June 28, 2018 / 11:03 PM / 3 months ago

Asia's dealmakers bank on Japan to extend record first-half M&A spree

* Asia Pacific deal value hits record in H1 on Japan boom

* Large dry powder with private equity and corporates

* Japanese companies set to extend dealmaking spree

* China M&A recovering in markets other than the U.S.

By Kane Wu and Anshuman Daga

HONG KONG/SINGAPORE, June 29 (Reuters) - Asia's dealmakers are pinning their hopes on a prolonged upsurge in Japanese mega-deals to help cushion a possible slowdown in Chinese M&A and sustain the record level of transactions in the region seen in the first half of 2018.

M&A involving Japanese firms nearly quadrupled to a record $232.4 billion in the half-year, Thomson Reuters data showed, as marquee-name targets were scooped up. British drugmaker Shire is being acquired for $62 billion in Japan's biggest-ever overseas purchase, and a consortium led by SoftBank Group bought a stake in Uber Technologies for $7.7 billion.

The deals rush has led Western banks such as Credit Suisse and JPMorgan to bulk up in Tokyo, which has typically been dominated by local banks and a handful of entrenched foreign firms.

"We see an outbound focus where the leaders in particular industries such as financial services, food and beverage and consumer are looking to expand globally, taking their products, brand and expertise to other markets," Joseph Gallagher, head of Asia Pacific M&A at Credit Suisse, said about Japanese firms.

"Domestically we are seeing a rationalization on big conglomerates focusing more on shareholder value and selling (non-core assets)."

Overall, the value of deals involving Asia Pacific companies hit a record at $801.2 billion in the first six months of 2018, the data showed. Excluding Japan, value of deals rose by 20 percent to $563.3 billion in the first half of this year.

Asia's pick-up in M&A activity mirrors an upturn worldwide, with global dealmaking totalling $2.5 trillion, up 59 percent year-on-year and a record for this point in the year.

CHINA DEALS

Though Japan had many of the headline-grabbing deals in the half-year, Chinese companies also saw robust M&A activity. State-owned utility firm China Three Gorges launched a $10.8 billion offer in May to take complete control of Portugal's biggest company EDP.

The country was again the top target in Asia for both domestic and foreign acquirers and accounted for 46 percent of all deals targeting an Asian company. And deals involving a Chinese target or acquirer amounted to $330 billion, up 16 percent year-on-year.

There is concern though that rising trade tensions between the United States and China will cast a shadow over the general dealmaking environment.

John Hall, JPMorgan's co-head of investment banking coverage for Asia Pacific, said a slowdown in China's outbound deals was caused not just by politics in the West but also policy changes in China. But the impact of domestic policy has normalized, he said.

"Chinese companies are again buying businesses overseas where they make sense," he said.

Some bankers said the focus is shifting to other markets where political and regulatory pressures are more straightforward.

"The story this year is less about China outbound M&A, it's about the other countries in the region which are having a very good year. This deal activity is across Southeast Asia, Korea, Australia," said James Tam, head of M&A, Asia Pacific at Morgan Stanley.

Other large Asian deals included Walmart's agreement to take control of Indian e-commerce firm Flipkart for $16 billion and the $9 billion stake purchase in Daimler by the founder of China's Zhejiang Geely Holding.

This month, Jack Ma's Ant Financial Services Group made headlines by completing a $14 billion fundraising - the largest ever single fundraising by a private company.

"Clients are still active and they increasingly want to do cross border stuff," said Apoorva Shah, Nomura's co-head of M&A in Asia ex-Japan, who highlighted growing cash piles at companies and buyout groups as a driver for the acquisitions.

Morgan Stanley's Japan joint venture with Mitsubishi UFJ claimed the top spot in the country's ranking for the first half, according to the data. The U.S. bank also topped the Asia ex-Japan M&A league table, followed by UBS and Bank of America Merrill Lynch. (Reporting by Kane Wu in Hong Kong and Anshuman Daga in SINGAPORE; Editing by Jennifer Hughes and Muralikumar Anantharaman)

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