- SEA corporates recognize the need to rethink their strategy with a focus on digital transformation, cost reduction and M&A
- Respondents expect the SEA region to generate most of the growth and M&A opportunities in the near-to-medium term
- Buoyant M&A appetite with cross-border deals in focus; drivers include a sharply rebounding global economy, supply chain realignment, market expansion and capability expansion
Having navigated unprecedented disruption, executives in Southeast Asia (SEA) are emboldened to drive internal transformation (digital and cost reduction) and their M&A, according to the 23rd edition of the EY Global Capital Confidence Barometer (CCB23).
The survey of more than 2,400 executives in 52 countries, including 185 respondents across SEA (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) found strong optimism among the surveyed business executives, as they expect a recovery in profitability to pre-pandemic levels by 2022 (59%), or even 2021 (12%).
Respondents believe that the key areas where their organizations have outperformed during the pandemic include operational stability (66%); digital transformation (54%); and engagement with local communities (53%), Conversely, innovation of new products and services (54%) scored the highest in underperformance.
Vikram Chakravarty, EY Global Strategy Leader and EY Asean Strategy and Transactions Leader says:
“While respondents may feel that good progress has been made, they need to continue to sharpen their strategic focus, embrace the power of digital transformation, actively engage their customers and stakeholders and positively contribute to the communities in which they operate.”
SEA region to generate most of the growth and M&A opportunities in the near-to-medium term
With their optimism for business recovery, over half of corporates (56%) are looking to actively pursue M&A in the next 12 months – the highest since 2012 and beating the 11-year average of 44%.
About half (46%) of corporates expect that SEA will generate the most growth prospects and opportunities for their organization in the next three years. Other geographic regions that are expected to generate growth opportunities are India (18%), Japan (15%) and Oceania (11%).
The top investment destinations (cross-border and domestic) among SEA corporates are India, Singapore, Japan, Thailand and China. Technology, advanced manufacturing, power and utilities, consumer and financial services top the list of the most acquisitive sectors for SEA respondents. An overwhelming 95% of respondents indicate that they are targeting cross-border deals.
Driving this acquisition appetite are concerns about tariffs and trade flows (24%); strengthening of technology, talent and new capabilities (24%); and growth into adjacent business sectors or activities (22%).
Luke Pais, EY Asean M&A and Private Equity Leader says:
“SEA is an attractive region from a medium- to long-term growth perspective. Hence, it is no surprise that corporates are favoring the region. Further, conditions for M&A, including low interest rates, accommodative capital markets and abundant private capital, remain highly supportive. Companies that are bold coming out of a crisis tend to generate far greater value over the long term.”
SEA corporates seek to sharpen their strategic focus and are open to partnerships to succeed
Respondents to the survey shared that their main strategic considerations currently are to identify and invest in talent (24%), divest underperforming assets or businesses (22%), and make strategic acquisitions (13%). Key constraints to effective strategy implementation include a lack of leading technology (20%), cost and capital constraints (16%) and a lack of external advice (14%).
A majority (83%) of respondents are currently undergoing a significant business and technology transformation program. Driving this is the impact of the pandemic (15%), the current validity of purpose and strategic objectives (12%) and changing stakeholder expectations (11%).
Disruption is clearly a key concern, particularly heightened by the pandemic. To succeed, companies should look to better define their strategic focus and positioning in the ecosystem, have the right talent on board to achieve this, and be open to partner with new entrants.
Chakravarty says: “We know from history that companies that transformed and transacted after a crisis came out stronger, relative to their competitors. Hence, companies in SEA must act boldly and embrace digital transformation and M&A as a way to win in the post-pandemic world.”
Find out more at ey.com/ccb
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About the 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 EY clients across the globe and contacts and regular Thought Leadership Consulting contributors. From November 2020 until January 2021, Thought Leadership Consulting surveyed on behalf of the global EY organization a panel of more than 2,400 executives in 52 countries; 82% were CEOs, CFOs and other C-suite-level executives. • Respondents represented the following sectors: Financial Services, Telecoms, Consumer Products and Retail, Technology, Media and Entertainment, Life Sciences, Hospital and health care providers, Automotive and Transportation, Oil and Gas, Power and Utilities, Mining and Metals, Advanced Manufacturing, and Real Estate, Hospitality and Construction. • Surveyed companies’ annual global revenues were as follows: less than US$500m (25%), US$500m– US$999.9m (26%), US$1b– US$4.9b (25%) and greater than US$5b (24%). • Global company ownership was as follows: publicly listed (60%), privately held (40%).