- Nearly half of Asia-Pacific companies plan to acquire in the next 12 months, significantly above the ten-year average
- 68% of Asia-Pacific respondents do not expect a global economic downturn in the near term – 14% higher than global respondents
- 67% of Asia-Pacific respondents are investing in digital/technology assets externally
Plans for mergers and acquisitions (M&A) in the Asia-Pacific region continue to be strong despite geopolitical uncertainties and global trade challenges, according to the Asia-Pacific edition of the 21st EY Global Capital Confidence Barometer (CCB), a biannual survey of more than 2,900 executives from 45 countries.
Positive M&A sentiment and growth outlook in Asia-Pacific
49% of corporate executives in Asia-Pacific indicate they plan to acquire in the next 12 months, significantly above the 10-year historical average of 42% for the region, since inception of the study in 2009.
This positive M&A outlook reflects shifting growth possibilities and acquisition ambitions in different markets across Asia-Pacific. In China, despite outbound investment challenges many Chinese acquirers face, appetite for acquisitions by Chinese companies remains healthy at 46% – its highest level since early 2018. In Japan, 57% of executives intend to pursue deals over the next twelve months, one of the highest deal intentions from Asia-Pacific respondents. Many Japanese companies are looking to grow inorganically amid a slowing local economy and a desire to taking advantage of the lower cost of acquisition financing, as well as expansion opportunities overseas. In terms of investment destinations, US, China and the UK are the top for Asia-Pacific respondents. For global respondents, China (4), Australia (8), Japan (9) and Singapore (10) are among the top 10 investment destinations.
Despite geopolitical uncertainties such as trade tensions, Asia-Pacific executives are more confident in the global economy and the majority expect continued growth in their local markets. Recent trade tensions among some of these major economies have not affected their attractiveness to deal-makers.
Harsha Basnayake, EY Asia-Pacific Strategy and Transactions Leader, says: “Disruption impacting the Asia-Pacific region will only intensify M&A activities as it’s one of the more compelling ways to mitigate any risk to a company’s growth plans. M&A is seen as the route to expand into new markets, and acquire new technology and new production capabilities. It’s a ‘search for growth story’ overall.”
Part of Asia-Pacific executives’ determination to stay the course in their growth ambitions may stem from their confidence in the stability of both global and local economies. Seventy-two percent of Asia-Pacific executives see the global economy as growing. A smaller, but still substantial number (58%) of Asia-Pacific respondents perceive their local economies to be growing. While confidence has declined from 69% a year ago, a majority of Asia-Pacific executives expect a resilient economic outlook for the region. This is supported by the sentiment of 68% of executives who do not expect an economic downturn in the near term – 14% higher than the global respondents.
However, as pressure on traditional business models intensifies – principally due to a proliferation of fast-moving start-ups – companies view M&A as the route to accelerating growth.
The digital and technology imperative is driving investment activity across the board
67% of Asia-Pacific executives are investing in digital and technology assets to sustain growth momentum – not only through acquisitions, they are increasingly building capabilities using corporate venture capital funds and external funds to invest in a range of new technologies.
According to the CCB, the top three most popular sectors to pursue acquisitions for Asia-Pacific executives over the next 12 months are life sciences, technology, and for the first time since the launch of the survey, media and entertainment.
Basnayake says: “Technology and the emergence of start-ups are redefining the landscape and exacerbating challenges for businesses already facing intense pressure from existing competition. Companies have to build, collaborate and invest in technologies to future-proof their positions.”
Increasing competition fuels deal intentions
Asia-Pacific respondents highlighted increasing competition from existing competitors as the most significant challenge for growth. This view is different from global respondents, who identified pricing, margin pressure as their most significant challenges. Continuous industry consolidation across the region, access to private capital and the emergence of start-ups with a wider industry focus are reinventing the competitive landscape. The competition extends beyond customers to talent and skills, posing another significant challenge to their growth plans. Meanwhile, regional consolidation has continued to fuel M&A activities. Year-to-date in 2019, more than half of the inbound deals in Asia-Pacific markets have been intra-regional deals.
Basnayake concluded: “Yes, there are global headwinds which are going to impact the growth story in the Asia-Pacific region. Companies are going to rebalance and rework to ensure they ride the longer term growth prospects in the Asia-Pacific.”
View the survey online at ey.com/ccb and follow us on Twitter: @EY_Strategy and Transactions | #EYCCB
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About EY’s Strategy and Transactions
How you manage your capital agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more-informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you're preserving, optimizing, raising or investing capital, EY’s Strategy and Transactions combine a set of skills, insight and experience to deliver focused advice. We can help you drive competitive advantage and increased returns through improved decisions across all aspects of your capital agenda.
About EY Global Capital Confidence Barometer
The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. The panel comprises select global EY clients and contacts and regular Thought Leadership Consulting contributors. In August and September, Thought Leadership Consulting on behalf of EY surveyed a panel of more than 2,900 executives in 45 countries, of which 749 are from Asia-Pacific and across industry sectors.
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