announced. 0 0 Similar to inbound geographical splits for the H2 2009-H1 2010 period, outbound Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 acquisitions were chiefly focused on acquisitions Number of deals Value (US$m) within Southeast Asia, with three deals, worth Geographic volume split of outbound M&A, H2 2009-H1 2010 US$615m being transacted. North American targets also proved popular with Malaysian 9% acquirers, accounting for two additional deals, worth US$155m. 9% 28% Malaysian purchases of North American and Southeast Asia Southeast Asian assets over the preceding four- North America and-a-half years have also proved to be the most 9% Germanic important driver of outbound activity, accounting Middle East for a combined 61.0% of all outbound M&A Japan volumes as well as values. South Korea 9% South Asia 18%

18%

Geographic value split of outbound M&A, H2 2009-H1 2010

5% 5%

10% Southeast Asia

42% South Asia North America 10% Middle East Germanic South Korea Japan 11%

17%

136 Malaysia

Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Oct-09 C Sarawak Energy Berhad (35.4%) Energy & Malaysia Delegateam Sdn Bhd Malaysia 419 Resources Oct-09 C Malayan Sugar Manufacturing Consumer Malaysia Felda Global Ventures Malaysia PPB Group Berhad Malaysia 357 Company Bhd Business Holdings Sdn Bhd Aug-09 C Padiberas Nasional Berhad (81.1% Agriculture Malaysia Tradewinds (M) Berhad Malaysia Gandingan Bersepadu Hong Kong 355 stake) Sdn Bhd; Wang Tak Company Ltd Oct-09 P PT Bank Mestika Dharma (80.0% Financial Indonesia RHB Capital Berhad Malaysia PT Mestika Benua Mas Indonesia 332 stake) Services Jan-10 P UBG Berhad (89.8% stake) Real Estate Malaysia PetroSaudi International Ltd Saudi Cahya Mata Sarawak Malaysia 321 Arabia Berhad Mar-10 C GS Paper & Packaging Sdn Bhd Manufacturing Malaysia Oji Paper Company Ltd Japan CVC Asia Pacific Ltd Japan 311 Oct-09 P Cosway (M) Sdn Bhd Consumer Malaysia Berjaya Holdings (HK) Ltd Hong Biofield Sdn Bhd; Cosway Malaysia 287 Business Kong Corporation Berhad; Madison County LLC Oct-09 P Cairn India Ltd (2.3% stake) Energy & India Petroliam Nasional Berhad Malaysia Cairn Energy plc United 240 Resources Kingdom Jan-10 C Hume Industries (Malaysia) Berhad Construction Malaysia Hong Leong Company Malaysia 236 (35.1% stake) (Malaysia) Berhad May-10 P Malaya Glass Products Sdn Bhd Construction Malaysia ACI International Pty Ltd; Australia Fraser & Neave Holdings Malaysia 222 Berli Jucker Public Co Ltd Bhd Jun-10 P Linatex Ltd Manufacturing Malaysia The Weir Group plc United Navis Capital Partners Ltd Malaysia 200 Kingdom Jun-10 P DFZ Capital Berhad Consumer Malaysia Esmart Holdings Ltd Singapore Atlan Holdings Berhad Malaysia 195 Business Mar-10 P U Mobile Sdn Bhd (33.0% stake) TMT Malaysia Singapore Technologies Singapore U Television Sdn Bhd Malaysia 189 Telemedia Pte Ltd Jun-10 P Pharmaniaga Bhd Pharma, Malaysia Boustead Holdings Bhd Malaysia UEM Group Bhd Malaysia 184 Medical & Biotech Aug-09 P Merchant Quay Pte Ltd Tourism, Singapore TA Enterprise Berhad Malaysia LaSalle Asia Opportunity US 180 Hospitality & II SARL Leisure Apr-10 P Mutiara Goodyear Development Construction Malaysia Elkom Malaysia 161 Berhad (91.3% stake) Oct-09 P Fajr Capital Ltd (25.0% stake) Financial United Khazanah Nasional Berhad Malaysia 150 Services Arab Emirates Aug-09 P Ramunia Fabricators Sdn Bhd Manufacturing Malaysia Sime Darby Engineering Malaysia Ramunia Holdings Malaysia 150 Sdn Bhd Berhad May-10 P M3nergy Berhad Construction Malaysia Datin Tinawati Nordin Malaysia 138 (Private investor); Datuk Shahrazi Sha'ari (Private investor) Mar-10 P BH Insurance (M) Berhad Financial Malaysia AXA Affin General Insurance Malaysia Boustead Holdings Bhd; Malaysia 132 Services Berhad Felda Holdings Berhad Dec-09 P Enterprise Capital Corporation Agriculture Malaysia Asia Palm Oil Investment Singapore 110 Pte Ltd Oct-09 P New Straits Times Press (M) TMT Malaysia Media Prima Berhad Malaysia 108 Berhad (56.7% stake) Sep-09 C Carlsberg Singapore Pte Ltd Consumer Singapore Carlsberg Brewery Malaysia Malaysia Carlsberg Breweries A/S Denmark 103 Business Bhd May-10 P Scomi Engineering Berhad Energy & Malaysia OMS Holdings Pte Ltd Malaysia Scomi Engineering Bhd Malaysia 101 (Machine Shop Business) Resources Dec-09 P Friendster Inc TMT US MOL Global Pte Ltd Malaysia Benchmark Capital; US 100 DAG Ventures; Flybridge Capital Partners ; Kleiner Perkins Caufield & Byers C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 137 Malaysia’s largest mid-market transaction over Heat Chart the past four quarters saw Delegateam, the mergermarket’s Heat Chart is based on our acquisition vehicle of the state of Sarawak, intelligence database and tracks all companies acquire a 35.4% stake in Sarawak Energy, an that are reportedly up for sale in Malaysia. The energy company in the state of Sarawak, for intelligence derives from a range of sources, US$419m in October 2009. Delegateam already including press reports, company statements owned a 64.6% stake in Sarawak Energy, and our own proprietary intelligence. The meaning that the acquisition gave Delegateam data does not differentiate between small full control of the target. and large transactions nor between near-term The second-largest acquisition over the past and long-term deals. Similarly, it does not four quarters was also a buy by a public agency differentiate between rumored and confirmed and saw Felda Global Ventures, a subsidiary of intelligence. Malaysian land development agency Federal Land Development Authority acquire Malayan Sugar Manufacturing Company, the Malaysian Hot Warm Cold sugar refiner, from PPB Group, the Malaysian 120 75 30 conglomerate, for US$357m. Concurrently, Felda 105 60 15 has invested US$8m to acquire a 50.0% stake 90 45 0 in Kilang Gula Felda Perlis, a sugar miller and refiner, from PPB, as well as US$61m in order to takeover a 20.0% stake in Tradewinds, a partial Malaysia subsidiary of PPB. Manufacturing 22 TMT 19 Consumer Business 13 Energy & Resources 12 Financial Services 12 Business Services 11 Real Estate 6 Tourism, Hospitality & Leisure 5 Pharma, Medical & Biotech 5 Agriculture 2 Construction 2 Other 2 TOTAL 111

138 Malaysia

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 138 156.6 186.1 221.6 191.3 GDP (%, y/y change) 5.3 5.8 6.2 4.6 -1.7 FDI (US$bn) 4.0 6.1 8.5 7.4 4.1 MYR:US$ (period average) 3.79 3.67 3.44 3.33 3.52 Policy rate (%, end of period) 3.00 3.50 3.50 3.25 2.00 Money market rate (%) 2.72 3.38 3.50 3.47 2.12

Source: Bank Negara Malaysia, http://www.bnm.gov.my; Economist Intelligence Unit (EIU)

In a surprising turn of affairs, the Malaysian bank will now adopt a wait-and-see attitude to government’s predictions for economic growth the overnight rate and will probably not raise over 2010 actually come in under the bulk rates until a couple of months after July 2010. He of independent third party forecasts – a clear went on to say that the global financial system indication of almost extreme market bullishness has weakened as a result of the Euro crisis on the economic prospects of the country. afflicting Europe, while Asian economies has been rattled by the belligerent rhetoric coming However, such commentators have reason to from the Korean Peninsula. be upbeat on Malaysia. The country recorded a very impressive 10.1% growth over Q1 2010 The booming economy has also meant that the compared to the same period in 2009, with Malaysian Ringgit has strengthened impressively import demand rising by a massive 27.5%. against the US Dollar over the course of the Demand for Malaysian exports also rose past four quarters, appreciating by around 9.0% by 19.3% over the year, leading the Senior between the beginning of H2 2009 and mid-April Economist of HSBC Research to remark that “If 2010. However since then, the currency has slid there is one word that sums up the economic back mildly by roughly 4.0%. However, the EIU recovery in Malaysia it is ‘impressive’.” don’t anticipate this recent retrenchment to be permanent, with the Ringgit envisaged to return So impressive in fact, that HSBC has pencilled in to an appreciating trend over the second half of a 7.3% expansion in the Malaysian economy for 2010. 2010, while Morgan Stanley remains even more bullish, forecasting growth of 7.7%. Meanwhile, Continuing the success story, the Kuala Lumpur The EIU maintains its cautiousness, suggesting Composite Index rose some 27.0% from the the economy will grow by 6.9% over 2010 but beginning of July 2009 to mid-May 2010, before the most cautious were – very surprisingly – the the index fell, presumably off the back of the central bank themselves, who expect to see the then-looming European sovereign debt crisis. economy rise by just 4.5-5.5% over the course of However, one financial research house, RHB the year. Research, expects the market to rise a further 8.0% by year-end compared to the market at the Whichever of these forecasts are closest to the time of writing. mark, the fact remains that with the economy roaring upwards, Bank Negara Malaysia is likely At the same time, Malaysian financial markets are to be watching its policy rate closely. The central set to become a lot more complex with the stock bank has already hiked up the rate twice this exchange currently planning a five-fold increase year with the most recent move being a 25 in its derivatives business, as well as looking into basis point rise to 2.5% in May 2010. However, expanding its derivatives platform to include a well-known banker said on the sidelines of a further financial instruments such as foreign recent Malaysian Banking summit that the central exchange futures.

Ride the wave: Asian mid-market M&A spotlight 139 Stock market activity and mid-market M&A trend Malaysian bankers are also looking to further increase their lead as the world’s center of 12 1,600 Islamic banking. According to the central bank, 1,400 Malaysia’s total outstanding Islamic bonds 10 1,200 amounted to $66bn at the end of 2009, or 8 62.0% of global outstanding issuance – a 1,000 figure which is likely to grow over coming years 6 800 as Indonesian and Middle Eastern businesses increasingly mature and come to Malaysia to 600 4 secure Islamic financing. Deals by volume umpur Composite Index 400 However, while the Malaysian economy is 2

200 ala L Ku happily chugging along, it would seem that 0 0 storm clouds are rising over Prime Minster’s Najib Razak’s much-awaited New Economic Model

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 (NEM), which he promises will revolutionize and reinvigorate Malaysian society. Chief among his Deals by volume Kuala Lumpur Composite Index aims is the removal of affirmative action policies Source: mergermarket/Bloomberg which favor ethnic Malays, or Bumiputra. The policies which have been in place since the 1960s include cheaper housing for ethnic Malays, quotas for university places and civil service jobs, and preferential treatment in competition for government contracts and business permits. Mr. Najib is yet to formally announce the onset of the NEM but many local media outlets are already predicting that they will not be well-received by ethnic Malays who constitute more than half of Malaysia’s population.

However, while the Malaysian economy is happily chugging along, it would seem that storm clouds are rising over Prime Minster’s Najib Razak’s much-awaited New Economic Model, which he promises will revolutionize and reinvigorate Malaysian society.

