Signs of merger activity picking up in Greater China have been apparent for many firms in the past few months. And a large percentage of the major deals in the region announced in the first half of 2009 involve a local bidder or acquirer, indicating that domestic companies are now the major M&A deal-makers, not only at home but also overseas. A number of PRC firms are riding this new M&A wave to power up their M&A practices.
Earlier this year, Shanghai listed China Yangtze Power announced its plan to acquire US$15.8bn worth of assets from its parent company, China Three Gorges Project Corporation. It is one of the biggest asset restructurings in the local capital market.
Beijing-headquartered DeHeng is the sole legal advisor to China Yangtze Power. "With China's economy continuing to grow sturdily and leading the global market recovery, major domestic companies will keep pursuing major deals across a range of sectors, including natural resources, renewable energy and high technology," said chief global partner of DeHeng, Wang Li.
While some foreign-client-oriented law firms have seen a decrease in instructions for M&A transactions over the past year, DeHeng has enjoyed solid growth. As a well-established and trusted advisor to many large state-owned and private domestic enterprises, M&A practise has become an important part of the firm's business, according to Wang. Total revenue proportion for this work increased by 20%, over the same period last year.
"The country is undergoing a significant readjustment of its industrial structures, and the large-scale state-owned enterprises are undertaking major restructurings and consolidations. This market evolution has created strong demand for M&A legal services," she said.
DeHeng has developed a strong M&A practice group growing in line with the market, with more than 10 partners and over 100 lawyers headed up by Wang. The group has been involved in many major and complex M&A transactions in recent years. Deal highlights include advising China Resources on its acquisition of China Worldbest Group; Shell China's acquisition of Tongyi Petroleum Chemical; FAW Group's acquisition of Tianjin Automotive Xiali, and, most recently, assisting Ping An Insurance in its acquisition of Shenzhen Development Bank.
"We believe that PRC firms will become increasingly dominant in Greater China's M&A market. It is an inevitable trend," Wang stated. "The global financial crisis sweeping through the world has had a profound impact on many economies. But China's fast recovery ahead of [the] global economy has triggered a new, phenomenal M&A wave led by domestic companies. The emergence of PRC firms is a natural progression, as they actively assist many notable transactions to successful completion."
The US$2.6bn merger between China Eastern Airlines and Shanghai Airlines is the latest manifestation of the current domestic M&A phenomenon. Although China Eastern is listed on the Hong Kong Stock Exchange, the company's general counsel, Guo Junxiu, sought out leading PRC firm Commerce & Finance for this transaction. Shanghai Airlines turned to its perennial legal advisor Fangda & Partners for advice. "PRC firms have learnt a lot from their international counterparts in past years, and have made impressive progress in handing large, complex M&A transactions," says Gao Yang, a partner with Fangda. "They will increasingly play a lead role in transactions that have major PRC elements."
It's erroneous to assume that going forward, international firms will have a smaller share of M&A transactions involving PRC companies. However, looking at any recent M&A deals statistics and league tables, the rise to power of PRC firms is eye-catching.
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