A surge in Chinese cross-border technology and telecoms deals has helped mergers and acquisitions in Asia Pacific cross $1 trillion for the first time but mainland banks are missing out on the payoffs as they badly trail global rivals in advisory work.
While low fees have helped Chinese banks to win market share from U.S. and European counterparts in stock offerings and loans, they figure nowhere among the 10 biggest M&A advisers by value of deals, Thomson Reuters data up to the end of November showed.
China's biggest investment bank, CITIC Securities , ranked 11th, advising on $68.7 billion worth of deals. The number of Chinese banks among the top 20 M&A advisers in the region fell to seven from eight and their market share slumped to 13.8 percent from 33.7 percent last year.
The Chinese banks' struggles to emerge as leading advisers on big ticket acquisitions have curtailed their fee income growth at a time when the lending business is under pressure due to a slowing domestic economy.
"When Chinese companies go global, they will tend to call on banks and advisers who have global reach so there's still a strong role for the international banks and advisers," said Aga Guzewska-Radzka, consultant at Accenture Strategy in Hong Kong.
A push by Chinese state-owned enterprises and private companies to buy assets abroad and the massive restructuring of the region's biggest conglomerates are driving the deal-making boom. The trend is expected to continue, bankers say.
Top deals in 2015 include the $33.7 billion combination of assets of China's three main telecom operators as well as the $15.4 billion purchase of British mobile phone company O2 by Li Ka-shing's Hutchison Whampoa. (See graphic for snapshot of Asia-Pacific deals).
Chinese firms tend to advise on domestic deals, where they have relationships on both sides of transactions, but that's less likely in cross-border acquisitions. They also have fared better than international rivals in financing M&A deals, where they have won business with cheaper funding because of their sizeable balance sheets, but that's not the case for merger advice.
"They can't compete on fees there," said the head of M&A at a global investment bank who couldn't be named discussing the industry.
Semiconductor, Internet and telecoms transactions have accounted for about a quarter of M&A deal value this year, a sector so far dominated by global firms such as Goldman Sachs and Morgan Stanley.
In order to win more cross-border deals, Chinese banks are adopting several tactics. CITIC Securities, for instance, appointed Italian banker Federico Bazzoni, formerly at Bear Stearns, to originate deals in Europe, Middle East and Africa.
Haitong Securities, China's second-largest brokerage, completed in October the purchase of the investment banking arm of Portugal's Novo Banco to use it as a platform for global expansion.
Some Chinese securities firms are also teaming up with European law firms to help source potential acquisition targets for mainland suitors, according to a source with direct knowledge of the tie-ups who was not authorized to discuss them publicly.
Despite the jump in deal activity to a record $1.1 trillion, estimated fees fell 1.8 percent to $3.7 billion according to Thomson Reuters/Freeman Consulting Co, reflecting an increase in less lucrative corporate restructurings. Activity in Asia still accounted for just 21 percent of global value, compared with nearly 50 percent for deals in the Americas region.
"Where the biggest fees are going to be made are in the complex, cross-border deals where banks that understand the situation across different jurisdictions and geographies are needed," said John Kim, head of M&A for Asia ex-Japan at Goldman Sachs.Peterborough’s digital revolution continues apace, after the completion of a two-year project to extend gigabit-speed internet across the city.
The project began in 2013 when the council signed a deal with CityFibre to install the gigabit network across the city to hook up council premises and businesses as part of the Digital City Peterborough initiative.
To date, 107 council buildings have already been hooked up to the network, but the infrastructure is now available to businesses, which the council hopes will help local companies thrive and attract new investment.
Richard Godfrey, assistant director for Digital Peterborough at Peterborough City Council, told V3 that providing high-speed infrastructure will let existing and new businesses benefit from being in the city.
“It’s all about making Peterborough a sustainable city for the future and that means supporting the businesses that are here now and encouraging others to set up here too,” he said.
Godfrey added that a solid digital infrastructure in the city will allow young people with digital skills and ambitions to find a place for their talent, whether that’s setting up their own firm or joining an existing company.
“We want to make sure we don’t have a talent drain as young people with skills feel they have to leave the city. We want them to be able to succeed right here on their doorstep,” he said.
Peterborough has plans to extend this by creating a mentoring programme to ensure young people with ideas are given the support they need to turn their ideas into real business ventures.
One business that has already set up shop in Peterborough is comparethemarket.com, part of BGL Group. Alex Shaw, head of labs at the firm, said that the city is becoming a major tech hotspot.
“Founding our technology capability in Peterborough has allowed us to seize the unprecedented benefits the city offers, such as digital capabilities and tech talent.”
The completion of the digital network is just one of several notable digital initiatives that Peterborough has pursued over the past few years.
One high-profile project has been the use of an Internet of Things healthcare service from Alcove to ease the burden on health services.
This has involved testing the deployment of a mix of sensors, tablets, smartwatches and RFID technology to create a network in the homes of 100 people who require care, such as the elderly or disabled. The Alcove platform won the Best Internet of Things project at the V3 Technology Awards 2015.
The firm is also using a digital libraries service called Biblioteca to enable self-service library access and book loans, and increase availability across four sites in the city.
These efforts saw Peterborough recently awarded Smart City of the Year at the World Smart City Congress, beating off competition from the likes of Moscow and Dubai, underlining the city’s credentials in this space.
Godfrey told V3 that the hope next year is to host a digital festival in the city to showcase the efforts being made to turn Peterborough into a city of the future.