140 Philippines

Increased M&A activity by foreign investors in the Philippines shows that interest in deal-making is returning. There has been a marked increase in foreign investments, particularly in the Energy & Resources and Transportation sectors, areas which the government has pegged to be priority industries. Luis Gerardo C. Manabat, Deloitte Philippines Mid-market M&A trends Overview

6 1,600 Mid-market M&A deal-making in the Philippines has seen 44 transactions worth an aggregate 1,400 US$9.8bn come to market since 2005, 5 accounting for 9.4% and 12.2% of the overall 1,200 deal volume and value in the Southeast Asian 4 mid-market, respectively. Despite the general 1,000 economic malaise following the global financial crisis of late 2008, transaction activity has 3 800 remained buoyant in the Philippines with 12 alue (US$m)

V deals worth US$3bn brokered over the H2 600 Number of deals 2 2009-H1 2010 period, up from 11 deals worth US$2.7bn in the preceding 12 months. 400 1 In terms of deal size segments, activity has been 200 concentrated in the US$50m-US$150m and the US$300m-US$500m ranges over the H2 0 0 2009-H1 2010 period with each accounting for just over 40.0% of overall deal-making. Notably, Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 this trend marks a shift from the preceding four- Number of deals Value (US$m) and-a-half years in which the US$50m-US$150m range accounted for 53.0% of total mid-market transactions and the US$300m-US$500m accounted for just 25.0%.

Deal size split by volume, H2 2009-H1 2010

41% 41% US$50m - US$150m US$151m - US$300m US$300m - US$500m

18%

142 Philippines

In keeping with longer-term trends, the Sector split by volume, H2 2009-H1 2010 Energy & Resources sector remained the most active mid-market space for deal-making in 8% the Philippines over the H2 2009-H1 2010 8% period, witnessing a total of eight transactions collectively valued at US$2.4bn and accounting for 67.0% and 80.0% of deal volume and Energy & Business valuations. Activity in the electrical power Technology, Media & generation and transmission niches acted as the 17% Telecommunications (TMT) main driver of sectoral activity accounting for Business Services 63.0% and 76.0% of total Energy & Resources Consumer Business deal volume and value. 67%

Sector split by value, H2 2009-H1 2010

5% 5%

10%

Energy & Business Consumer Business Technology, Media & Telecommunications (TMT) Business Services

80%

Ride the wave: Asian mid-market M&A spotlight 143 Private equity buyout trends Private Equity

2 250 The private equity buyout and exit market in the Philippines has been limited to just three transactions in recent years. The acquisition of 200 eTelecare Global Solutions, the Philippine-listed business process outsourcing asset, by EGS Acquisition, a private equity-backed firm based 150 in the US, for US$233m in September 2008 is perhaps the most notable. Almost a year after 1 the buyout, EGS merged eTelecare with Stream alue (US$m)

100 V Global Services, a US-based trade player, in a

Number of deals equity-based transaction valued at US$141m. This more recent deal accounted for one of the 50 two exits undertaken over the period.

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Private equity exit trends

2 160

140

120

100

1 80 alue (US$m) V 60 Number of deals

40

20

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

144 Philippines

Cross-border mid-market M&A review Inbound M&A trends

Inbound cross-border investment acts as an 3 600 important driver of mid-market M&A activity in the Philippine market with 14 deals worth 500 US$3.2bn since 2005, representing just under a third of total transactions and valuations. 2 400 Comparatively, this percentage is slightly below regional averages, which are closer to 40.0% of 300 alue (US$m) overall deal flow and valuations in Southeast Asia V 1 200 as a whole. Number of deals North American and Japanese investors have 100 been the most active foreign buyers sourcing assets in the Philippine mid-cap space, 0 0 accounting for over three quarters of total inbound deal volumes and values over the past Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) five-and-a-half years.

Geographic volume split of inbound M&A, 2005-H1 2010

7%

14%

43% North America Japan Greater China Nordic

36%

Geographic value split of inbound M&A, 2005-H1 2010 10%

14%

39% Japan North America Greater China Nordic

37%

Ride the wave: Asian mid-market M&A spotlight 145 Outbound M&A trends Philippine companies have undertaken eight mid-market transactions abroad since 2005 3 450 worth a combined US$1.3bn. Outbound activity 400 has generally been sporadic, yet has not been 350 particularly affected by broader macroeconomic 2 300 trends in recent years. Indeed, the quarter witnessing the greatest level of deal activity 250 (Q1 2008) saw just two transactions brokered, 200 both of which were undertaken by SM Prime alue (US$m) 1 150 V Holdings, a publicly traded mall operator. The Number of deals 100 Filipino company’s acquisition of two China- based shopping mall for a combined US$268m 50 was in line with its aim to expand its presence in 0 0 this niche throughout Asia.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 When sourcing assets abroad, Philippine bidders Number of deals Value (US$m) primarily target markets in the Asia-Pacific region with only one instance of an out-of-region mid-market transaction since 2005. Overall, Geographic volume split of outbound M&A, 2005-H1 2010 outbound buys into the Greater China market have accounted for around half of total overseas 13% mid-market M&A volume and value. Acquisitions in neighboring Southeast Asia markets accounted for a quarter of outbound deals, but a sizable 40.0% of aggregate deal value. 13% Greater China

49% Southeast Asia North America Australasia

25%

Geographic value split of outbound M&A, 2005-H1 2010

5% 9%

Greater China 46% Southeast Asia North America Australasia

40%

146 Philippines

Top 25 deals 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Dec-06 C Coca-Cola Bottlers Consumer Philippines Coca Cola South Asia US San Miguel Corporation Philippines 490 Philippines Inc (CCBP) Business Holdings Inc (65.0% stake) Nov-09 P Manila Electric Company Energy & Philippines Metro Pacific Investments Philippines First Philippine Holdings Philippines 469 (6.7% stake) Resources Corp Corporation Apr-10 C 345-MW San Roque Energy & Philippines San Miguel Corporation Philippines Power Sector Assets & Liabilities Philippines 450 Multipurpose Hydroelectric Resources Management Corporation Power Project Aug-08 C Tiwi-Makban geothermal Energy & Philippines AP Renewables Inc Philippines Power Sector Assets & Liabilities Philippines 447 plant Resources Management Corporation Jan-06 C Philippine Long Distance TMT Philippines NTT DoCoMo Inc Japan NTT Communications Japan 440 Telephone Company (7.0% Corporation stake) Dec-05 C Del Monte Pacific Ltd Consumer Singapore NutriAsia Pacific Ltd Philippines 418 Business Mar-09 C Manila Electric Company Energy & Philippines Pilipino Telephone Corporation Philippines Lopez Group Foundation Inc Philippines 414 (20.0% stake) Resources Apr-07 C C&P Homes Inc. Real Estate Philippines Vista Land & Lifescapes Inc Philippines 410 Aug-08 C First Philippine Construction Philippines Metro Pacific Investments Philippines First Philippine Holdings Philippines 378 Infrastructure Inc Corp Corporation; Lopez Holdings Corporation Aug-09 C Calaca coal-fired power Energy & Philippines DMCI Holdings Inc Philippines Power Sector Assets & Liabilities Philippines 362 plant Resources Management Corporation Mar-10 P National Grid Corporation Energy & Philippines OneTaipan Holdings Philippines Enrique Razon (private investor) Philippines 350 of the Philippines (30.0% Resources stake) Aug-08 P Travellers International Tourism, Philippines Star Cruises Ltd Hong Alliance Global Group Inc (AGI) Philippines 335 Hotel Group Inc (50.0% Hospitality & Kong stake) Leisure Nov-07 C Ambuklao-Binga Energy & Philippines SN Aboitiz Power Hydro, Inc Norway Power Sector Assets & Liabilities Philippines 325 Hydropower Plants Resources Management Corporation Oct-09 C Manila Electric Company Energy & Philippines Metro Pacific Investments Philippines Beneficial Trust Fund Philippines 303 (10.2% stake) Resources Corp Dec-09 C San Miguel Brewing Consumer Philippines San Miguel Brewery Inc Japan San Miguel Corporation Philippines 300 International Ltd Business Feb-09 P Sanchung Energy Energy & China Asian Development Bank; Philippines 292 Development Co Ltd Resources International Finance (22.5% stake) Corporation Dec-06 C Maynilad Water Services Energy & Philippines The DMCI-MPIC Water Philippines Lopez Holdings Corporation; Philippines 280 Inc . (84.0% stake) Resources Company Inc Ondeo Services May-06 C International Exchange Financial Philippines UnionBank Of The Philippines, Philippines iVantage Corporation; JTKC Philippines 263 Bank (iBank) Services Inc Equities Inc Jan-08 C First Philippine Union Energy & Philippines First Philippine Holdings Philippines Union Fenosa SA Spain 250 Fenosa Inc (40.0% stake) Resources Corporation Sep-08 C eTelecare Global Solutions Business Philippines EGS Acquisition Co LLC US 233 Inc Services Jun-07 C Pacific Sugar Holdings Consumer Philippines Filinvest Development Corp Philippines ALG Holdings Corporation Philippines 231 Corporation Business Sep-09 C Palinpinon geothermal Energy & Philippines Green Core Geothermal Inc Philippines National Power Corporation Philippines 220 power plant ; Tongonan Resources geothermal power plant Apr-05 C Caliraya-Botocan-Kalayaan Energy & Philippines Electric Power Development Japan Industrias Metalurgicas Argentina 215 (CBK Power Company Ltd) Resources Co., Ltd (J-Power) - Sumitomo Pescarmona S.A Corporation Joint Venture Dec-08 P Manila Electric Company Energy & Philippines Global 5000 Investments Inc Philippines Development Bank of the Philippines 203 (10.0% stake) Resources Philippines; Land Bank of the Philippines (Landbank); Philippines Social Security System Feb-08 C Affluent Capital Enterprises Real Estate China SM Prime Holdings Inc Philippines Grand China International Ltd China 159 C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 147 The largest mid-market transaction brokered in Heat Chart the Philippines in recent years saw Coca Cola mergermarket’s Heat Chart is based on our South Asia Holdings, the Hong Kong subsidiary intelligence database and tracks all companies of soft drinks giant Coca Cola, move to acquire that are reportedly up for sale in the Philippines. the remaining 65.0% stake in Coca-Cola Bottlers The intelligence derives from a range of sources, Philippines for US$490m in December 2006 including press reports, company statements from San Miguel Corporation, a domestic and our own proprietary intelligence. The conglomerate with business interests in, among data does not differentiate between small other sectors, the food, beverage and packaging and large transactions nor between near-term spaces. and long-term deals. Similarly, it does not As one of the Philippines’ largest and most differentiate between rumored and confirmed diversified businesses, San Miguel is one of the intelligence. top deal-makers in the country on both the buy-side and sell-side. In fact, the company was on the buy-side of the largest mid-market deal Hot Warm Cold brokered to date in the Philippines this year, 120 75 30 acquiring the 345-MW San Roque Multipurpose 105 60 15 Hydroelectric Power Project for a total 90 45 0 consideration of US$450m through its subsidiary Strategic Power Development Corp. Philippines Energy & Resources 18 Real Estate 11 Consumer Business 8 Tourism, Hospitality & Leisure 8 Transportation 8 Financial Services 5 Industrials and Chemicals 5 Construction 3 TMT 3 Agriculture 2 Business Services 2 Government 1 Pharma, Medical & Biotech 1 Other 2 TOTAL 77

148 Philippines

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 98.8 117.5 144 167.5 160.8 GDP (%, y/y change) 5.0 5.3 7.1 3.8 0.9 FDI (US$bn) 1.9 2.9 2.9 1.4 2.0 PHP:US$ (period average) 55.10 51.30 46.10 44.30 47.70 Policy rate (%, end of period) 7.50 7.50 5.45 5.50 4.00 Money market rate (%) 7.31 7.83 7.03 5.48 4.53

Source: Bangko Sentral ng Pilipinas, http://www.bsp.gov.ph; National Statistics Office, Republic of the Philippines, http://www.census.gov. ph; Economist Intelligence Unit (EIU)

According to data from Bangko Sentral ng Meanwhile, domestic demand was further Pilipinas, the Philippine central bank, the supported by strong fiscal stimulus measures with economy expanded by a mere 0.9% year-on-year an 8.5% increase in government consumption in 2009 as trade activity and investment spending expenditure in the year. While government collapsed in the wake of the onset of the largesse played an important role in sustaining global financial crisis late, in the preceding year. domestic business activity during the downturn, Overseas sales of goods and services slumped by public finances also suffered with the budget 14.2% as demand in the country’s main export deficit ballooning over 2009 to 3.9% of GDP markets waned even as the effective exchange from just 0.9% in the preceding year. As such, rate depreciated by 6.9% in the year. At the same President-elect Benigno 'Noynoy' Aquino’s time, low confidence and uncertainty about the incoming government, which assumed office on future prompted businesses to curtail investment 30 June 2010, will have to make a concerted outlays, precipitating a 3.5% contraction in gross effort to consolidate public finances early on in fixed capital expenditure. his tenure. On the positive side, however, growth in Aquino, a charismatic senator whose mother household spending – the main driver of Maria Corazon Aquino was the first female growth accounting for roughly 80.0% of GDP – president, comes from a long line of politicians in supported domestic business activity with a 3.8% the country and was elected on a groundswell of expansion in the year. Households benefitted public support following the death of his mother from remittance inflows of US$15.1bn from the last year. His decisive victory at the poll has given country’s large expatriate community, which him a strong mandate to govern, however, in helped to offset a 3.8% decline in real wages pursuing his policy platform of ending corruption and a slight uptick in the unemployment rate and poverty, Aquino will no doubt find to 7.5%. Standing at around 10.0% of GDP, opposition from powerful political and business these remittances play a vital role in boosting vested interest groups. household incomes and smoothing out consumption patterns during down business cycles, particularly for lower-income families.

