Press release

12 Nov 2019 Singapore, SG

Stable M&A appetite in Southeast Asia driven by resilient economic outlook

SINGAPORE, 12 November, 2019. SEA firms remain sanguine despite a slowing economy

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Media Relations Lead (Assurance, Tax, Strategy and Transactions, Growth Markets), Ernst & Young Solutions LLP

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  • Despite more uncertain global macro environment and declining local trade and economic conditions, SEA respondents’ desire to do deals remains stable
  • SEA respondents do not expect a global economic downturn in the near term despite having witnessed a marked slowdown
  • Digital and technological disruption challenges SEA respondents but no clear path forward on how to tackle these issues

Conducted in August and September 2019 amid macroeconomic and technological uncertainty, the 21st edition of the EY Global Capital Confidence Barometer (CCB) revealed a mixed set of messages regarding outlook, causes and strategy among corporates in Southeast Asia (SEA).

The survey found that while most firms continue to see strong underlying conditions, they face pressure in higher input costs, thinning margins and an increasingly slowing economy. The CCB is a biannual survey of more than 2,900 executives from 45 countries, including close to 220 in SEA (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam).

SEA firms remain sanguine despite a slowing economy

Due to geopolitical uncertainties such as trade tensions, SEA executives are less confident in the global and local economies: just over two-third (SEA 68%, global 76%) believe that the global economy was growing, down from 76% a year ago (global down from 85% a year ago), and over half (SEA 53%) believe that the local economy was growing (down from 74% a year ago).

Despite being caught in the middle of the global trade tensions, SEA firms have a reasonably buoyant outlook. A majority of SEA executives expect a resilient economic outlook for the region, as 61% of them do not expect an economic downturn in the near- to mid-term, compared to 54% of global respondents who shared similar sentiments.

This may explain the relatively stable desire to do deals. Forty-one percent of corporate executives in SEA (global 52%) indicate they plan to acquire in the next 12 months. Though the acquisition appetite is lower than global levels, it is just below the 10-year historical average of 42% for the region, since the inception of the study in 2009.

This stable M&A outlook reflects shifting growth possibilities and acquisition ambitions in different markets across the region. The main drivers for pursuing acquisitions are access to new markets (SEA 23%, global 21%), acquire technology, new production capabilities or innovative startups (SEA 22%, global 21%), and acquire talent (SEA 21%, global 20%).

Vikram Chakravarty, EY Asean Strategy and Transactions Leader, says:
“Perhaps SEA firms should take the current slowdown and trade tensions more seriously. The macroeconomic headwinds are real, and firms must seize this opportunity to restructure themselves to focus on the business and reduce costs while they still have strong balance sheets. This could also present an opportunity for them to shed lesser-performing business units and acquire relevant assets and capabilities. However, the capital agenda strategy as a whole has not been suitably re-adjusted.”

Digital and technology imperative drive investment activity 

The search for technology and talent is driving deals: 45% of SEA respondents (global 65%) plan to allocate more than 25% of their total investment capital to technology, mostly solutions that drive top-line growth. More than half of executives (SEA 52%, global 56%) will invest in technology through acquisition, joint ventures or external venture funds.

At the same time, more than two-thirds of respondents (SEA 67%, global 61%) are experiencing difficulties securing the right skills and talent. Particularly, companies faced the biggest challenge with hiring or retaining talent with specific technical skills relevant to the core business (SEA 26%, global 37%) .

Chakravarty says: “SEA firms, like their global counterparts, acknowledge the opportunities and threats of digital disruption. However, there is no clear consensus on the approach or the level of change required. Currently, the push is mostly around productivity enhancements, but fundamental strategic shifts have yet to come. We urge firms to start rethinking their operating models and push to create transformed or new true digital business.”

Increasing competition fuels deal intentions

 The greatest significant challenge for growth plans among SEA respondents are increasing competition from existing competitors (20%), shortage of talent or skills required (15%), and new   market entrants (15%). This is different from global respondents, who identified pricing and margin pressure (14%), increasing competition from existing competitors (14%) and new market   entrants (14%) 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.

 Chakravarty concluded: “SEA businesses should use the current global headwinds as an opportunity to accelerate their overall industry consolidation and adopt digital not just to improve   productivity but to build future-proofed business models.”

 View the survey online at

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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; 70% were CEOs, CFOs and other C-level executives.
  • Respondents represented 14 sectors, including financial services, consumer products and retail, technology, life sciences, 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 (25%); US$1b–US$2.9b (18%); US$3b–US$4.9b (10%); and greater than US$5b (22%).
  •  Global company ownership was as follows: publicly listed (57%), privately owned (31%), family owned (9%) and private equity portfolio company (3%).