China’s tech M&A sidelines global banks


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  • Sunday, 04 Sep 2016

Western banks were left out in the cold when Didi Chuxing took over Uber China, and this is a trend that looks likely to continue —EPA.

WESTERN investment banks already have a healthy “Fear of Missing Out” on business in China. The country’s technology giants should sharpen that anxiety.

Some big deals are now bypassing banks entirely — like the US$35bil union of Didi Chuxing and Uber China. That means no fees, no kudos, and less chance of lucrative follow-on work, like share sales.

Mergers and acquisitions involving Chinese tech doubled to nearly US$68bil last year, but fees only rose 60%.

To make matters worse, acquirers like Alibaba, Baidu and others are going it alone by poaching investment bankers. The head of corporate finance at LeEco, Winston Cheng, himself an ex-Bank of America dealmaker, told Reuters he had hired 45 to 50 people, mostly ex-Wall Street hands, to work at the ambitious outfit.

LeEco is buying US TV business Vizio for US$2bil without any external help.

This extends an unwelcome trend already besetting US and European banks. A good chunk of deals in Asia are already done without outside advice. Some serial acquirers, like Singapore’s Temasek, have also beefed up internal teams in recent years.

Something similar has played out in US tech. Acquirers sometimes dispense with banks, as in Microsoft’s US$8.5bil purchase of Skype in 2011. And various Wall Street types have headed West, ditching the sell-side to join hot internet firms, including Alphabet and Twitter’s chief financial officers.

The problem is arguably more alarming in China because making money from investment banking is already so tough.

Fees are low, too few companies value advice, and draconian rules make some kinds of business, like domestic initial public offerings, barely worth the hassle. Where there is business to win, local banks are taking a bigger share of the pie from Western rivals.

There are some consolations. Outside help is all but obligatory on big cross-border deals, especially if targets are public companies. And bankers at least now have plenty of former colleagues they can call on the other side. Nonetheless, Chinese tech houses some of the world’s biggest, boldest companies. Banks cannot afford to let them slip. — Reuters

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