3 minute read 21 Apr 2021
An investor reacts as he monitors the share index in a stock market gallery

Optimism fuels robust appetite for M&A in Southeast Asia

By Vikram Chakravarty

EY Global Strategy Connected Capital Solutions Leader; EY Asean Strategy and Transactions Leader

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

3 minute read 21 Apr 2021

Confident in their ability to rebound to pre-pandemic levels by 2022, Southeast Asian companies eye growth within the region.

In brief
  • Southeast Asian executives feel confident about their performance during the pandemic and their ability to recover post-pandemic.
  • Optimism about the road to recovery and confidence in growth and opportunities within the region feeds robust M&A appetite.
  • Companies look to digital transformation and ecosystems to accelerate strategic objectives.

Southeast Asian companies are feeling confident about their performance throughout the global pandemic and the opportunities that lie ahead. According to the 23rd edition of the EY Global Capital Confidence Barometer (pdf), two-thirds of Southeast Asian executives believe their companies have outperformed during the pandemic in operational stability relative to their competitors. More than half of them also believe they have exceled in digital transformation and engagement with communities and wider society.

This confidence fuels optimism for a near-term recovery, with 86% of Southeast Asian executives saying they expect revenues to return to pre-pandemic levels by 2022, though they do expect the return of profits to pre-pandemic levels to take a little longer.

While respondents feel good about their short-term response during the pandemic, they also believe there is further work needed to sharpen their strategic focus, innovate new products and services, accelerate digital transformation, and actively engage their customers.

Pandemic impact

66%

of Southeast Asia executives say they overperformed in operational stability during the pandemic relative to their peers.

Seeing the region as having the greatest potential for growth, Southeast Asia companies target M&A closer to home

With the wind in their sails and anticipation high for a swift shift from resilience to recovery, more than half (56%) of Southeast Asian executives say they are looking to actively pursue M&A in the next 12 months — the highest since 2012 and beating the 11-year average of 44%. Southeast Asian executives also appear to be more aggressive in pursuing M&A than their global peers.

EY M&A Strategy survey CCB23 Southeast Asia M&A outlook

Nearly half (46%) of Southeast Asian respondents expect their region 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%).

Unsurprisingly, given the trajectory of growth and opportunities, the top five investment destinations among Southeast Asian companies are: India, Singapore, Japan, Thailand and China. An overwhelming 95% of respondents indicate that they are targeting cross-border deals.

The main strategic drivers for M&A include issues relating to regulations, tariffs and trade flows (24%), strengthening technology, talent and new capabilities (24%), and growth into adjacent business sectors or activities (22%). For global organizations, Southeast Asia’s draw appears to stem from its attractive market as well as the global supply chain rebalancing.

Southeast Asian companies look to sharpen their strategic focus and are open to partnerships to succeed

Disruption is clearly a key concern, particularly heightened by the pandemic. A majority (88%) of Southeast Asian companies undertook strategic and portfolio reviews, and implemented a number of transformative actions.

Respondents said their top strategic considerations in response to these reviews included identifying and investing in talent (24%), divesting of underperforming assets or businesses (22%), and making strategic acquisitions (13%).

However, respondents acknowledged that effective execution of their strategic objectives was hampered by a lack of leading technology (20%), cost and capital constraints (16%) and a lack of external advice (14%).

Transformative actions

83%

of Southeast Asian companies are taking steps to transform their business and type of technology used.

Bold moves now can generate greater value over the long term

Southeast Asia is an attractive region from a medium- to long-term growth perspective. It also stands to benefit from the global supply chain realignment. Low interest rates, supportive capital markets and an abundance of private capital create ideal conditions for M&A. Further, history suggests that companies that transformed and transacted after a crisis will come out stronger, relative to their competitors.

Southeast Asian companies that act boldly, by embracing digital transformation and seizing M&A opportunities, will be well positioned to accelerate out of the pandemic and generate greater value over the long term.

Summary

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Vikram Chakravarty

EY Global Strategy Connected Capital Solutions Leader; EY Asean Strategy and Transactions Leader

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