Goldman Sachs Sees China Bounce in Year of the Rabbit

Hi, it’s Manuel Baigorri in Hong Kong. I sat down with a top Goldman Sachs banker who expects more deals in Asia this year as China reopens. Elsewhere, CVS pushes deeper into health care and the godfather of K-pop picks a fight.

Today's top stories

• CVS extends health-care reach with $10.6 billion deal
• Microsoft’s $69 billion Activision deal could harm UK gamers
• Funds eye PE push ?1.2 trillion UK wealth market.
• competes for stake in Vale’s base metals unit.

Run rabbit run

Lunar New Year arrived two weeks ago, and dealmakers crying Gong Xi Fa Cai! are also cheering signs that they may have more work to do in the Year of the Rabbit—especially if the near-freeze on US funds investing in China shows signs of thawing.

Iain Drayton, head of investment banking at Goldman Sachs for Asia ex-Japan, told me could be on the launchpad for a busier year on the back of its reopening to the world.

“We expect 2023 to be a better year for both ECM and M&A,” the Hong Kong-based Drayton said in an interview. “The flurry of Chinese equity capital markets deals pre-Lunar New Year was encouraging, especially because — for the first time in several months — we are seeing appetite from not only hedge funds, but also long-only US funds.”

The veteran investment banker’s optimism is in line with the growing consensus that, with Covid Zero in the rearview and crackdowns on sectors including technology potentially having eased, China’s worst days are behind it. 

While deals could pick up momentum in the second half of the year, activity will likely not reach the levels seen a couple of years ago, Drayton said. “It will be a more moderate improvement overall,” he added.

Valuations in China have become more stable after last year’s market correction, Drayton observed. Across Asia, sectors such as consumer, industrials and some areas within telecom and tech should continue to be active, though China real estate and health care will likely remain challenged, he said.

“It still is a buyer’s market, so some sellers may hold on to their assets longer on the back of a potential recovery,” Drayton said.

There could even be some big-ticket M&A on the horizon. Though deals were limited in both number and size last year, due to leverage constraints, Drayton expects to see bigger buyouts in 2023.

Other than China, Drayton is particularly bullish on South Korea and Japan, citing the appeal of developed markets to some private equity firms.

“Valuations have become less expensive and the local currencies have depreciated against the US dollar, making assets more attractive for buyers,” he added. —Manuel Baigorri

M&A focus

CVS has agreed to buy Oak Street Health for an enterprise value of $10.6 billion, as the pharmacy giant pushes deeper into health-care with its second major acquisition in the space in as many years. Michelle F. Davis, Dinesh Nair Gillian Tan reported a deal was in the works in January. Credit Suisse, which has been in the headlines all week, gets a win by being one of CVS's advisers, alongside Lazard. 

Microsoft’s $69 billion acquisition of Activision Blizzard will harm competition in the UK gaming market, Britain’s antitrust watchdog has provisionally found. The CMA has taken an initial view the deal could result in a substantial lessening in competition, higher prices, fewer choices or less innovation.

SM Entertainment’s stock price surged to a record high after the K-pop agency’s founder vowed to block a share sale to internet giant Kakao.

The move has spurred speculation that the agency’s board and its allies will face off with Lee Soo-Man—widely regarded as the godfather of K-pop—in a race to buy up shares to secure a controlling stake.

General Motors is competing for a stake in Brazilian mining giant Vale SA’s base metals unit, underscoring automakers’ desire for easy access to the materials needed for electric vehicle batteries, Dinesh Cristiane Lucchesi write. 

Duck Creek Technologies will stick with its $2.6 billion deal to be taken over by Vista Equity Partners after a go-shop period ended without a rival offer materializing.

IPO watch

Guizhou Guotai Liquor Group, a Chinese white liquor brand, is considering a Hong Kong initial public offering that could raise more than $500 million, report Pei Li Vinicy Chan

Elffie Chew writes that Bounty Agro Ventures, a Philippine poultry firm, is exploring an IPO in Manila that could raise $400 million to $500 million

Private equity pulse

Some very traditional UK asset management companies want to sell the British on a very untraditional idea in personal investing: private equity funds. Their goal is to generate new business–and new fees–by offering affluent Brits a piece of the action in the normally velvet-rope world of corporate buyouts and other private-market investments. Loukia Gyftopoulouexplores the trend

Who’s news

Snap Senior Vice President Ben Schwerin is joining venture firm Coatue Management as a general partner, according to a statement

Warburg Pincus hired Goldman Sachs partner Gaurav Seth as a managing director in its capital-solutions group, Gillian Tan reports.

And lastly, Marion Halftermeyer writes that Credit Suisse plans to grant its top executives $380 million worth of awards, which will pay out if its restructuring succeeds.

Best of the rest

• in talks to invest in German crypto firms.
• Germany’s first IPO in months disappoints
• Manchester United as Qatari report stokes M&A bets.
• Pakistan tech firm, marketer for P&G and Colgate plans IPO.
• Jupiter sells Starling Bank stake to reduce unlisted assets.
• Metlife’s Vietnamese partner mulls reviving JV stake sale.
• Credit Suisse dials back Asia risk controls after bankers revolt.
• Toshiba rises as bidder is set to win bank commitments for loan.
• JPMorgan pushes back on claims Staley observed Epstein’s abuse.
• Magic Mike’ powers Channing Tatum’s $125 million events empire.

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