Ride the wave: Asian mid-market M&A spotlight 149 Stock market activity and mid-market M&A trend Notwithstanding these challenges, Aquino will benefit from strengthening domestic business 6 4,500 activity, which has kicked off 2010 with a healthy 4,000 5 start. In the first quarter, GDP expanded by a 3,500 robust 7.3% year on year. Promisingly, this is the 4 3,000 fastest rate of quarterly growth since Q2 2007 according to data from the national statistics 2,500 3 office. In the quarter, household consumption 2,000

PSE Index expenditure rose by 5.9% over year-earlier levels, 2 1,500 Deals by volume while government consumption, gross fixed 1,000 investment and exports all posted double-digit 1 growth. 500 0 0 The strong rebound in growth has whipped up inflationary pressures with the CPI increasing

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 by an average of 4.3% over the first four Deals by volume PSE Index months of 2010. It seems that the Bangko Sentral ng Pilipinas, who have maintained an Source: mergermarket/Bloomberg accommodative stance on interest rates since the crisis struck, will keep a watchful eye on prices but not move too hastily to tighten policy at a still early stage in the recovery. Overall, real GDP growth is forecast to rise in 2010 by 3.8% by the EIU and 3.6% by the IMF.

Growth in household spending – the main driver of growth accounting for roughly 80.0% of GDP – supported domestic business activity with a 3.8% expansion over the year.

150 Singapore Mid-market M&A trends Overview

14 3,500 The Singaporean mid-market has seen 144 transactions worth US$25.5bn brokered since 12 3,000 2005, accounting for around one-third of total deal volume and value in the Southeast Asian mid-market. Bustling deal flow over 2007 gave 10 2,500 way to a sharp drop in activity in Q4 2008 as the global financial crisis worsened. However, 8 2,000 transaction activity has picked up more recently with deal count over the 12 months to H1 2010 alue (US$m)

6 1,500 V totalling 22 transactions worth a combined

Number of deals US$4.2bn. This marks a healthy increase of 4 1,000 22.0% and 12.0% in volume and value terms over year-earlier levels, albeit still below overall 2 500 Southeast Asian increases of 20.0% and 40.0% respectively. 0 0 Activity in the higher-value segments of the deal market rose proportionally over H2 2009-H1 Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 2010, compared to longer term trends, with the Number of deals Value (US$m) share of the US$151m-US$300m range rising by 12 percentage points from 2005-H1 2009 figure to comprise 36.0% of overall deal volume. Meanwhile, the US$300m-US$500m range fell by one percentage point to account for 18.0% of total mid-market deals. Deal size split by volume, H2 2009-H1 2010

18%

US$50m - US$150m 46% US$151m - US$300m US$300m - US$500m

36%

152 Singapore

In the year up to the end of H1 2010, Sector split by volume, H2 2009-H1 2010 Manufacturing was the most vibrant mid-market sector in the city-state, driven by transactions in 5% 5% the shipbuilding and maritime services niches. Manufacturing In the period, Manufacturing accounted for 5% 26% Energy & Resources the largest proportion of M&A activity and deal 5% Consumer Business value, while also posting the largest transaction in the top deals table. In total, six Manufacturing Business Services transactions collectively worth US$1.1bn Financial Services 9% were brokered in the period, comprising over Tourism, Hospitality & Leisure one-quarter of total deal volumes and values – Agriculture up from around 20.0% in both volume and value Pharma, Medical & Biotech 14% terms over the preceding four-and-a-half years. 9% Transportation Real Estate 9% 13%

Sector split by value, H2 2009-H1 2010

4% 3% 5% Manufacturing 27% 6% Energy & Resources Tourism, Hospitality & Leisure Financial Services 7% Real Estate Pharma, Medical & Biotech Consumer Business 9% Business Services Agriculture 21% 9% Transportation

9%

Ride the wave: Asian mid-market M&A spotlight 153 Private equity buyout trends Private Equity

3 600 Mid-market buyouts have totalled 20 transactions worth US$4.2bn since 2005, while exits amounted to just five deals worth 500 US$855m. This level of activity makes Singapore the most actively targeted market for private 2 400 equity investment in Southeast Asia, accounting for over half of total buyout volume and value in the mid-cap space in recent years. Not dissimilar 300 to markets across the world, Singapore saw a alue (US$m) V drop off in buyout activity during the height of Number of deals 1 200 the global financial crisis. However, the market recovered over the H2 2009-H1 2010 period with six deals coming to market worth an 100 aggregated US$1.1bn, double that of the buyout figures in the year prior. 0 0 The exit market has seen scant activity in recent years with only a handful of transactions since Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 2005. Admittedly, the economic environment Number of deals Value (US$m) since the autumn of 2008 has been poor, perhaps inhibiting sell-side parties from bringing mature portfolio investments to market. Given the dearth of buyout activity in the pre-crisis period, exit activity may only pick up when vendors begin preparing investment vintages Private equity exit trends from the boom period (Q1 2007-Q3 2008) for sale. 2 450

400

350

300

250 1

200 alue (US$m) V

Number of deals 150

100

50

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

154 Singapore

Cross-border mid-market M&A review Inbound M&A trends

Given Singapore’s economic openness, it is not 10 2,500 surprising that an economy of its size benefits 9 from substantial cross-border M&A flows. Indeed, 8 2,000 inbound investment by foreign firms has acted 7 as a significant driver of transaction activity in 1,500 the mid-market, with 91 deals worth US$17.2bn 6 brokered since 2005, accounting for around 5 alue (US$m) two-thirds of deal volume and value. By way 4 1,000 V of example, the comparative figures for the Number of deals 3 Southeast Asia as a whole – including Singapore 2 500 – are just 38.0% for both deal volume and value. 1 The most active foreign investors in Singaporean 0 0 mid-cap companies over H2 2009-H1 2010 originated in nearly equal measure from North Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 America, UK & Ireland, Southeast Asia and Number of deals Value (US$m) Greater China with each accounting for between 20.0% to 30.0% of the total in both volume and Geographic volume split of inbound M&A, H2 2009-H1 2010 value terms. Over the 2005-H1 2009 period, however, firms from neighboring Southeast Asian 7% countries were the leading mid-market investors 7% in Singapore – albeit accounting for a slightly 26% lower proportion of total inbound deal flow of just over 20.0%. North America UK & Ireland 20% Southeast Asia Greater China Middle East Japan

20%

20%

Geographic value split of inbound M&A, H2 2009-H1 2010

2% 2%

21% 30% North America Greater China UK & Ireland Southeast Asia Middle East Japan

22%

23%

Ride the wave: Asian mid-market M&A spotlight 155 Outbound M&A trends It is noteworthy that while Singapore has one of the highest proportions of inbound M&A 14 2,500 investment in the Asia-Pacific region, investors 12 from the country also undertake an even 2,000 greater number of outbound mid-market M&A 10 transactions. Since 2005, the total number of outbound deals has totalled 110 transactions 8 1,500 worth US$18.5bn.

6 alue (US$m)

1,000 V Since 2005, Singaporean acquirers have primarily

Number of deals 4 targeted assets within the Asia-Pacific region with 500 Southeast Asia and Greater China traditionally 2 acting as the largest outbound deal market. Over the H2 2009-H1 2010 period, however, 0 0 Singaporean investors stayed closer to home, undertaking a greater proportion of transactions Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m) in other Southeast Asian markets such as Malaysia and Indonesia. Geographic volume split of outbound M&A, H2 2009-H1 2010

4% 4% 4% Southeast Asia Greater China 4% 27% Australasia 4% South Asia 4% North America UK & Ireland 4% Middle East France 9% Africa Italy 23% South Korea 13%

Geographic value split of outbound M&A, H2 2009-H1 2010

2% 2% 2% 2% Southeast Asia 6% Greater China 28% South Asia 7% UK & Ireland Australasia North America 9% South Korea Africa Middle East 11% 16% France Italy 15%

