Hey all, I spoke with some people in the Hong Kong/China market, and they said that it's all about ECM there. In addition, there isn't much of LevFin and M&A. So, what kinds of deals do HK IB's do besides IPO?
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ECM, DCM, some M&A. The market is different in Asia... a whole different ballgame. Btw, IPO and follow-on's are the most profitable service/product that banks offer. Margin is much much higher than M&A.
does this translate to good experience for analysts?
IPOs and follow-ons don't give you much of the "technical skills". But you don't need that to do well in Asia anyways.
So if one was to train in a M&A group as a junior analyst fresh out of school, but intends to move across to Hong Kong later, how useful will the M&A skill set (company profiles anyone?!) be?
M&A skill in Asia is definitely needed and sought after in Asia. There are plenty of talents in Asia with ECM/DCM skills already. Recruiters always have more trouble finding hires with M&A skills. As most senior level prefer to stay in the west where pay is higher in M&A than Asia. So if you want to go into Asia down the road and have M&A skill set, it will be very valuable.
given that the vast majority of deals in Asia are ECM/DCM, does it make sense to be in an "M&A group" in Asia?
No, in Asia the dynamics are different. For the foreseeable future, the vast, vast majority of deals will be ECM/DCM related. The issue here is cultural - why is M&A volume so low in Asia?
1) Asians do not pay for advice - M&A is a pure advisory business. It does not create tangible-value so to speak. Think about the M&A that takes place in the US. The majority of them do not meet the targeted synergies. In the case of the US, M&A is a very process-driven type of transaction. Bankers are hired to guide the companies through the regulatory process more-so than the valuation (think about how two different advisors come up with drastically different valuations based on the same set of financials).
2) The vast majority of Asian businesses are controlled by families. Unlike US corporations which have a strict management / shareholder structure, Asian businesses (especially Chinese ones) are largely controlled by a family or the founder. As such, people are generally unwilling to sell successful businesses, no matter what the valuation is.
3) China is a very relationship-driven culture. Deals are done with people that they trust, and have known for a long time. Therefore, a lot of the domestic M&A activity are done straightforward between two companies and the CEO's. They don't see the need to hire an M&A team at a BB investment bank to do the valuation and such. THe only cases where that's necessary is for mega-M&A deals. But the economic environment in Asia will not see that come for a long, long time.
To get the best exposure in Asia, join either an industry or country coverage team (i.e. China country coverage). Industry groups will allow you to get the best of both worlds - understand the industry in the APAC region, the valuations, etc. and will allow you to see a variety of deals across the Asia Pacific region (not just China). China-team is excellent exposure to China, which will allow you to quickly accumulate "soft-knowledge" (e.g. how business is done in china, build relationships etc.). Do not underestimate the value of the latter.
The value of the APAC experience lies less so in the "technical skills", and moreso in the broad-exposure to the real business world. Business is done not on the basis of models and numbers, but moreso on the basis of strategies, vision, and relationships. The APAC analyst will eventually cultivate all the technicals skills that are needed for the APAC region. The M&A analyst will be the execution banker - i.e. not as valuable as the relationship banker.
Also, bankers in APAC get paid more than their counterparts in NY precisely because the deal-flow is all high-margin ECM business. M&A margins are so low because they drag on for up to one or two years, and bankers dont get paid unless the deal closes.
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