Asia-Pacific executives continue to be bullish on where the M&A market is headed, with 84% expecting the Asia-Pacific M&A market to improve in the next 12 months — a jump from 53% two years ago.
The top three most popular sectors to pursue acquisitions for Asia-Pacific executives over the next 12 months are automotive and transportation (72%), technology (61%) and financial services (59%). These sectors are all highly disrupted by technological change, with companies in these sectors turning to M&A to keep pace with customer demands, offer innovative products or stay competitive via new business models.
Asia-Pacific executives are also looking abroad as well as at home for their deals, with 72% of respondents saying they will go cross-border for M&A activity over the next 12 months — higher than the global percentage of 67% indicated by their peers.
Executives find overseas assets increasingly attractive and five of the top investment destinations for Asia-Pacific companies are China, Australia, Japan, India and the United States.
Freeing up capital from operations helps build resilience
Almost half (46%) of Asia-Pacific executives intend to build resilience into their companies’ profitability and cash flow by reducing overhead and administrative costs. A sharper focus in managing costs was also a highlight of the EY Global Corporate Divestment Study results for Asia-Pacific in 2019, where 81% of respondents cited a need to streamline their operating model as the top trigger for divestments over the coming year. An example of this can be seen where companies have been deploying technology, automation and artificial intelligence (AI) to improve production processes and certain routine administrative tasks.
Reshaping capital strategy for future growth
With intensified portfolio reshaping a focus for executives, Asia-Pacific companies will likely be able to free up capital to recycle into deleveraging of their balance sheets in order to capitalize on consolidation opportunities for growth in their core businesses. Near-record intention to acquire reflects an underlying confidence in the longer-term economic fundamentals for the region — with businesses repositioning in response to ever-changing market conditions.
This proactivity will create a necessary discipline for smart capital decisions among businesses in the region, as well as continuing to maintain a healthy M&A market.