156 Singapore

Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Nov-09 C Yantai Raffles Shipyard Ltd (81.7% Manufacturing Singapore Bright Day Ltd Hong Bright Touch Norway 477 stake) Kong Investment Ltd; DnB NOR; Leung Kee Holdings Ltd Mar-10 C Asian Genco Pte Ltd (44.0% stake) Energy & Singapore Morgan Stanley Infrastructure US 425 Resources Partners LP Apr-10 P Cascal NV Energy & United SembCorp Industries Ltd Singapore Biwater plc United 417 Resources Kingdom Kingdom Oct-09 P Bharti Airtel Ltd (1.5% stake) TMT India Singapore Telecommunications Ltd Singapore 385 Mar-10 P Overseas Union Enterprise Ltd Real Estate Singapore Lippo Group Indonesia Usaha Tegas Sdn Malaysia 368 (23.8% stake) Bhd Dec-09 C PT Multi Bintang Indonesia Tbk Consumer Indonesia Asia Pacific Breweries Ltd Singapore Heineken NV Netherlands 342 Business Jan-10 P UOB Life Assurance Ltd Financial Singapore Prudential plc United United Overseas Singapore 308 Services Kingdom Bank Ltd Aug-09 C Lonza Group Ltd (Singapore Pharma, Singapore Genentech Singapore Pte Ltd Singapore Lonza Group Ltd Switzerland 290 manufacturing facility) Medical & Biotech Jun-10 P Gilroy Foods & Flavors Consumer US Olam International Ltd Singapore ConAgra Foods US 250 (Dehydrated and vegetable Business Inc product operations) Apr-10 C Hoya Corporation (Magnetic Manufacturing Singapore Western Digital Corporation US Hoya Japan 235 Media Sputtering Operations); Corporation; Hoya Magnetics Singapore Pte Hoya Magnetics (Magnetic Media Sputtering Singapore Pte Operations) Ltd Sep-09 C Global Tender Barges Pte Ltd Energy & Singapore PHM Holdco 10 BV United Global Tender Norway 233 (90.0% stake) Resources Kingdom Barges ASA Nov-09 C Seoul Semiconductor Co Ltd TMT South Temasek Holdings Pte Ltd Singapore 229 (11.9% stake) Korea Dec-09 P Solar Silicon Resources Group Energy & Singapore Esmart Holdings Ltd Singapore Auzminerals Singapore 221 Pte Ltd Resources Resource Group Pte Ltd Dec-09 C Furama Ltd Tourism, Singapore Samta Hotels Pte Ltd Singapore Samta Singapore 199 Hospitality & Investment Leisure Pte Ltd Jun-10 P DFZ Capital Berhad Consumer Malaysia Esmart Holdings Ltd Singapore Atlan Holdings Malaysia 195 Business Berhad Jan-10 P ThinkGreat Investments Ltd Manufacturing China Advanced Systems Automation Ltd Singapore 190 Mar-10 P U Mobile Sdn Bhd (33.0% stake) TMT Malaysia Singapore Technologies Telemedia Singapore U Television Sdn Malaysia 189 Pte Ltd Bhd Aug-09 P Merchant Quay Pte Ltd Tourism, Singapore TA Enterprise Berhad Malaysia LaSalle Asia US 180 Hospitality & Opportunity II Leisure SARL May-10 C The National Stock Exchange of Financial India Temasek Holdings Pte Ltd Singapore NYSE Euronext US 175 India Ltd (5.0% stake) Services Apr-10 P PPL Holdings Pte Ltd Manufacturing Singapore Mediterranean Success Group Inc; China Baker Singapore 155 Yangzijiang Shipbuilding Holdings Technology Ltd Ltd Jun-10 P China Fishery Group Ltd (11.3% Agriculture Singapore The Carlyle Group LLC US 151 stake) Nov-09 C Timbercorp Ltd (3,853 hectares Agriculture Australia Olam International Ltd Singapore Timbercorp Ltd Australia 150 Almond Orchards assets) Jun-10 P Florentina International Holdings Consumer China Golden Agri-Resources Ltd Singapore Asia Food & Singapore 143 Ltd Business Properties Ltd Mar-10 P Swissco International Ltd Transportation Singapore C2O Holdings Ltd Singapore Yeo Holdings Singapore 133 Private Ltd Dec-09 C Aqua-Terra Supply Company Ltd Business Singapore KS Distribution Pte Ltd United 125 Services Kingdom C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 157 The largest Singaporean mid-cap deal brokered in Heat Chart the year ending H1 2010 saw China International mergermarket’s Heat Chart is based on our Marine Containers, the world’s largest shipping intelligence database and tracks all companies container manufacturer, acquire the remaining that are reportedly up for sale in Singapore. The 81.7% stake in Yantai Raffles Shipyard Ltd intelligence derives from a range of sources, (YRSL) through its subsidiary Bright Day Ltd including press reports, company statements for US$477m. CIMC’s acquisition of YRSL, an and our own proprietary intelligence. The offshore and marine fabrication and global semi- data does not differentiate between small submersible fabrication company, is in line with and large transactions nor between near-term the firm’s plans to gain synergies with its own and long-term deals. Similarly, it does not manufacturing business and to draw upon the differentiate between rumored and confirmed skills and expertise of YSRL management. intelligence. In the second largest transaction, an investor consortium led by Morgan Stanley Infrastructure Partners, the US private equity firm, acquired Hot Warm Cold a 44.0% stake in Asian Genco for a total 120 75 30 consideration of US$425m. Asian Genco, 105 60 15 the Singapore-based power generation and 90 45 0 engineering services holding company with an asset portfolio principally based in India, is scaling up its power output capacity to meet Singapore robust energy demand in one of the world’s largest and fastest growing markets. Consumer Business 16 Manufacturing 10 Energy & Resources 7 Real Estate 7 Financial Services 6 Pharma, Medical & Biotech 6 Business Services 5 Tourism, Hospitality & Leisure 5 TMT 5 Transportation 5 Agriculture 1 TOTAL 73

158 Singapore

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 24.4 28.3 32.4 40.7 42 GDP (%, y/y change) 6.2 7.7 6.8 6.0 3.5 FDI (US$bn) 0.3 0.5 0.6 0.8 0.5 SGD:US$ (period average) 100.5 103.9 110.6 108.3 114.9 Over night repo rate (%, per annum) 3.19 3.32 0.98 0.44 0.31 Money market rate (%) 3.25 0.50 1.25 0.13 0.50

Source: Monetary Authority of Singapore, http://www.mas.gov.sg; Statistics Singapore, http://www.singstat.gov.sg; Economist Intelligence Unit (EIU)

Singapore’s economy is among the most open and private sector gross fixed investment in the world with both exports and imports, increasing by 6.0% and 4.1% over levels from Q4 accounting for over 200.0% of GDP on annual 2008. average of 2005-2009. The slowdown of At the same time, the Singapore Dollar gradually global economic activity in the aftermath of appreciated through 2009, trading at an annual the financial crisis sapped vigour in the export- average rate of SGD1.455:US$1.00. However, oriented economy with sales of overseas goods revived external demand, particularly in the and services shrinking by a profound 10.9% year- Asia-Pacific region, supported an expansion on-year in 2009. However, increased government in export volumes late in the year. In the final spending helped to mitigate the severity of quarter of 2009, non-oil domestic exports and the downturn with public consumption and re-exports rose by 8.2% and 1.9%, respectively. investment expenditure rising robustly by 8.2% More recently, export sales accelerated to the and 17.2% year-on-year. As a result, economic fastest pace in recent years at 23.2% and 24.5% output ultimately contracted by just 2.0% in year-on-year for non-oil domestic exports and 2009. re-exports, despite a modest appreciation of the In addition to fiscal stimulus, the city-state has currency over the first quarter of 2010. benefitted from a relaxed monetary stance and The remarkable uptake in exports occurred low interest rates by the Monetary Authority of alongside strong domestic consumption and Singapore (MAS). The MAS conducts monetary investment growth of 7.8% and 12.7% year- policy through managed exchange rate on-year, which spurred overall GDP to rise by adjustments against a basket of undisclosed 15.5% in Q1 2010. But brisk economic activity is currencies. Low interest rates helped spur robust stoking inflation pressures, which rose to 3.2% domestic credit growth of 17.1% year-on-year annually over the first quarter after a period of in 2009 – according to data from the EIU, this deflation in 2009. In response, MAS signalled a the strongest rate of growth since 2005. In turn, more restrictive policy stance in the first half of improving credit conditions helped the business 2010 and as such currency appreciation will likely and household sectors finally emerge from continue gradually over the rest of the year. recession in Q4 2009, with private consumption

Ride the wave: Asian mid-market M&A spotlight 159 Stock market activity and mid-market M&A trend With prices for global commodities on the rise at the same time that domestic demand is 14 4,500 strengthening, inflationary pressures look set to 4,000 12 persist over the coming months, although these 3,500 will be partly offset by a stronger Singapore 10 3,000 Dollar which will reduce costs for imported raw 8 2,500 materials. Concurrently, demand in Singapore’s imes Index main export markets is expected to moderate 2,000 6 ait T somewhat going forward, which will help to

1,500 r St Deals by volume 4 suppress any potential for economic overheating. 1,000 The government may also reduce fiscal support 2 500 for the recovery as policymakers seek to consolidate the government’s budgetary position. 0 0 Overall, the economy is forecast to expand by 8.0% by the EIU and a more conservative 5.3% Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 by the IMF. Deals by volume Strait Times Index Source: mergermarket/Bloomberg

Singapore’s economy is among the most open in the world, with both exports and imports accounting for over 200.0% of GDP on average between 2005 and 2009.

160 Thailand Mid-market M&A trends Overview

7 1,600 Thai mid-market M&A transactions since the beginning of 2005 have numbered some 51 1,400 6 purchases, valued at a cumulative US$7.6bn, accounting for 11.0% of all Southeast Asian 1,200 M&A deals over the same period by volume and 5 9.0% in terms of value. 1,000 4 The bulk of this activity came in the first three 800 years of the period, with 35 deals, worth

3 alue (US$m) US$4.8bn being transacted. Deal flow then 600 V began to fall in H2 2007 with a brief resurgence Number of deals in M&A activity in Q3 and Q4 2009. However, 2 400 mid-market buys over the first half of 2010 have been minimal at best, with just one transaction, 1 200 worth a total of US$453m, coming to market.

0 0 The bulk of M&A over the last four quarters has been focused on Financial Services acquisitions,

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 with more than half of all transactions being Number of deals Value (US$m) acquisitions of Thai financial institutions. The remainder was fairly evenly divided between Energy & Resources, Manufacturing and Technology, Media & Telecommunications (TMT) deals.

Deal size split by volume, H2 2009-H1 2010

29%

US$50m - US$150m US$151m - US$300m 57% US$300m - US$500m

14%

162 Thailand

It was a similar story when looking at deal Sector split by volume, H2 2009-H1 2010 valuations, with M&A investors spending some US$1.2bn, amounting to 79.0% of their total 14% spend, snapping up Financial Services assets across Thailand. On the other hand, investors spent just US$321m buying TMT, Manufacturing, Consumer Businesses and Energy & Resources Financial Services assets in total. 14% Energy & Resources Manufacturing Spending patterns over the near and long-term were somewhat different nonetheless. Over the Technology, Media & 58% Telecommunications (TMT) 2005-H1 2009 period, Financial Services M&A transactions dominated the market, accounting for one-in-five mid-market transactions by 14% volume. However, in terms of value, 23.0% of the total spent in Thailand’s mid-cap M&A market focused on acquiring Manufacturing assets. Over the past four quarters, 71.0% of transactions by volume were worth US$300m or less – which is less than the 93.0% of transactions that fell into the same category over the 2005-H1 2009 timeframe.

Sector split by value, H2 2009-H1 2010

4% 7%

10%

Financial Services Technology, Media & Telecommunications (TMT) Manufacturing Energy & Resources

79%

Ride the wave: Asian mid-market M&A spotlight 163 Private equity buyout trends Private Equity

2 100 Thai mid-market private equity acquisitions have numbered just three buyouts worth an 90 overall US$209m, accounting for just 8.0% of 80 all Southeast Asian private equity acquisitions by volume and 3.0% in terms of valuations. 70 The largest of these buyouts took place in the 60 first quarter of 2007 and saw a consortium of private equity players including TPG, Blum Capital 1 50 Partners and Marathon Asset Management alue (US$m) 40 V purchase a 32.9% stake in BankThai, the Thai

Number of deals financial institution, for US$93.7m. In return, TPG 30 received control of a 25.0% stake while Blum 20 Capital and Marathon acquired a 3.9% holding apiece. 10 The second-largest acquisition saw HSBC Private 0 0 Equity Asia, the private equity arm of HSBC, as well as Thai Strategic Holdings, the Thai private Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 equity house, acquire Modern Asia Environmental Number of deals Value (US$m) Holdings, the provider of pollution and recycling services, from Global Environmental Fund, the US investment firm, and Thai Recovery Fund, the Thai fund of Asian Direct Capital Management, for US$60m in Q3 2005. Private equity exit trends Last up was the US$55m acquisition of an 12.0% stake in Bumrungrad Hospital, the Thai private 3 450 hospital, from Sinnsuptawee Asset Management, a subsidiary of Bangkok Bank, by two sovereign 400 wealth funds, Istithmar World Capital, the UAE 350 investment house, and Temasek, the Singaporean SWF, in Q1 2006. 2 300 Just four private equity exits took place over the 250 same period, seeing a total of US$673m being realized by financial investors. The largest of

200 alue (US$m) these saw TPG sell out of its aforementioned V stake holding in BankThai in Q2 2008 along with Number of deals 1 150 other major shareholder Financial Institutions 100 Development Fund, the Thai fund for the rehabilitation and development of the country’s 50 financial institutions. The bidder in this case was CIMB, the Malaysian bank, who acquired a 0 0 92.0% stake in BankThai for US$386m.

