20160701-高盛-Introducing_our_Asia_Pacific_Energy_M_A_Framework_Highlighting_Cairn,_Nippon_Paint,_Kansai_Paint,_Origin_and_Santos_14页_291kb

Asia Pacific Energy M&A Framework Summary

Core Content

Goldman Sachs has introduced an M&A framework to evaluate the potential for mergers and acquisitions across its Asia Pacific Energy coverage. The framework considers both qualitative and quantitative factors to assess the likelihood of a company being acquired and to incorporate M&A potential into stock valuations. Companies are ranked from 1 to 4 based on the probability of M&A activity, with 1 indicating a high probability (30%-50%) and 4 indicating minimal to no probability (0%-10%).

Key Factors in the M&A Framework

The framework evaluates five key factors across the region, with different weightings depending on the country:

• Regulation on Ownership: Prohibits or discourages acquisitions, especially by foreign entities, on grounds of national security.
• Regulatory Risks: Risks that could deter potential buyers and complicate synergy realization.
• Management Stance: Openness to acquisition, including being a target or open to a management buyout.
• Strategic Assets: Competitive advantages from high entry barriers (e.g., monopoly) or low cost structures.
• Industry Attractiveness: Based on a growing profit pool due to asset expansion, revenue growth, or profitability improvement.

Regional Factor Weights

Key Companies and Their M&A Scores

Top Candidates for M&A

Out of 52 companies, five are identified as the most likely candidates for M&A activity, with M&A ranks of 1 or 2:

• Cairn India (Rank 1): High probability of M&A activity due to its pending merger with Vedanta.
• Nippon Paint (Rank 2): Strong presence in growing, attractive markets.
• Kansai Paint (Rank 2): Strategic position in the Indian market.
• Origin Energy (Rank 2): Potential for demerger of its Energy Markets business.
• Santos (Rank 2): Strategic assets in the Cooper Basin and Curtis Island LNG.

M&A Valuation Methodology

For companies with a high M&A probability, Goldman Sachs incorporates an M&A component into its target price calculations. The M&A valuation is based on a blended methodology:

• 50% Weight to M&A Value (NAV-based): Reflects the potential value from an acquisition.
• 50% Weight to Fundamental Value (EV/GCI vs. CROCI): Reflects intrinsic value based on financial metrics.

M&A Score Distribution

• Rank 1: 1 company (Cairn India)
• Rank 2: 4 companies (Nippon Paint, Kansai Paint, Origin Energy, Santos)
• Rank 3: 41 companies (86% of total)
• Rank 4: 2 companies (minimal to no probability)

Key Insights

• SOEs and Family-Driven Companies: These are generally unlikely targets for acquisitions due to their implicit resistance and high regulatory risks.
• Cairn India: Its M&A score of 1 is due to the pending merger with Vedanta. The target price of Rs155 reflects a 50/50 blend of fundamental and M&A value.
• Nippon Paint and Kansai Paint: Both have an M&A probability of 15% and are valued based on a 14x EBITDA multiple, consistent with global paint industry M&A trends.
• Santos and Origin Energy: These two Australian companies are ranked as 2 due to their strategic assets and potential for demerger. Their target prices reflect a 15% M&A weighting.

Target Price Adjustments

• Nippon Paint: Target price lowered by 4% to JPY2,600.
• Kansai Paint: Target price lowered by 2% to JPY2,100.
• Santos: New target price of A$3.79, 17% higher than previous, due to M&A weighting.
• Origin Energy: New target price of A$6.27, 8% higher than previous, based on M&A and base valuations.

Conclusion

Goldman Sachs' M&A framework provides a structured approach to assessing the likelihood of acquisitions in the Asia Pacific energy sector. By incorporating both qualitative and quantitative factors, the framework allows for a more nuanced valuation of companies, especially those with high potential for strategic deals. The identified top candidates for M&A activity include Cairn India, Nippon Paint, Kansai Paint, Santos, and Origin Energy, each with unique strategic advantages and M&A appeal.