3 minute read 14 Jan 2019
 Asia Pacific harbor shipping containers

Increased competition fuels resilient Southeast Asia M&A appetite

By

Vikram Chakravarty

EY ASEAN Transaction Advisory Services Leader

Experienced strategy advisor. Thought leader in Asia business. Wine connoisseur, avid squash player, ardent cricket fan and doting father.

3 minute read 14 Jan 2019

Show resources

The appetite for mergers and acquisitions in Southeast Asia remains strong amid rising competition for assets and geopolitical disruption.

This article is part of our M&A report Global Capital Confidence Barometer, 2nd half 2018.

Amid geopolitical and global trade challenges, deal appetite among Southeast Asia (SEA) respondents remains resilient. The 19th edition of the Global Capital Confidence Barometer, conducted between August and September 2018, shows that 46% of SEA respondents, slightly down from 50% six months ago, intend to pursue mergers and acquisitions (M&A) to fuel their growth ambitions over the next 12 months.

This is even as a majority (87%) of SEA respondents expect the global M&A market to improve, with a significant proportion (83%) also expecting improvement in their local M&A market. 

Despite the optimism, there is caution in their expectations, as many companies across SEA have struggled with the headwinds from ongoing trade disputes as well as rising US interest rates.

Global M&A market

87%

of SEA respondents expect the global M&A market to improve.

Fueling this resilient appetite for M&A is increased competition for assets, according to 82% of SEA respondents, with 40% expecting competition from corporate investment funds and 39% from private equity. This is also consistent with nearly a quarter (24%) of respondents identifying private equity as a major theme in the M&A market for the next 12 months.

Competition for assets

82%

of SEA respondents expect to see increasing competition for assets, mainly from corporate investment funds and private equity.

Concurrently, SEA companies are accelerating with portfolio reviews, as 82% of SEA executives shared that they review their portfolio at least every six months, far more than their global counterparts (66%). 

Identifying potential divestitures appears to have become the focus of portfolio review, with 63% of SEA respondents trying to identify underperforming assets and determine assets at risk of disruption to divest. This focus on recycling capital through divestitures will likely underpin deal flow in the next 12 to 24 months.

Portfolio review

82%

of SEA respondents review their portfolio at least every six months.

Additionally, creative approaches to portfolios such as carve-outs and joint ventures can be a good alternative for growth. Yet, SEA corporates are still not allocating enough resources or focus on these. The survey found just 15% of SEA companies are placing their attention and resources on acquisitions, joint ventures and alliances; a smaller proportion is seen for divestitures (8%). Given the economic uncertainty, there is value for companies to consider alternative approaches to portfolios. As companies explore the deals, it is crucial that they make sure the target or deals fit the corporate strategy. 

Capital allocation and strategy

15%

of SEA respondents are placing their attention and resources on acquisitions, joint ventures and alliances.

In terms of investment destinations, many respondents recognize the opportunities in the region and look to continue to invest in SEA. Vietnam comes up as a top destination, followed by Malaysia, the US, Singapore and China. Cross-border expansion is a natural evolution for growing businesses. However, these cross-border deals can be complex in nature and managing integration may be challenging. 

The current time is a crucial juncture for dealmaking. There is a possibility that we may be approaching an inflection point in the global deal market and economy. Opportunities are abundant, but the challenges and risks are very real. Hence it is critical that companies think through their strategy as they consider deals, and do deep evaluation on the target before taking the leap. 

Summary

The appetite for mergers and acquisitions in Southeast Asia remains resilient amid competition for assets and geopolitical disruption. There is also scope for companies to put more focus on creative approaches to portfolios.

About this article

By

Vikram Chakravarty

EY ASEAN Transaction Advisory Services Leader

Experienced strategy advisor. Thought leader in Asia business. Wine connoisseur, avid squash player, ardent cricket fan and doting father.