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

164 Thailand

Cross-border mid-market M&A review Inbound M&A trends

Inbound acquisitions of Thai assets by volume 4 700 have been falling of late, with the average number of quarterly inbound acquisitions on 600 3 an annual basis having fallen from 1.75 deals 500 per quarter over 2007 to just 0.75 in 2009. This falling trend extended into the first half of 2010 400 with just one inbound acquisition coming to 2

300 alue (US$m) market over the period – the deal in question V being ICBC’s 80.7% stake acquisition in ACL Number of deals 200 1 Bank, the Bangkok-based commercial bank, for US$453m in March 2010, which means ICBC 100 now completely controls ACL. 0 0 However, over the whole period (2005-H1 2010), North American acquirers were the Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 most prominent in Thailand, having made six Number of deals Value (US$m) acquisitions, accounting for 24.0% of the total number of inbound buys. Japanese bidders and Geographic volume split of inbound M&A, 2005-H1 2010 firms based in Southeast Asia, made up a further 4% 4% 20.0% of the market apiece. 4% 24% 4% North America

4% Japan Southeast Asia Greater China UK & Ireland 16% Benelux Nordic 20% Australasia South Asia

20%

Geographic value split of inbound M&A, 2005-H1 2010 1% 3% 3% 3% 6% 27% North America Southeast Asia Greater China Japan 15% South Asia Benelux UK & Ireland Australasia Nordic 18% 24%

Ride the wave: Asian mid-market M&A spotlight 165 Outbound M&A trends It follows that investors from North America also spent the most in Thailand over the same period, 3 600 investing some US$1.1bn into the country – some 27.0% of all inbound M&A deals by value. 500 Buyers from Southeast Asia spent a further US$912m while Greater China bidders parted 2 400 with US$712m. 300 Only one Thai business has undertaken alue (US$m)

V outbound investments since the second half of 1 200 Number of deals 2009, an unsurprising finding given the recent political turmoil afflicting the country. In fact, 100 all outbound acquisitions bar three deals were undertaken in 2007 and 2008. 0 0 Thai businesses mainly targeted Australasian Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 and Southeast Asian assets over the 2005-H1 Number of deals Value (US$m) 2010 period, with Thai bidders making three transactions in each region apiece. However, Geographic volume split of outbound M&A, 2005-H1 2010 while the mean deal size of Thai mid-market acquisitions into Australasia was some US$268m, 9% Thai acquisitions into Southeast Asia averaged just US$104m per transaction. 28% 18% Australasia Southeast Asia North America Greater China Africa

18% 27%

Geographic value split of outbound M&A, 2005-H1 2010

6%

14%

35% Australasia North America Africa Southeast Asia 21% Greater China

24%

166 Thailand

Top 25 deals 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Nov-07 C East Mediterranean Gas Energy & Egypt PTT International Company Ltd Thailand Mediterranean Gas Egypt 487 Company (EMG) (25.0% stake) Resources Pipeline Ltd Mar-10 C ACL Bank Public Company Ltd Financial Thailand Industrial and Commercial Bank China 453 (80.7% stake) Services of China Ltd Jun-08 C Asian American Coal Inc (78.4% Energy & British BP Overseas Development Co. Thailand Evan Energy US 420 stake) Resources Virgin Ltd Investments; First Islands Reserve Corporation; Resource Capital Funds Dec-08 C PTTEP Australasia (Ashmore Energy & Australia PTT Exploration and Production Thailand Babcock & Brown Australia 413 Cartier) Pty Ltd Resources Public Company Ltd Ltd; TCW Group Inc Jun-06 C Grande Asset Hotels And Tourism, Thailand Giant Mauritius Holdings Ltd; US 411 Property Public Company Ltd Hospitality & Hotel & Property Development Leisure Co., Ltd Aug-09 C GE Capital (Thailand) Co Ltd Financial Thailand Bank of Ayudhya Public Thailand GE Capital Global US 399 Services Company Ltd Banking Jun-06 C Aromatics Thailand Pcl & Rayong Manufacturing Thailand Aromatics Thailand Public Co Thailand 387 Refinery Pcl Joint venture Ltd; Rayong Refinery Public Company Ltd Jun-08 C BankThai Public Company Ltd Financial Thailand CIMB Group Sdn Bhd Malaysia Financial Institutions Thailand 386 (92.0% stake) Services Development Fund; TPG Capital LP Mar-09 C Straits Bulk and Industrial Pty Ltd Energy & Australia PTT Exploration and Production Thailand Straits Resources Ltd Australia 335 (60.0% stake) Resources Public Company Ltd Apr-07 C ConocoPhillips Company Consumer Thailand PTT Public Company Ltd (PTT) Thailand ConocoPhillips US 275 (Thailand fuel retail business) Business Company Jun-06 C HMC Polymers Company Ltd Manufacturing Thailand PTT Public Company Ltd (PTT) Thailand 250 (40.0% stake) Dec-05 C Millennium Steel Public Company Manufacturing Thailand Tata Steel Ltd India Cementhai Ceramics Thailand 235 Ltd Company Ltd Aug-07 C Magnecomp Precision TMT Thailand TDK Corporation Japan InnoTek Ltd Singapore 227 Technology PCL (74.3% stake) Nov-09 P Muang Thai Group Holding Co Financial Thailand Kasikornbank PCL Thailand Fortis Insurance NV; Netherlands 222 Ltd (41.0% stake) Services Swiss Reinsurance Company Ltd Mar-07 C Thanachart Bank Public Company Financial Thailand Bank of Nova Scotia Asia Ltd Singapore Thanachart Capital Thailand 218 Ltd (25.0% stake) Services Public Company Ltd Feb-09 C Thanachart Bank Public Company Financial Thailand Bank of Nova Scotia Canada Thanachart Capital Thailand 218 Ltd (24.0% stake) Services Public Company Ltd Apr-07 C Impact Exhibition Management Business Thailand Juutland Ltd Cayman Bangkok Land Public Thailand 217 (42.2% stake) Services Islands Co Ltd Nov-05 C United Broadcasting Corporation TMT Thailand K.I.N. (Thailand) Ltd Thailand MIH Holdings Ltd South Africa 216 PCL Sep-08 C Oishi Group Puplic Company Ltd Consumer Thailand Thai Beverage PCL Thailand Yodkij Thurakit Thailand 170 (89.9% stake) Business Company Ltd Jul-08 C Emery Oleochemicals Group Manufacturing Malaysia PTT Chemical International Thailand Cognis BV Netherlands 164 (50.0% stake) Private Ltd Apr-06 C NS Electronics Bangkok (1993) TMT Thailand Global A&T Electronics Ltd Singapore UBS Capital BV Netherlands 153 Ltd Dec-09 P Hutchison CAT Wireless TMT Thailand CAT Telecom Public Company Ltd Thailand Hutchison Hong Kong 147 Multimedia Ltd (75.0% stake) Telecommunications International Ltd Apr-08 C Pan African Mining Pte Ltd Energy & Canada 0819615 B.C. Ltd Thailand 138 Resources Feb-06 C Siam Panich Leasing Public Financial Thailand Siam Commercial Bank PCL Thailand 130 Company Ltd (62.9% stake) Services Oct-06 C BLCP Power Ltd (50.0% stake) Energy & Thailand Electricity Generating plc Thailand CLP Power (BLCP) Ltd Hong Kong 121 Resources

C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 167 The largest Thai mid-market transaction to be Heat Chart announced over the H2 2009-H1 2010 period mergermarket’s Heat Chart is based on our was the aforementioned US$453m 80.7% stake intelligence database and tracks all companies buy in ACL Bank by ICBC, the Chinese financial that are reportedly up for sale in the Thailand. institution, back in March 2010, ultimately The intelligence derives from a range of sources, cementing ICBC’s control of ACL. ICBC bought including press reports, company statements out the stake at US$0.353 per share, a fairly low and our own proprietary intelligence. The premium compared to ICBC’s previous dealings data does not differentiate between small with the bank. The acquisition follows a previous and large transactions nor between near-term US$106m 19.3% stake acquisition in the target and long-term deals. Similarly, it does not which was completed the previous September differentiate between rumored and confirmed and saw ICBC buy 306.2m shares in ACL for intelligence. US$0.347 per share. The second-largest transaction over the period saw the Bank of Ayudhya, the listed Thai bank, Hot Warm Cold acquire GE Capital (Thailand), the consumer 120 75 30 financial service subsidiary of, from GE Capital 105 60 15 Global Banking, for US$399m. Making the deal 90 45 0 situation more complex is the fact that GE Global Capital markets already held a 33.0% stake in the Bank of Ayudhya prior to the completion of this Thailand transaction. Financial Services 5 Just making the top three deals over the past Manufacturing 4 four quarters was the US$222m acquisition of Energy & Resources 3 a 41.0% stake in Muang Thai Group, the Thai holding company of life insurance businesses, Tourism, Hospitality & Leisure 3 by Kasikornbank, the Thai commercial bank, Business Services 2 from Fortis Insurance, the Dutch insurance Consumer Business 2 group, in November 2009. Kasikornbank initially Pharma, Medical & Biotech 2 held a 10.0% stake in Muang Thai, meaning Real Estate 2 that the deal will ultimately result in Kasikorn holding a controlling 51.0% stake in the TMT 2 business while Fortis will continue to support Agriculture 1 the target, especially in the areas of commercial Construction 1 development and actuarial, risk and asset Transportation 1 management. TOTAL 28

168 Thailand

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 176.4 207.2 247.1 272.4 263.9 GDP (%, y/y change) 4.6 5.1 4.9 2.5 -2.3 FDI (US$bn) 8.1 9.5 11.2 9.8 7.2 THB:US$ (period average) 40.2 37.9 34.5 33.3 34.3 Policy rate (%, end of period) 4.00 5.00 3.25 2.75 1.25 Money market rate (%) 2.62 4.64 3.75 3.28 1.21

Source: Bank of Thailand, http://www.bot.or.th; Economist Intelligence Unit (EIU)

Despite the protests which paralysed Bangkok Abhisit Vejjajiva and his Democrat Party. DBS in April and May 2010, Thai economic growth Vickers is expecting to see no growth over the over the first quarter of the year was up by a second quarter of 2010 while HSBC’s research very respectable 3.8% compared to the previous department writes that political instability over quarter, and showed expansion of around 12.0% the rest of 2010 is still very much on the cards compared to the same period the year before. as 'the current relative political calm may again These bullish figures were primarily driven by prove to be temporary, given that the underlying strong export figures, as well as robust domestic rift between the various sides is yet to be bridged demand and investment. As a result, the EIU fundamentally.' has forecast that the economy as a whole will With another potential eruption of political expand by 3.2% while the government remains protests and violence unfolding as a distinct confident that growth will top out at between possibility, many market commentators are 3.5%-4.5%. Barclays Capital is even more bullish, expecting the Bank of Thailand to maintain its pencilling in 5.0% growth over 2010. policy rate at a record-breaking low of 1.25% However, most, if not all, financial research until at least July, when a 0.25% rise in rates is houses acknowledge that their predictions could widely expected. However, beyond that, rates are be completely wrong if political unrest flares up not expected to move north again for the rest of again, with many caveating their research notes the year given that core inflation is currently well by saying that they simply do not know what within pre-defined limits, standing at 3.5% in the future holds for Thailand’s Prime Minister May 2010.

Most, if not all, financial research houses acknowledge that their predictions could be completely wrong if political unrest flares up again, with many caveating their research notes by saying that they simply do not know what the future holds for Thailand’s Prime Minister Abhisit Vejjajiva and his Democrat Party.

Ride the wave: Asian mid-market M&A spotlight 169 Stock market activity and mid-market M&A trend Meanwhile, the Thai Baht steadily appreciated by around 5.0% against the US Dollar between 7 1,000 H2 2009 and mid-April 2010 before reversing 900 6 its course and weakening by 1.0%, presumably 800 a direct result of the Bangkok protests as well 5 700 as the decision to postpone rate hikes until at 4 600 least July. With this in mind, the EIU is expecting 500 the Baht to remain depressed vis-à-vis the Dollar 3 400 SET Index for the remainder of the year, ending at around

Deals by volume 32.4. 2 300 200 Meanwhile, the SET index rose from 586.42 at 1 100 the beginning of H2 2009 to hit a high of 812.63 0 0 on April 7 2010, a rise of some 38.6%. However, since then, the Thai stock market has drifted

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 downwards, falling by some 6.5% at the time Deals by volume SET Index of writing. Future performance is very difficult to ascertain with year-end forecasts being both Source: mergermarket/Bloomberg confusing and contradictory, reflecting the fact that analysts are unsure what impact a further bout of protests will have on the SET Index.

With another potential eruption of political protests and violence unfolding as a distinct possibility, many market commentators are expecting the Bank of Thailand to maintain its policy rate at a record-breaking low.

