Asia Buys America, Bit by Bit

♠ Posted by Emmanuel in at 9/04/2007 07:11:00 PM
Several lower profile deals by Asian companies buying up American ones may set a pattern in the global political economy. As you all know, the US runs a humongous current account deficit that needs to be funded by foreign purchases of American debt or equity. Instead of high-profile deals that allegedly raise "national security" issues such as CNOOC-Unocal in energy and Hutchison Whampoa-Global Crossing in telecommunications infrastructure, these deals are more likely to fly under the radar. It may signal a trend of Asian companies avoiding unwanted attention by not making high-profile purchases but instead several smaller ones. In the illegal drug trade, there's a similar trick called "smurfing": you bring in drugs via smaller quantities. Same here--current account surplus-running Asia may be buying up America by avoiding the glare of media and political attention. Watch this space. From the Financial Times:

Acquisitions by Asian companies of US assets have surged to record levels as the region’s emerging industrial companies take advantage of dollar weakness to build global scale, new data have revealed.

The value of announced deals in the US by companies in Asia, excluding Japan, has climbed to $16.1bn in the year to date, smashing the full-year figures of $3.9bn last year and $1.8bn in 2005, according to Dealogic, the data provider.

The figures have rocketed after a series of recently announced deals, including last week’s $710m takeover offer by Acer, the Taiwanese personal computer maker, for Gateway of the US.

In June, Flextronics of Singapore announced the $3.6bn acquisition of Solectron, another contract electronics manufacturer. In July, Doosan Infracore of South Korea unveiled a $4.9bn acquisition of the Bobcat industrial machinery business of Ingersoll-Rand – the largest US M&A deal by an Asian company.

The number of sub-$1bn deals has also grown rapidly, pushing the total number of deals this year to 75, compared with 78 for the whole of 2006.

The figures are striking because – as well as excluding deals by Japanese companies, which are re-emerging on the global M&A scene – they also exclude acquisitions by government-related entities such as China’s $3bn investment in Blackstone ahead of the US private equity firm’s listing.

Investment bankers say the rise in outbound M&A is the culmination of US dollar weakness as well as structural factors.

“These deals are examples of the globalisation occurring in industries such as construction equipment and PCs,” says Johan Leven, head of M&A in Asia for Goldman Sachs. “Asian corporations also have strong balance sheets and ample access to finance.” Goldman Sachs was the adviser to Ingersoll Rand and Gateway in their respective deals with Doosan and Acer.

Bankers also report increasing confidence in recent months among the region’s chief executives about managing overseas acquisitions. Tata’s £6.2bn ($12.5bn) acquisition last year of Corus, the Anglo-Dutch steelmaker, although not a US target, is seen as a landmark purchase.

Another key driver for Asia’s giants is the need to expand beyond domestic markets.

Shaheryar Chishty, a senior investment banker for Citigroup in Asia, said: “These Asian companies have strong domestic franchises, and feel the need to broaden and diversify by pushing offshore.” Citigroup advised Acer and Doosan.