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Innovation rekindles M&A optimism in Asia-Pacific

Global Capital Confidence Barometer | Asia-Pacific highlights | 15th edition

Dealmaking confidence soars among Asia-Pacific executives.

October 2016 could be the season of the rebound for M&A in the Asia-Pacific (APAC) region, according to the 15th edition of the Capital Confidence Barometer.

Although deal expectations may not reach the record highs of 2015, an overwhelming majority of executives in APAC have increasing confidence in dealmaking at the global level. Locally, deal appetites have rebounded from six months ago, with 41% (vs. 19%) expecting the local M&A market to improve over the next 12 months.

Despite low growth prospects in the region’s economies, currency volatility and political instability, 47% of APAC executives indicate that they expect to actively pursue M&A transactions in the coming year — a two-year high. Deal pipelines have also rebounded substantially, with 75% of respondents indicating they have five or more deals in the pipeline vs. just 34% six months ago.

Global stability, local fragility

On the whole, despite unsettling events and political uncertainty in key markets, 70% of APAC executives view the global economy as either modestly improving or stable. This confidence in part may be due to APAC’s continued annual year-over-year GDP growth (4.3% in 2015 and 4.2% in 2016 — Oxford Economics), which consistently outperforms sluggish global economic growth estimates of 2.2%.

Optimism in local economies is more moderate and fragile than the global outlook. Bright spots are the fastest-growing economies of India and China, with estimated annual real GDP of 6.5% and 7.5%, respectively.

The innovation upgrade

Most APAC executives see the top disruptors in their core business as product innovation and digitalization. However, regulatory pressure is a growing challenge, adding an extra layer of complexity and slowing the pace of adoption. For regional powerhouse China, digital transformation and automation are not merely desirable but critical to the evolution of the manufacturing sector.

However, it isn’t only technology that is highly prized. Forty-six percent of APAC executives are looking to acquire talent with know-how in the form of experienced management or technology professionals to aid transformation.

A two-pronged approach to growth

Barring any systematic shocks, our study shows a positive overall mid- to long-term outlook across the region if China realizes its ambitious growth target and global trade and local geopolitical issues stabilize.
As a low-growth environment continues, many companies will likely follow a parallel approach to organic and inorganic growth. In both instances, APAC appears to be well-positioned to capitalize on the challenges and opportunities these two approaches offer.