170 Vietnam

Overall, the recovery of the world economy and positive macroeconomic conditions in Vietnam are expected to have a positive impact on M&A flows in 2010 and beyond. In particular, the resumption of the privatisation of state-owned enterprises in 2009, the ongoing restructurings being conducted by many of Vietnam's large corporations, as well as continued foreign interest in Vietnam, will serve to boost M&A flows. In the coming years, M&A activity will not just involve foreign parties acquiring local companies, but also domestic bidders acquiring their peers. Moreover, growth is expected in outbound M&A, with Financial Services, Real Estate and Industrials sector transactions are expected to see the bulk of deal activity. Additionally, deals in Telecommunications and Healthcare are also expected to increase. Thinh Pham, Deloitte Vietnam Mid-market M&A trends Overview 3 500 Over the past five-and-a-half years, Vietnamese mid-market M&A transactions have totalled some 450 20 deals, worth a total of US$2.3bn, the majority 400 of which came to market in 2007 when eight acquisitions, worth US$1.1bn were announced. 350 2 2009 was a fairly strong year for deal-making, 300 with six further buys, worth another US$594m, being announced. However, 2010 has yet to see 250 any mid-market transactions take place. alue (US$m) 200 V

Number of deals 1 150

100

50

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Deal size split by volume, 2005-H1 2010

15%

US$50m - US$150m US$151m - US$300m

85%

172 Vietnam

Over the 2005-H1 2010 period, fully 85.0% Sector split by volume, 2005-H1 2010 of all mid-market acquisitions were valued at 5% between US$50m-US$150m, with the remainder 5% each being worth between US$151m-US$300m. However, over the past four quarters, all four 5% purchases undertaken have fallen into the 5% US$50m-US$150m category. Financial Services Construction Over half of all Vietnamese mid-market M&A Business Services activity comprised acquisitions in the Financial Consumer Business Services space, accounting for 60.0% of all 60% Energy & Resources deals by deal volume and 67.0% in terms of 20% M&A valuations (amounting to 12 transactions Manufacturing worth a cumulative US$1.5bn). Construction sector purchases also made up a further four transactions, worth US$393m over the period.

Sector split by value, 2005-H1 2010

3% 2% 5%

6%

Financial Services Construction Business Services 17% Consumer Business Energy & Resources Manufacturing 67%

Ride the wave: Asian mid-market M&A spotlight 173 Inbound M&A trends Cross-border mid-market M&A review

4 500 The bulk of mid-market activity in Vietnam stems from foreign bidders looking to acquire local assets. As such, inbound activity makes 400 3 up the lion’s share of overall mid-cap deal flow, accounting for 16 transactions worth US$1.9bn, 300 with the majority of these deals occurring in 2 2007. Since then however, foreign interest in alue (US$m)

200 V local targets has remained, with four acquisitions

Number of deals apiece coming to market in both 2008 and 2009. 1 100 Acquirers from the Greater China region make up around one-third of the inbound bidder’s market, 0 0 having undertaken five transactions worth a collective US$594m over the past five-and-a- Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 half years. Buys conducted by North American Number of deals Value (US$m) bidders were also relatively prevalent with two transactions, worth a combined US$317m being Geographic volume split of inbound M&A, 2005-H1 2010 completed over the same period.

13% Greater China

6% 32% North America UK & Ireland 6% Germanic Nordic France 6% Australasia Japan 6% Southeast Asia Other 6% 13% 6% 6%

Geographic value split of inbound M&A, 2005-H1 2010 7% 4% Greater China 4% 32% North America 5% Japan UK & Ireland 6% Nordic Southeast Asia 6% Australasia Germanic South Asia 7% Other 17% 12%

174 Vietnam

Just two outbound mid-market acquisitions have Outbound M&A trends been conducted by Vietnamese bidders since the beginning of 2005, with a total of US$247m 2 200 being spent in the process. The largest of these 180 was the US$188m purchase of an 87.8% stake 160 in Tiberon Minerals, the Canadian mining 140 company, by Dragon Capital Management, the 120 Vietnamese investment banking company, in 1 100

December 2006. The other deal in question saw alue (US$m)

80 V Viettel, the Vietnamese telecom services provider,

Number of deals 60 acquire a 60.0% stake in Telecommunications d'Haiti, the Haitian government-owned fixed-line 40 telecommunications company, for US$59m in Q2 20 2010. 0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

Geographic volume split of outbound M&A, 2005-H1 2010

North America 50% 50% Central America

Geographic value split of outbound M&A, 2005-H1 2010

24%

North America Central America

76%

Ride the wave: Asian mid-market M&A spotlight 175 Top 25 deals 2005-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) Sep-07 C Bao Viet Holdings (10.0% stake) Financial Vietnam HSBC Insurance (Asia-Pacific) Hong Kong 252 Services Holdings Ltd Nov-07 C Vietnam Export Import Financial Vietnam Sumitomo Mitsui Banking Japan 225 Commercial Joint Stock Bank Services Corporation (15.0% stake) Oct-07 C Petrovietnam Finance Joint Stock Financial Vietnam Morgan Stanley US Vietnam Oil and Gas Vietnam 217 Corporation (10.0% stake) Services Corporation Dec-06 C Tiberon Minerals Ltd (87.8% Energy & Canada Dragon Capital Management Ltd Vietnam 188 stake) Resources May-08 C Asia Commercial Bank (6.2% Financial Vietnam Standard Chartered plc United International US 135 stake) Services Kingdom Finance Corporation Dec-09 P Ha Tien 2 Cement Joint Stock Construction Vietnam Ha Tien 1 Cement Joint Stock Vietnam 133 Company Company Jun-09 C PetroVietnam Drilling Investment Business Vietnam PetroVietnam Drilling and Well Vietnam 129 Corporation (49.0% stake) Services Services Corporation Apr-08 C The Hanoi beer alcohol and Consumer Vietnam Carlsberg A/S Denmark Government of Vietnam 116 beverage Corporation (16.0% Business Vietnam stake) Oct-09 P Bao Viet Holdings (8.0% stake) Financial Vietnam HSBC Insurance (Asia-Pacific) Hong Kong The Ministry of Vietnam 104 Services Holdings Ltd Finance Mar-08 C An Binh Commercial Joint Stock Financial Vietnam Malayan Banking Berhad (Maybank) Malaysia 103 Bank (ABBank) (15.0% stake) Services Jun-07 C Hoang Quan Corporation (20.0% Construction Vietnam Indochina Capital Vietnam Holdings Vietnam 100 stake) Jan-09 C Chinfon Vietnam Holding Construction Vietnam EHTA Holdings Cayman Ltd Cayman Chinfon Global Taiwan 100 Company Ltd Islands Corporation Dec-05 P Vietnam Technological & Financial Vietnam Hongkong & Shanghai Banking Corp Hong Kong 88 Commercial Joint Stock Bank Services (10.0% stake) Jul-07 P Saigon Securities Inc. (10.0% Financial Vietnam Australia and New Zealand Banking Australia 88 stake) Services Group Ltd Jan-08 P Vietnam National Reinsurance Financial Vietnam Swiss Reinsurance Company Ltd Switzerland 78 Corporation (VinaRe) (25.0% Services stake) Oct-09 C Chinfon Commercial Bank Co Ltd Financial Vietnam Taipei Fubon Commercial Bank Taiwan Chinfon Commercial Taiwan 78 (Vietnamese branches) Services Co Ltd Bank Co Ltd Sep-05 C Vietnam Oil Exploration Block Energy & Vietnam ONGC Videsh Ltd India Government of Vietnam 75 127 Resources Vietnam Sep-07 P Bao Minh Insurance Corporation Financial Vietnam AXA SA France 73 (16.6% stake) Services Jan-07 P Vietnam Technological & Financial Vietnam Hongkong & Shanghai Banking Corp Hong Kong 72 Commercial Joint Stock Bank Services (10.0% stake) Jun-07 C Hoang Quan Mekong Construction Vietnam Indochina Capital Vietnam Holdings Vietnam 60 Consulting, Trading and Service Real Estate Co (20.0% stake) Jun-10 P China Fishery Group Ltd (11.3% Agriculture Singapore The Carlyle Group LLC US 151 stake) Nov-09 C Timbercorp Ltd (3,853 hectares Agriculture Australia Olam International Ltd Singapore Timbercorp Ltd Australia 150 Almond Orchards assets) Jun-10 P Florentina International Holdings Consumer China Golden Agri-Resources Ltd Singapore Asia Food & Singapore 143 Ltd Business Properties Ltd Mar-10 P Swissco International Ltd Transportation Singapore C2O Holdings Ltd Singapore Yeo Holdings Private Singapore 133 Ltd Dec-09 C Aqua-Terra Supply Company Ltd Business Singapore KS Distribution Pte Ltd United 125 Services Kingdom C = Completed; P = Pending

176 Vietnam

The largest mid-market M&A transaction to take Vietnam place over the past four quarters in Vietnam Construction 54 was the USS$133m merger between the Ha Tien 1 (HT1) and 2 (HT2) Cement Joint Stock Manufacturing 28 Companies. The deal saw an equal share swap Financial Services 24 between the two entities and was aimed to allow Real Estate 23 them to compete more effectively in Vietnam’s Consumer Business 22 cement manufacturing industry. Energy & Resources 19 The other US$100m plus mid-market transaction Transportation 11 that took place in H2 2009 was HSBC Insurance’s Business Services 7 acquisition of an 8.0% stake in BaoViet Holdings Leisure 5 in what was a partial privatisation of the business. HSBC purchased the stake, which was TMT 3 worth US$104m, from the Vietnamese Ministry Pharma, Medical & Biotech 2 of Finance. The deal comes just over two years Other 9 after HSBC Insurance had purchased an initial TOTAL 207 10.0% stake in BaoViet for US$251m.

Heat Chart Stock market activity and mid-market M&A trend mergermarket’s Heat Chart is based on our 3 9,000 intelligence database and tracks all companies 8,000 that are reportedly up for sale in Vietnam. The 7,000 intelligence derives from a range of sources, including press reports, company statements 2 6,000 and our own proprietary intelligence. The 5,000 data does not differentiate between small 4,000 and large transactions nor between near-term ietnam 10 Index 1

Deals by volume 3,000 and long-term deals. Similarly, it does not differentiate between rumored and confirmed 2,000 S&P V intelligence. 1,000 0 0 Hot Warm Cold 120 75 30 Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 105 60 15 Deals by volume S&P Vietnam 10 Index 90 45 0 Source: mergermarket/Bloomberg

Ride the wave: Asian mid-market M&A spotlight 177 Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 52.9 61 71.1 89.9 89.3 GDP (%, y/y change) 8.4 8.2 8.5 6.2 5.3 FDI (US$bn) 2.0 2.4 6.7 9.6 8.7 VND:US$ (period average) 15,859 15,981 16,078 16,440 17,800 Policy rate (%, end of period) 4.50 4.50 4.50 7.50 6.00 Money market rate (%) 8.25 8.25 8.25 8.50 8.00

Source: The State Bank of Vietnam, http://www.sbv.gov.vn; Economist Intelligence Unit (EIU)

Vietnam’s economy grew by 5.3% over the per capita in 2009 was estimated to have been course of 2009 as the country continued to US$1,030 and rising incomes, coupled with largely avoid the worst effects of the economic an increasingly aspirational population, has downturn. While this figure represents a decline served to boost domestic consumption, creating of nearly one percentage point compared to the opportunities for Western firms to enter the previous 12 months, growth prospects going market. Such solid growth fundamentals should forward appear to be relatively robust with the continue to drive foreign investment and M&A International Monetary Fund estimating that GDP activity going forward, potentially challenging will increase by 6.0% in 2010. the long-term dominance of first movers in a The recent growth story of Vietnam has attracted number of key industry sectors. international investors and the EIU estimates Base interest rates were raised in November that foreign direct investment into the country 2009 to 8.0% with the State Bank of Vietnam accounted for around 9.7% of GDP in 2009, holding the rate over the first half of 2010. up from 3.7% in 2005. The drivers of this Meanwhile, the Vietnamese dong has continued investment are numerous, although it is notable to depreciate against the Dollar, trading at the that activity has risen markedly since Vietnam bottom of its permitted band after the central joined the World Trade Organisation in January bank marked down the currency in the fourth 2007. Such investment has helped to partially offset the trade deficit in goods and services with quarter of 2009. the EIU estimating the 2009 figure to stand at Despite inflationary pressures and concerns over around US$8.9bn. In a bid to reduce this figure, the value of the dong, the domestic economy there has recently been call to introduce new should see growth pick up over the course policies in the form of simplifying the method of 2010. As with most developing countries, of refunding value-added tax for exporters or Vietnam needs to continue to make efforts to developing export credit insurance. better its infrastructure, while the country’s Nevertheless, so impressive has domestic profile on the international stage will no economic growth been over the last decade doubt grow as a result of it having the 2010 that Vietnam is on the verge of being officially chairmanship of ASEAN, the Association of recognized as a middle income country. GDP Southeast Asian Nations.

