Why ASEAN and India offer potential for purpose-led growth

Twenty-two per cent of survey respondents are considering shifting operations to lower cost countries to improve margins. The potential to build more resilient, flexible supply chains in the wake of COVID-19’s disruption may also be prompting diversification  to other Asian countries. 

Realising the ASEAN and India potential

But realising the potential for investment across the ASEAN region will require overcoming several hurdles.

The biggest may be the impact of COVID-19 on M&A. The pandemic has made cross-border dealmaking much harder - geopolitical tensions are high, regulatory intervention is expected to increase and the pandemic’s impact on travel is making it difficult to conduct thorough due diligence.

These challenges should not deter M&A in 2021 – making bold, fast moves is key to making the most of opportunities. They do however highlight the need for companies to ensure their M&A toolkit has everything needed to successfully close deals in a very different landscape. In particular, companies considering M&A across the ASEAN region should:

• Ensure deals align with strategic portfolio shifts: Almost all (91 per cent) of survey respondents conducted a comprehensive strategic and portfolio review in 2020, with 78 per cent saying COVID-19 had accelerated the process. M&A teams should ensure they can demonstrate how their deal strategies and acquisition targets clearly align with their company’s new strategic direction.
• Increase focus on the target's business resilience: Seventeen per cent of survey respondents said this was more important due to the impact of COVID-19. Undertaking operational due diligence helps ascertain the flexibility of a target’s cost base and their supply chain security. Scenario modelling, including financial modelling, can help understand the impact on earnings
• Start valuation discussions early: An inability to agree on price has always been a major dealmaking stumbling block – 36 per cent of respondents told us this is why they had cancelled or failed to complete a deal over the past 12 months. In a market fundamentally changed by the pandemic, issue is even more challenging. Starting discussions around valuations early in the dealmaking process can improve the likelihood of reaching agreement or at least avoid spending too much time with the wrong counterparty. Being clear on key valuation drivers, making greater use of modelling scenarios and earn-out structures can help bring parties together.  For those seeking to divest, targeting strategic buyers with a stronger ability to achieve synergies or improve performance post deal can yield a better price.
• Bring “COVID thinking” to consolidation: As distressed assets come to market, 13 per cent of survey respondents say they see opportunities to gain market share through consolidation. Doing so successfully will mean considering the points above and also conducting an earlier and more rigorous testing of integration strategies, synergy assumptions and the cost and timetable of realising the benefits.

The importance of purpose-led growth

Leaders have spent the last 12 months focused on navigating through a pandemic. Understandably, in some businesses, ensuring short-term survival sidelined strategies around longer-term value creation. It’s time to get these back onto the table.

Governance and purpose are more important in a world changed by COVID-19, and environmental, social and governance (ESG) metrics are under increased scrutiny. It’s interesting to note that climate change is seen as the top risk to growth (18 per cent) by our Oceania CCB survey respondents, ahead of the risks of the pandemic and geopolitics. This may reflect the priority position investors are now giving sustainability and climate change when making their decisions.

Oceania businesses seeking opportunities in Asian markets should keep this in mind especially as Australian climate change targets may not be as ambitious as those of some other countries in the region. Local executives should also note that ASEAN CCB respondents told us that the need to redefine purpose and changing stakeholder expectations are the top triggers, behind COVID-19, driving transformation. Australian and New Zealand-based companies should ensure purpose and practices align with investment plans and consider how acquisitions will further long-term growth, as well as fulfilling short-term commercial targets.

Investing to rebuild better  

Economic uncertainty will remain for some time but executives across Australia and New Zealand are confident that recovery is on its way. Investing for growth will be an integral to many businesses’ strategy to rebuild stronger and more resilient, with many looking to Asian opportunities beyond the usual target markets. Those that build a capital strategy that considers the insights of CCB and the pandemic-driven changes to the global investment landscape can makes the most of these opportunities throughout recovery and reframe for success beyond it.