- Asia-Pacific mergers & acquisitions (M&A) down by 14% compared to H1 2021, but up 85% compared to H1 2020, and in line with the average of the previous cycle (2015–2019)
- Asia-Pacific CEOs look beyond their borders but stay regional for deals
- Digital disruption has companies looking cross-sector and cross-border to expand capabilities and market reach
Despite major geopolitical and financial headwinds, Asia-Pacific (APAC) M&A activity in H1 2022 has been robust, according to analysis of M&A data by EY teams. With 648 deals of a total value of US$403b, M&A in H1 2022 may have seen a drop compared to this time last year (down 14% by value and 16% by volume), but activity is significantly up compared to H1 2020 (up 85% by value and 29% by volume) and remains in line with the average of the last M&A cycle (up 6% and 3% respectively).
According to analysis done by EY teams, the nature of cross-border deals is changing to reflect geopolitical tensions on the world stage. The share of outbound deals from APAC in H1 has fallen significantly (13% in 2022 vs. an average of 23% over 2015–19), whereas for domestic deals, the share has increased (77% in 2022 compared to an average of 71% over 2015-19). With 492 deals of a total value of US$312b, domestic deals in APAC were up 15% in 2022 against the pre-pandemic average (2015–19).
Elevated deal volumes and values and an increased focus within the APAC region suggests that APAC companies are leveraging M&A as a vehicle to transform their businesses.
Yew-Poh Mak, EY Asia-Pacific Strategy and Transactions Leader, says:
“Asia-Pacific companies across sectors are experiencing increasing pressure to transform their businesses to keep pace with rapidly evolving consumer preferences; digital disruption; and environment, social and governance (ESG) issues. Despite economic headwinds, CEOs across Asia-Pacific are focused on the long term and are pursuing transactions that set up their organizations for future growth.”
Australia and the technology sector reign supreme
Following China (US$144b), which traditionally tops the table of the most active M&A market in APAC, Australia has had an extremely active start to the year with the combined value of its outbound, inbound and domestic deals jumping to US$48b, an increase of 123% compared to the average of the last deal cycle (2015–19). According to EY analysis, H1 2022 saw an increase of Australian-owned companies buying foreign-owned assets (US$20b vs. US$4.5b over the average of the last deal cycle (2015–19)), in addition to a burst of domestic M&A (US$21.4b vs. an average of US$8.7b over 2015–19).
Looking at sector performance, cross-sector deals comprise of 68% of total deal volume and 55% of the total deal value for APAC in H1 2022. Technology was the most sought-after sector, with technology-targeted deals accounting for 21% of cross-sector deals. While the US$47b of non-technology to technology M&A activity was down 54% from the record 2021 levels (US$102b), it was still up 12% against the 2015-19 average of US$42b. H1 2022 also saw an increase in Technology companies investing in the mobility sector (US$4.4b, up 159% against the average of the last deal cycle (2015–19)). The Power and utilities sector also saw increased deal activity from other sectors (US$30b, up 122% against 2021 and 204% against the average of the last deal cycle (2015–19)), driven by increased investment in renewable energy companies.
Mak, says: “Asia-Pacific companies, regardless of sector, are ramping up their technology-centric evolution to keep pace with escalating consumer demand and growth in digital capabilities across the region.
“The importance of technology in the APAC M&A market cannot be understated. The convergence of rising internet penetration rates, access to mobile devices and a pandemic-induced shift to online is supporting rapid digital growth. Asia-Pacific companies are increasingly turning to M&A to acquire the digital capabilities and scale needed to succeed.”
Private capital set to drive activity, but beware of further shocks
Despite the widespread uncertainty, a fragile global economy and increased regulatory intervention, M&A is continuing apace, with a particularly strong flow of private capital driving activity. During H1 2022, private equity (PE) activity surged in APAC with a 47% increase (US$47b) in the deal value against pre-pandemic five-year average (2015–2019). Even though capital market conditions have tightened sharply through the first half of 2022, PE firms still have large amounts of cash that will need to be deployed in the latter half of the year (dry powder in Asia-Pacific funds stood at US$455.2b in July 2022).
Mak says: “The abundance of private liquidity is likely to play a role in fueling the APAC M&A market. Some PE funds will use M&A to enter new markets, while others will consolidate and expand their existing footprint. As interest rates rise, I expect to see fundraising shift from growth-oriented, future-value sectors to those with a focus on strength of earnings and pricing power, such as private health, education and real estate.
“Global macro-economic and geopolitical challenges have weighed on deal maker sentiment and M&A activity in Asia-Pacific in the first half of 2022. However, increasing pressure on APAC CEOs to transform their business will be a major driver of activity for the remainder of the year.”
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