178 South Korea

Over H2 2010, Korean mid-market M&A activity is expected to flourish compared to deal flow in 2008 and 2009, with major Korean industrial conglomerates aspiring to expand their businesses overseas through M&A. In addition, we expect to see fully-fledged restructuring-driven deals to be increasingly conducted by creditor banks and supervisory authorities. Finally, another bout of privatization, as well as further consolidation activity in the Financial Services sector are also likely to drive Korean mid-market deal flow over the foreseeable future. Tai In Song, Deloitte Korea Mid-market M&A trends Overview

30 4,000 South Korea’s mid-market is a thriving arena for M&A activity, representing over one-half of 3,500 disclosed value M&A transactions in the country 25 in recent years. Since 2005, South Korea has 3,000 seen a total of 254 deals worth an aggregated 20 US$37.3bn come to market, accounting for 7.0% 2,500 of Asia-Pacific deal flow in the mid-cap space over the period. 15 2,000

alue (US$m) Transaction activity was clearly affected by the 1,500 V global financial crisis and the ensuing downturn Number of deals 10 in economic activity, as quarterly deal flow 1,000 activity fell to a two-and-a-half year low of 5 seven transactions worth US$1.3bn in Q1 2009. 500 Nonetheless, mid-market activity picked up in the following quarters and ended 2009 strongly. 0 0 Indeed, the fourth quarter saw 27 deals worth US$3.8bn while, over the year as a whole, 61 Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 deals worth US$8.5bn were brokered, marking Number of deals Value (US$m) healthy year-on-year increases of 20.0% and 17.0% in volume and value terms respectively. While deal activity and valuations for the H2 2009-H1 2010 period nearly doubled on a year- on-year basis to 79 deals collectively valued at Deal size split by volume, H2 2009-H1 2010 US$11.1bn, quarterly activity has moderated somewhat from the peak achieved in the final 9% quarter of 2009. Nonetheless, the quarterly deal count of 18 and 15 transactions in the first two quarters of 2010 still surpassed the average of 11 transactions per quarter over the preceding four years. US$50m - US$150m In the 12-month period ending H1 2010, roughly 27% US$151m - US$300m two out of every three South Korean mid-market US$301m - US$500m transactions took place in the US$50m-US$150m deal size segment, while 27.0% came to market 64% in the mid-tier space (US$151m-US$300m) and 9.0% in the upper mid-market (US$301m- US$500m). This deal size split is generally in keeping with longer-term trends over the preceding four-and-a-half years, although the mid-tier valuation bracket was moderately lower, comprising around 23.0% of overall mid-market transactions over the period.

180 South Korea

M&A investment in the Manufacturing Sector split by volume, H2 2009-H1 2010 sector accounted for the greatest share of mid-market deal flow comprising around 29.0% 1% of transactions brokered in the space and 1% 3% one-quarter of valuations over H2 2009-H1 3% Manufacturing 4% 2010. Deal activity in the Financial Services sector Financial Services came a distant second in terms of activity – 6% 29% Consumer Business representing 18.0% of deal volume – although Technology, Media & the valuations share was slightly higher at 20.0%. Telecommunications (TMT) 8% Compared to longer-term trends, Manufacturing Business Services M&A has significantly increased its proportion Pharma, Medical & Biotech of overall South Korean mid-cap transactions, Energy & Resources increasing by six percentage points from the Tourism, Hospitality & Leisure 13% 23.0% share over 2005-H1 2009. Valuations Construction in the sector, however, were the same as the Transportation longer-term trend at 24.0% of total deal value. 18% Real Estate Elsewhere, TMT, which accounted for 17.0% 14% and 21.0% of overall mid-market activity and valuations over 2005-H1 2009, saw its proportion of deal volume and value fall to just 13.0% over the 12 months ending in June 2010.

Private Equity Private equity deal-making in the South Korean Sector split by value, H2 2009-H1 2010 mid-market has seen a total of 47 buyouts valued at an aggregate US$6.6bn since 2005, 1% accounting for around 18.0% of total deal 2% volume and value in the mid-market space. 2% 3% Manufacturing Buyout activity petered out during the global 5% financial crisis with just one mid-market Financial Services 24% acquisition brokered by the asset class over the 6% Consumer Business nine months from Q3 2008-Q1 2009. Technology, Media & Telecommunications (TMT) However, activity rebounded robustly in the 9% Business Services period thereafter with domestic investment Pharma, Medical & Biotech funds driving deal flow and being responsible Energy & Resources for nine of the 12 transactions that came to Tourism, Hospitality & Leisure market in the 12 months up to the end of H1 13% 20% 2010. Deal structures followed the pattern of Transportation financial investor transactions over the longer- Construction term with a large share of minority and majority Real Estate 15% stake acquisitions, but relatively few outright asset purchases. Indeed, two-thirds of mid-cap buyouts over H2 2009-H1 2010 were stake acquisitions.

Ride the wave: Asian mid-market M&A spotlight 181 Private equity buyout trends While it has been widely anticipated that private equity would be active on the buy-side as heavily 6 900 indebted Chaebols – South Korea’s industrial 800 conglomerates – sell off attractive assets to 5 deleverage and shore up their cash positions, 700 there have been only a handful of such deals.

4 600 Doosan Group has been the most active in this respect, divesting minority stakes in diversified 500 businesses in the Aerospace, Food and 3 Manufacturing spaces for a combined US$625m

400 alue (US$m)

V in mid-2009 to Odin Holdings, a special purpose

Number of deals 2 300 investment vehicle created by private equity firms MBK Partners and IMM Private Equity together 200 with DIP Holdings, a Doosan subsidiary. This sale 1 followed the spin off of Doosan’s packaging unit, 100 Techpack Solutions, to MBK for US$299m in 0 0 December 2008. Casting a look to the market for portfolio Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 company divestments by financial investors in Number of deals Value (US$m) the South Korean mid-market, activity has been comparatively more subdued than in the buyout space. Since 2005, there have been 21 such transactions valued at a collective US$4.4bn. Exit activity bottomed out completely in 2008 and the recovery in H1 2009 was modest with Private equity exit trends only two deals worth a combined US$480m announced. Over H2 2009-H1 2010, there have 3.0 800 been just three exits in the mid-cap space worth US$591m, all of which saw strategic investors on 700 the buy-side.

600 2.0 500

400 alue (US$m) V 300 Number of deals 1.0 200

100

0 0

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Number of deals Value (US$m)

182 South Korea

Cross-border mid-market M&A review Inbound M&A trends

Inbound M&A investment in the South Korean 8 900 mid-market has seen 57 deals worth US$8.5bn 7 800 brokered since 2005, accounting for 23.0% of total mid-market transaction volumes and values. 6 700 600 This level of inward mid-market investment is 5 approximately twice the proportion seen in Japan 500 4 over the period in both volume and value terms, 400 alue (US$m) although it pales in comparison to the 40.0% 3 V 300 figures for volume and value seen in the Greater Number of deals 2 China market. 200 1 During the boom years preceding the global 100 financial crisis, foreign acquirers actively targeted 0 0 assets in the South Korean mid-market, but deal flow fell precipitously over 2008 and 2009. Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 Indeed, inbound transaction activity fell by Number of deals Value (US$m) 43.0% and 56.0% annually over each year, as cash-strapped and risk-averse foreign investors Geographic volume split of inbound M&A, H2 2009-H1 2010 shied away from sourcing transactions in 10% overseas markets. However, the gradual recovery in the global 10% economy, since deal flow bottomed out in H1 2009 has ushered in a fresh wave of takeover North America 40% activity from foreign firms with 10 deals worth Southeast Asia US$1.5bn announced over the H2 2009-H1 2010 10% UK & Ireland period. Benelux In terms of foreign acquirers in the South Korean Nordic market, companies from North America account Greater China for the highest proportion, with 40.0% of total 10% inbound deals in the 12 months to the end of June 2010 being twice the level undertaken by 20% bidders from Southeast Asia. The deal value split by bidder region is broadly similar with Geographic value split of inbound M&A, H2 2009-H1 2010 transactions undertaken by North American and Southeast Asian bidders who accounted for 6% 37.0% and 21.0% of overall mid-market deal 8% value in that order. Compared to longer-term trends, North America’s share of total inbound volume and 12% 37% North America value has declined from the 47.0% and 44.0% Southeast Asia registered over the 2005-H1 2009 period. Nordic Southeast Asian inbound deal flow, on the Benelux other hand, has risen proportionally over the H2 UK & Ireland 2009-H1 2010 period from just 2.0% and 1.0% Greater China in volume and value terms during the preceding 16% four-and-a-half years.

21%

Ride the wave: Asian mid-market M&A spotlight 183 Outbound M&A trends Since 2005, South Korean corporates have undertaken 47 takeovers of foreign mid-cap 12 1,600 targets, collectively valued at US$8.7bn. As 1,400 outward mid-cap M&A investors, South Korean 10 1,200 firms have undertaken approximately four 8 overseas acquisitions for every five inbound 1,000 transactions to their home market over the past 6 800 five-and-a-half years. alue (US$m)

600 V Again, cross-country comparisons with Japan 4 Number of deals 400 and China markets are interesting in this 2 regard. In Japan, for instance, for every one 200 inbound transaction in the mid-market since 0 0 2005, Japanese firms have undertaken four transactions abroad. Conversely, in China the

Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 inbound/outbound ratio has seen five inbound Number of deals Value (US$m) transactions for every overseas takeover by a Chinese firm. Geographic volume split of outbound M&A, H2 2009-H1 2010 South Korean firms were most acquisitive 12% overseas during the 2007-2008 period, undertaking an average of 15 outbound mid-cap deals worth US$3.1bn per year. Predictably, 12% however, overseas M&A faltered when the 37% North America global financial crisis struck, causing takeovers of Japan mid-cap assets abroad to fall by 77.0% year-on- Southeast Asia year in 2009. In value terms, the contraction was Greater China even more pronounced, declining by 94.0% in UK & Ireland the year. Over the first six months of 2010, there 13% CEE have been six overseas acquisitions transacted worth an aggregate US$1.1bn, up from just one transaction worth US$79m in the year-earlier 13% 13% period. Over the H2 2009-H1 2010 period, the most Geographic value split of outbound M&A, H2 2009-H1 2010 popular overseas market targeted by South 4% Korean acquirers for mid-cap assets was North 6% America, responsible for over one-third of both 6% overall volume and value activity. Greater China accounted for just 13.0% of total outbound transactions, but a much higher 37.0% of total 7% North America 41% deal value. Greater China UK & Ireland Compared to longer-term trends, Greater China has been the most important overseas market for CEE South Korean mid-market acquisitions abroad, Japan accounting for 31.0% and 29.0% of total deal Southeast Asia volume and value over 2005-H1 2009. North America, on the other hand, accounted for 36% 18.0% and 21.0% of total outbound activity and valuations.

