6th Southeast Asia Capital Confidence Barometer, October 2013

Deal outlook – M&A back on the agenda

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Acquisitions are back on the agenda with 41% of SEA respondents saying they will pursue an acquisition over the next 12 months.

Such a sentiment has not been seen since April 2012. With a strong emphasis on growth and access to capital across the markets continuing to be stable, SEA respondents are perhaps predicting a shift towards a deal making environment. Many also expect deal volumes and values to increase.

This shift in sentiment is not unexpected. With growing inbound investment interest across SEA markets there will be significant competitive advantage for those who recognize the consolidation opportunity and take action early.

41%  

of SEA respondents expect to pursue acquisitions over the next 12 month period

M&A is back on the agenda

60% of SEA respondents expect deal volumes to improve over the next 12 months. This resonates with current sentiments on deal fundamentals, where expectations on quality of deals and closure rates are all expected to improve over the next 12 months.

In a stable and growing market with significant inbound interest, executives know that deals will allow companies to consolidate market share and capacity to compete. However, this is a modest shift as only 22% see M&A as an option for growth and is perhaps the beginning of a shift in sentiment for inorganic growth.

Do you expect your company to pursue acquisition in the next 12 months and what is the expected deal size?

EY - Deal outlook chart: % expect to pursue acquisition

EY - Deal outlook chart: expected deal size

Source: Capital Confidence Barometer, Southeast Asia, Outlook October 2013 – April 2014

Focus on larger deals and expand into non-BRIC emerging markets

Average deal values are expected to increase from less than US$50m to US$51m - US$500m category.

Compared to six months ago, SEA respondents expect to pursue larger deals over the next 12 months. With core fundamentals supporting M&A and deal activities becoming stronger and appetite to invest in growth initiatives high on the agenda, this is no surprise. When it comes to investment choice, non-BRIC markets including those in SEA have become high priority.

Valuation gaps are expected to widen

29%  

of SEA respondents expect valuation gap to widen compared with 13% six months ago.

Divestments are not on the top of SEA corporates’ agendas, with only 17% planning to sell any part of their business over the next 12 month period. With M&A back on the agenda but low appetite for divestment by SEA corporates, it is not surprising that the valuation gap between buyers and sellers is expected to widen. Coupled with this inbound investor sentiments in the region will also add pressure on valuations. A wait and see attitude may not be a smart option.