Fifty-eight percent of Asia-Pacific companies (65% of Southeast Asia companies) are expecting distressed sales to increase in the next 12 months. Strikingly, in Oceania, 70% of companies are expecting distressed sales to increase, as they are seeing a rising number of financially troubled corporates in the market, particularly in the aviation and retail sectors.
Compared to controlled divestments, distressed sales can be significantly quicker to execute, enabling sellers to secure needed capital sooner.
Asia-Pacific companies are also expecting some ambitious companies to take advantage of these times to acquire overleveraged companies at a discount. Forty-one percent of Asia-Pacific companies are expecting prices to decrease by 5–10% in the near term. Interestingly, they are also expecting to see strategic buyers from outside of the target’s sector, as strategic buyers see it as an opportunity to expand into new businesses and invest in new business models.
This represents a shift in thinking from earlier this year when about a third (36%) of Asia-Pacific companies said they expected the number of this type of buyer to increase. In the April EY survey, this leaped to 54% of companies. In addition, less than a third (29%) of companies are expecting divestments related to industry consolidation to increase.
Divestors in the near term will be forced to address declining transaction multiples and an ever-widening price gap between buyers and sellers. Unlike the results from the global survey, where companies cited that they will likely increase the size and scope of divestments, Asia-Pacific companies are now likely to decrease the size and scope of the divestments and execute a more focused and well-prepared divestment before going to market.
With a new normal of increased distressed sales, shorter transaction time frames, diverse buyer pools from outside the sector and an anticipated increase in the price gap between buyers and sellers, it is more important than ever to start early and prepare meticulously to present a well-structured divestment and a well-perceived equity story. In a post-COVID world, operational agility, business model adaptability and supply chain resilience are also important considerations to communicate to the buyer pool.