Taiwan Deal Activity In 2019 Likely To Remain Robust On Sound Economic Fundamentals And China's Growth.

Legal News & Analysis - Asia Pacific - Taiwan - Corporate/M&A

11 January, 2019


Taiwan's deal momentum is likely to stay upbeat in 2019, thanks to the relatively buoyant China baseline – both economically and in the deal landscape – as well as decent macroeconomic fundamentals in Taiwan, according to the fourth Global Transactions Forecast issued by Baker McKenzie and Oxford Economics (OE). 


The report, based on forecast macroeconomic indicators from Oxford Economics along with insights from Baker McKenzie partners in 42 markets worldwide, projects that 2019 is likely to be a year of two halves. Several major transactions announced in 2018 are set to complete in the first half of 2019, while underlying economic conditions should remain strong throughout this period. 


Despite slower world trade growth, globally emerging markets appear more resilient to rising Fed rates than in the past, meaning US monetary policy should have less of a drag on Asia-Pacific deal-making in 2019 than during previous cycles. Japan is set for an economic rebound and Australia is expected to enjoy robust growth. M&A in Vietnam and India will benefit from important policy reforms, which should make inbound investment more attractive. Meanwhile, in China, consolidation in heavy industry and upgrading manufacturing capabilities will be key structural drivers of M&A in 2019 and beyond. But with growth shifting towards a new normal of around 6%, and the government seeking to further reduce financial risk via slower credit growth, M&A values in China are forecast to remain noticeably lower than through 2015-2016. 


Ai Ai Wong, Global Transactions leader for Baker McKenzie says: "We are predicting a modest slowdown next year but we think that global business, particularly in the emerging markets is in pretty good shape to deal with any economic upsets. The fundamentals for deal-making remain strong." 


Taiwan to maintain deal momentum in 2019 


In terms of attractiveness for conducting transactions, Taiwan ranks third among all economies in the Asia Pacific region and fifth globally. The Transaction Attractiveness Indicator is an overall score that reflects the attractiveness of an economy’s current environment for M&A and IPO activity. It is based on past transaction activity in that economy, as well as on data on key economic, financial and regulatory factors that drive M&A and IPO activity, such as sovereign credit risk, level of trade restrictions and ease of doing business rating by the World Bank. Because many of these factors change slowly over time, a country’s current score is a strong indicator of whether or not it will have the right features to attract transactional activity in the future. 


The forecast predicts Taiwan's total M&A transactions to be at USD 9 billion in 2019, with an estimated 122 deals transacted. This is a slight dip from USD 12.5 billion in 2018, which was largely attributed to two mega deals closed by Advanced Semiconductor Engineering, Inc., also known as ASE Group, which together accounted for USD 9.4 billion of Taiwan's total M&A deal value last year. On the IPO front, domestic IPO continues to be the main driver of capital-raising activities, with total IPOs estimated to reach USD 400 million in 2019, USD 550 million next year and up to USD 700 million in 2021. 


Commenting on the report, Michael Wong, Co-Head of the Corporate/M&A practice in the Baker McKenzie Taipei office and member of the firm's global executive committee, said, "Although global momentum for M&A and IPO activity is likely to encounter a natural cyclical cool-down, key indicators put the Taiwan economy on a stable footing. The domestic technology sector in particular will continue to remain active, with a number of significant deals in the pipeline scheduled to close in 2019, including the recent USD 866 million Foxconn acquisition of Belkin International, Inc." 


By sector (global) 


Consumer-facing sectors are likely again to have a strong year in 2019 as accelerating wage growth in advanced economies will boost household spending in 2019. Similarly, tech and telecoms should have another good year with some key megadeals set for completion. 


Pharma and health deal completions have disappointed in 2018. However, with a number of significant deals announced later this year we forecast a modest acceleration into 2019. Likewise, in the finance sector, where deal values cooled in 2018, scope remains for consolidation, and traditional banks’ desire to access Fintech will also drive growth. 


Finally, a rebounding oil price has likely eased the need for further consolidation in the energy sector, and we expect this industry to continue to ebb as a deal driver. But the basic materials sector has been more active, and there is evidence that new metals and minerals (such as those used in electric vehicles) will be key resources driving deal-making in the year ahead. 


Ai Ai concludes: "Business has become more immune over time to global macro uncertainty and has learnt to live with volatility. Even with a cooling global economy and rising protectionism, we remain confident that the environment and appetite for deal-making remains strong among corporates wherever they are in the world." 


Baker McKenzie


For further information, please contact: 


Lindy L. Y. Chern, Managing Partner, Baker & McKenzie