184 South Korea

Top 25 deals H2 2009-H1 2010

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Company Seller Value Country Country Country (US$m) May-10 P Hynix-Numonyx Semiconductor TMT China Hynix Semiconductor Inc South Korea Numonyx BV Switzerland 427 Ltd (20.7% stake) Feb-10 P Prudential Asset Management Financial Services South Hanwha Securities South Korea Prudential Financial US 422 Co Ltd; Prudential Investment & Korea Inc Securities Co Ltd Mar-10 C Kumho Life Insurance Co Ltd Financial Services South KDB Consus Value PEF South Korea Asiana Airlines South Korea 414 (65.5% stake) Korea Inc; Korea Kumho Petrochemical Co Ltd Dec-09 P On Media Corp (55.2% stake) TMT South CJ O Shopping Co Ltd South Korea Orion Corporation South Korea 363 Korea Dec-09 P Hana Card Co (49.0% stake) Financial Services South SK Telecom Company Ltd South Korea Hana Financial Group South Korea 335 Korea Inc Feb-10 P K-Power Co Ltd (35.0% stake) Energy & South SK Holdings Co, Ltd South Korea Korea Energy United 323 Resources Korea Investment Holdings Kingdom BV Jul-09 C Hite Brewery Co Ltd (23.2% Consumer South Hite Holdings Co Ltd South Korea Mr Park Moon Duk South Korea 318 stake) Business Korea (Private Investor); Samjin Invest Co Ltd; SamjinENG Nov-09 C THEFACESHOP KOREA Co Ltd Consumer South LG Household & Healthcare South Korea Affinity Equity Hong Kong 302 (90.0% stake) Business Korea Company Ltd Partners; Mr. Jung Woon-ho (Private investor) Dec-09 P Hyundai Corporation (50.0% Manufacturing South Hyundai Heavy Industries South Korea Korea Exchange Bank South Korea 298 stake) Korea Co Ltd (KEB) Dec-09 C Kumho Rent-a-car Co. Ltd Financial Services South KT Corporation; MBK South Korea Kumho Asiana Group South Korea 256 Korea Partners Ltd Apr-10 P Hyundai Food System Co, Ltd Business Services South Hyundai H&S Co Ltd South Korea 248 Korea Apr-10 P LG-Nortel Co Ltd (50.0% stake) TMT South Ericsson AB Sweden Nortel Networks Canada 242 Korea Corporation Jan-10 C Buy The Way Inc Consumer South Lotte Shopping Company South Korea Unitas Capital Ltd Hong Kong 238 Business Korea Ltd Apr-10 P NHN Games Corporation Tourism, South Webzen Inc South Korea NHN Corporation South Korea 236 Hospitality & Korea Leisure Oct-09 C Poscon Co Ltd Manufacturing South POSCO ICT Co., Ltd South Korea POSCO South Korea 233 Korea Mar-10 P Donga Department Store (five Consumer South E-Land Retail Ltd South Korea Hwasung Industrial South Korea 231 branches); Donga Mart (two Business Korea Co Ltd branches) Nov-09 C Seoul Semiconductor Co Ltd TMT South Temasek Holdings Pte Ltd Singapore 229 (11.9% stake) Korea May-10 P Hanmi Financial Corporation Financial Services US Woori Finance Holdings South Korea 210 (77.4% stake) Co Ltd Jan-10 C Standard Diagnostics Inc (75.8% Pharma, Medical South Inverness Medical US 210 stake) & Biotech Korea Innovations Inc Jan-10 P Rambus, Inc (8.3% stake) TMT US Samsung Electronics Co Ltd South Korea 200 Apr-10 C Celltrion Inc (10.2% stake) Pharma, Medical South Ion Investments B V Netherlands 186 & Biotech Korea May-10 P National Information and Credit Business Services South Korea Information Services South Korea National Information South Korea 185 Evaluation Inc (Credit Inquiry Korea Inc and Credit Evaluation business) Inc Sep-09 C Kumho Terminal Co Ltd Transportation South Korea Express Co Ltd South Korea Kumho Industrial South Korea 179 Korea Company Ltd May-10 C Kolon Industries Inc Manufacturing South Kolon Corporation South Korea 177 Korea Mar-10 C Posco Power Corporation (14.3% Energy & South SkyLake Global Incuvest 5 South Korea 177 stake) Resources Korea C = Completed; P = Pending

Ride the wave: Asian mid-market M&A spotlight 185 The largest value transaction on the top deals Heat Chart table over the four most recent quarters was an mergermarket’s Heat Chart is based on our outbound play which saw South Korean chip intelligence database and tracks all companies maker Hynix Semiconductor agree to acquire a that are reportedly up for sale in South Korea. 20.7% stake in Hynix-Numonyx Semiconductor, The intelligence derives from a range of sources, a Chinese company that manufactures including press reports, company statements and sells NAND flash memory devices and and our own proprietary intelligence. The semiconductors, from Numonyx BV, the Swiss data does not differentiate between small chip maker, for a total consideration of US$427m and large transactions nor between near-term in May 2010. Upon completion, the transaction and long-term deals. Similarly, it does not will increase Hynix’s holding in the China-based differentiate between rumored and confirmed firm to 90.2%. intelligence. The largest domestic mid-cap transaction was valued at US$422m and saw Hanwha Securities, the publicly traded domestic brokerage firm, Hot Warm Cold acquire Prudential Investment & Securities and a 120 75 30 99.8% stake in Prudential Asset Management, 105 60 15 two asset management service providers, from 90 45 0 the US-listed Financial Services group Prudential Financial. Under the terms of agreement, Hanwha initially paid US$293m with the South Korea outstanding US$129m paid at the end of 2010. It is noteworthy that competition for these assets Manufacturing 71 was stiff with private equity bidders – including, TMT 55 CVC Capital Partners and MBK Partners – and Pharma, Medical & Biotech 39 KB Financial Group Inc, the listed South Korean Financial Services 37 financial holding company, all vying for the asset. Consumer Business 22 Business Services 14 Top 10 acquirers Energy & Resources 12 Construction 11 Volume Value Tourism, Hospitality & Leisure 10 of deals of deals Transportation 4 (US$m) Agriculture 3 SK Holdings 9 1,799 Real Estate 1 Lotte Group 8 1,839 Other 1 LG Group 5 1,189 TOTAL 280 POSCO 5 999 MBK Partners 5 853 Kumho Asiana Group 5 601 CJ Corporation 4 1,087 Hanwha Group 4 821 H&Q Asia Pacific 4 451 KDB Capital 4 446

186 South Korea

Key economic indicators

2005 2006 2007 2008 2009 GDP (US$bn) 845 952 1,049 931 833 GDP (%, y/y change) 4.0 5.2 5.1 2.3 0.2 FDI (US$bn) 6.3 3.6 1.8 3.3 1.5 KRW:US$ (period average) 1,024 955 929 1,102 1,277 Base rate (%, per annum) 3.75 4.50 5.00 3.00 2.00 Money market Funds: 7-day (%, per annum) 3.20 4.08 4.71 5.38 2.80

Source: Bank of Korea, http://www.bok.or.kr; Economist Intelligence Unit (EIU)

South Korea’s economic woes of last year appear debt markets; and lastly, a relatively benign rate to be quickly fading with recent data released of headline inflation this year. Indeed, the CPI by the Bank of Korea (BOK) showing a robust registered a 2.7% annual increase in May, within recovery in business activity over the first half the Bank of Korea’s 3.0±1.0% inflation target of 2010, even as a degree of external weakness range for 2010. continues to linger. In the first quarter of the However, there is a growing recognition from year, economic activity shot up by 8.1% over government that inflationary pressures will year-earlier levels, the fastest rate of quarterly increase going forward. In June, Strategy and growth recorded in the past decade. Finance Minister Yoon Jeung-hyun signalled Strengthening external demand for South Korean that inflation may accelerate more quickly than goods and services bolstered export volumes by expected in the second half of the year due 16.6% year-on-year, while ramped up investment to expansive money supply growth and rising outlays by businesses saw gross fixed capital production prices. expenditure rise by 11.4%. The vigor of business The government has already begun scaling back activity was further driven by robust domestic stimulus spending, which will partly ease upward consumption expenditure by households (up price pressures going forward, but the strength 6.3%) and the government (up 3.8%), which of the recovery suggests the BOK may also started to gradually reign in its fiscal stimulus have to soon change its policy stance to temper in the first half of the year. Bustling economic growing demand-side pressures. Nevertheless, at activity at home also spurred a dramatic uptick in this stage, inflation risks still seem contained and import volumes, which increased 21.0% year-on- are, of course, only a corollary of the brightening year in Q1 2010. growth outlook – the government forecasts real The revival in economic activity is beginning to GDP growth of 5.8% in 2010. exert moderately greater pressures on prices, but Elsewhere, the external accounts also remain the monetary authorities have still maintained healthy with the current account expected to an accommodative policy stance. Indeed, the post another surplus this year, albeit slightly BOK held the benchmark interest rate at 2.0% lower than the record 5.1% of GDP figure for for the 16th consecutive month at its June policy 2009. Indeed, trade activity for the first five committee meeting for several valid reasons, months of 2010 show merchandise export including: growing geopolitical tension in the receipts at US$180bn and imports at US$168bn, Korean peninsula; volatility in European sovereign leaving a healthy surplus of around US$12bn.

Ride the wave: Asian mid-market M&A spotlight 187 The main downside risk on the balance of Stock market activity and mid-market M&A trend payments, however, comes from the country’s 30 2,500 heavy external debt load. According to estimates by the EIU, the stock of external debt stood at 25 42.3% of GDP in 2009, roughly twice the 21.4% 2,000 reported in 2005. While the current debt ratio 20 is not unsustainable in itself, it is notable that 1,500 tock Price Index much of the foreign liabilities were contracted on 15 short-term bases. 1,000 10 The government has introduced new foreign Deals by volume exchange regulations that limit FX forward 500 5 ea Composite S positions to 25.0% and 50.0% of capital bases r Ko for foreign and domestic banks respectively. The 0 0 reforms will come into force in H2 2010 and allow up to two years for banks in breach of the Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008Q4 2008Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010 limits to unwind their positions. Together with Deals by volume Korea Composite Stock Price Index the healthy current account surplus, this reform should help to reduce external sector exposures Source: mergermarket/Bloomberg going forward. Meanwhile, one of the most notable risk factors facing the South Korean market is the growing tension with neighboring North Korea. An investigation by Seoul recently implicated Pyongyang in a torpedo attack on the South Korean warship Cheonan, which killed 46 people. President Lee Myung-bak has notified the UN Security Council of the investigation findings, suspended trade activity with North Korea and blocked vessels from using its shipping lanes. Pyongyang, for its part, denies any responsibility for the incident. While Seoul may increase spending on defence and introduce other reforms to strengthen national security, it must be said that the moment of greatest tension seems to have passed.

According to estimates by the EIU, the stock of external debt stood at 42.3% of GDP in 2009, roughly twice the 21.4% reported in 2005.

188

Deloitte principal contacts

Asia Pacific Region Lawrence Chia Peter Baldock Regional Managing Partner of Financial Advisory Services Global COO of Corporate Finance Advisory Asia Pacific Asia Pacific Head of Corporate Finance Advisory Tel: + 86 (10) 8520 7758 Tel: +65 62163233 Email: [email protected] Email: [email protected]

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China Lawrence Chia Ronald Chao Regional Managing Partner of Financial Advisory Services Partner Asia Pacific Head of Corporate Finance Advisory Tel: + 86 (10) 8520 7758 Tel: +86 1085207795 Email: [email protected] Email: [email protected]

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Southeast Asia Tam Chee Chong Peter Baldock Head of Financial Advisory Services Global COO of Corporate Finance Advisory Singapore & Southeast Asia Asia Pacific Head of Corporate Finance Advisory Tel: +65 62163268 Tel: +65 62163233 Email: [email protected] Keoy Soo Earn Head, M&A Transaction Services Singapore & Southeast Asia Tel: +65 62163238 Email: [email protected]

South Korea Chan Hee Han Tai In Song Managing Partner of Consulting and Financial Advisory Head of Corporate Finance Advisory Services Tel: +82 266762080 Tel: +82 266762203 Email: [email protected] Email: [email protected]

190 End notes

Publisher: Naveet McMahon [email protected]

Analysts: Douglas Robinson Matthew Albert Tom Coughlan

Editor: Catherine Ford

Production: Anna Henderson [email protected] Joyce Wong [email protected]

Managing Director: Erik Wickman [email protected]

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