If 2006 was the year when companies in China and India hinted at their potential to redraw the global landscape for mergers and acquisitions, this has been the year when they started to deliver on their promise.
The most dramatic outbound M&A deal was Beijing's $3bn investment in Blackstone ahead of the US private equity firm's stock market listing, while Tata Steel sent corporate India's confidence soaring with its £6.7bn ($13.4bn) takeover of Corus, the Anglo-Dutch steelmaker.
It has also been a record year for inbound deals as both countries start to accept the reality of global business flows. However, dealmakers say 2008 M&A activity in China and India could struggle to match this year given likely obstacles.
According to Thomson Financial, the data provider, the value of China outbound M&A has this year reached $24.2bn, 60 per cent up on 2006 and seven times that of 2004. The larger deals involved China's energy and financial services companies, which snapped up minority stakes in rivals across the globe.
Five of China's top 10 outbound M&A deals happened this year, led by Industrial and Commercial Bank of China's $5.6bn investment in South Africa's Standard Bank, the largest outbound deal from the mainland.
Likewise, said Thomson, six of India's top 10 outbound M&A deals were completed this year, totalling more than $35bn in value - or five times up on the previous year. Tata/Corus headed the eclectic list, which also includes United Spirits' $1.2bn takeover of Whyte & Mackay, the UK distiller.
The value of inbound China M&A has reached $22bn this year, just ahead of 2006. In India, inbound deal values trebled to $31.5bn, thanks to large investments in the financial services sector and Vodafone's $11bn acquisition of the controlling stake in Hutchison Essar, a mobile phone operator.
Johan Leven, Goldman Sachs's head of M&A for Asia excluding Japan, said: "Both Chinese and Indian corporates have firmly established themselves on the global M&A scene and the big question is where they go from here. One thing is clear: groups such as Reliance, Tata, PetroChina and CNOOC will be different...more global companies in five years."
Dealmakers say the volume of China outbound M&A will next year be tempered by rising protectionism in countries such as the US and the risk-averse mindset among managements of state-run companies.
And rising asset valuations and high regulatory hurdles on the mainland are expected to affect inbound M&A activity.
Robert Rankin, UBS Asia head of investment banking, said: "In China there is still a lot of interest in inbound activity but challenges such as valuations in the local market could affect deal volumes."
Mr Leven hailed a mobile phone infrastructure sharing deal between Vodafone, Bharti and Idea Cellular as evidence of a new pragmatism that has led Indian companies to consider M&A deals with rivals.
"This was a break-out year for Indian M&A," he said. "The question for 2008 is whether the Indian corporate is better positioned given the changes in the global credit markets. We think, on balance, it will be positive for them given how highly rated their equity is."
Indian companies have relied on debt to fund overseas acquisitions so the credit squeeze will affect their ability to do deals.
Indian corporates seeking to move up the value chain are also facing a backlash abroad, as felt by Tata in the US over its ambitions to acquire the Jaguar and Land Rover car brands from Ford.
Some predict rising M&A deals between Chinese and Indian companies. Howard Chao, partner and Asia practice head for O'Melveny & Myers, a law firm, said: "Private equity funds and investment banks will act as catalysts for this activity because they are active in both countries."
This is the final article in a three-part series looking at India and China.
