Hong Kong's brokers and financial advisors are having a moment - a stock market boom is drawing M&A interest by mainland businesses and shares of many firms are soaring as investors try to work out which companies will be wooed next.
In a new development, some deals have broken the traditional mold of financials firms acquiring other financials. Tycoons such as Alibaba co-founder Jack Ma and solar magnate Cheng Kin Ming have bought into the sector, fuelling investor excitement.
Five M&A deals worth a combined $2.5 billion have been announced this year. They come on the back of a near doubling in the city's trading volumes after China allowed retail investors to buy Hong Kong shares for the first time via a trading link with Shanghai in late 2014. A similar link with Shenzhen is likely to follow this year.
As China opens up its equity markets further, bankers and analysts say more M&A is bound to follow - particularly as mainland tech firms accelerate their push into online stock trading and other financial services.
"This is a good way to acquire a large customer base and licenses. And for tech companies it's all about acquiring customers and bringing them into their eco-system," one Hong Kong-based M&A banker said. "I won't be surprised if other Chinese tech tycoons jump in."
Also burnishing Hong Kong stock brokers' appeal was news that they will be allowed to become members of the London Stock Exchange after the bourse got the nod from Hong Kong regulators.
SHARES SURGE
Announced deals include the purchase of a controlling stake in boutique advisory firm Reorient Group Ltd by a fund backed by Alibaba's Ma for $350 million. Reorient's new owners have said they may buy relevant assets or businesses such as Internet financial businesses.
While not an acquisition per se, a $100 million investment by Tencent Holdings Ltd's founder Pony Ma in a share offering by Huatai Securities, China's biggest brokerage by trading volume, has also added to speculation of further M&A in Hong Kong brokers led by tech tycoons.
But these deals are not just limited to Internet tycoons. Solar magnate Cheng purchased Good Fellow Resources Holding Ltd, which has an investment and financial services division, for $320 million.
Hong Kong has nearly 1,000 licensed securities brokers. Among those listed, Bright Smart Securities & Commodities Group and CASH Financial Services Group Ltd are seen as likely targets, financial sources said.
Bright Smart, one of only two companies which conduct gray market trading in shares of firms a day before their official debut, has seen its stock more than double this year - compared to a 14 percent gain for the broader market.
Bright Smart did not respond to a request for comment.
CASH Financial's parent company was in talks to sell a 40 percent stake in CASH Financial this year although the deal fell through. Talks with potential investors about selling shares will continue, the companies said in a statement on Monday. Cash Financial's shares have more than doubled for the year to date and it trades at a historic price-to-earnings multiple of 79, compared an average of 27 for the sector, according to Thomson Reuters data.
Other firms that have seen big jumps include private equity and investment firm CIAM Group Ltd - its stock has jumped sixfold so far this year.
"Obviously financial services is a fairly big market globally and it's expanding so quickly in China," said Stephen Yang, an analyst at Sun Hung Kai Financial. "There's a really good opportunity here for some of the Internet names."
