7 minute read 3 Mar 2021
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Optimistic Asia-Pacific executives rev up 2021 M&A and transformation

Confident in their ability to prevail during the crisis, Asia-Pacific executives look to cross-border M&A for new growth and opportunities.

In brief
  • Senior executives believe Asia-Pacific will generate significant growth and opportunities for their companies over the next three years.
  • They have accelerated strategic reviews to reflect on lessons learned during COVID-19 and prepare for a post-pandemic world.
  • Robust M&A appetite in Asia-Pacific suggests transactions will become a key driver for business transformation as companies look to reshape their company portfolio for the future.

According to the latest edition of the EY Global Capital Confidence Barometer survey of more than 2,400 C-suite executives globally, 89% of Asia-Pacific companies have seen revenues fall; 92% saw profitability decline. However, 62% believe they have outperformed their competitors in operational stability during the COVID-19 pandemic. This is notably higher than 42% from global respondents.

This operational stability has fueled optimism. Companies in Asia-Pacific recognize that they are closely connected to the rest of the world and that their recovery is dependent on a global recovery. As a result, nearly half of those surveyed expect it will take until 2022 before revenues return to pre-pandemic levels. Yet, an overwhelming 90% of senior executives expect growth opportunities within Asia-Pacific in the next three years.

Asia-Pacific companies demonstrate steady operational performance during the pandemic

62%

of Asia-Pacific respondents say their company has outperformed competitors in operational stability during the pandemic crisis.

Respondents anticipate growth opportunities principally within their own countries, with stronger optimism represented in South-East Asia markets (33%), followed by India (15%) and Oceania (15%), than in markets outside Asia-Pacific.

EY CCB23 APAC which region generate most business growth

Asia-Pacific companies harness lessons learned and prepare for a reimagined future through accelerated strategic reviews

The pandemic has undoubtedly presented challenges to many organizations. Leaders have to reimagine their strategy and values in the context of the new normal, requiring organizations to fundamentally transform both their aspirations and operating models — and at speed.

Asia-Pacific companies indicate they are up for the task. Harnessing lessons learned from the pandemic and in preparation for a post-COVID-19 world, 89% of Asia-Pacific respondents indicate that they have conducted a comprehensive strategic and portfolio review. Eighty-two percent indicate such strategic reviews were accelerated in direct response to changing events.

Talent is a major consideration for Asia-Pacific executives. As they reimagine operating in the new normal, new skills will be required. Strategically investing in upskilling and reskilling the existing workforce, as well as investing in new hires with emergent skills, will be key to thriving in the post-COVID-19 business environment.

Post-global financial crisis, reshaping portfolios was essential for companies to perform better than their competitors. Identifying growth areas through acquisitions and divesting underperforming assets facilitates accelerated growth in the upturn. The latest EY survey suggests that this important corporate agenda topic is top of mind for C-suite executives.

In Asia-Pacific, geopolitical and regulatory considerations trigger shifts in strategic investment

While only 9% of senior executives say they believe geopolitical tensions between markets to be the greatest external risk for their business, 85% of Asia-Pacific respondents indicate that such challenges are forcing executives to alter their investment strategy.

Geopolitical challenges such as trade tensions and protectionism that existed before COVID-19 were accelerated for certain countries during the pandemic. On the bright side, there were also breakthroughs, such as the Regional Comprehensive Economic Partnership (RCEP). This new agreement, negotiated among 15 Asia-Pacific nations and covering a third of the world’s population and gross domestic product, eliminated tariffs for a wide range of products. It also established common rules for e-commerce, trade and intellectual property.

The EU-China Comprehensive Agreement on Investment is another notable breakthrough that will encourage cross-border investment between the two regions. Senior executives believe that they will need to continue to navigate such challenging environments as they develop their corporate strategy in Asia-Pacific.

Asia-Pacific companies put climate change on their radar as risks continue to rise

Ranked as the top external risk after the COVID-19 pandemic, Asia-Pacific respondents express concern about how climate change could impact the growth of their business. The region’s large population and the frequency of natural disasters have elevated climate change as a priority in the corporate's decision-making. This is particularly the case for Australia, which has been battling bushfires increasingly over several years. Australian executives now see climate change as the greatest external risk to their business. 

In response, policymakers in the region are taking steps to lower carbon emissions. China is one of the leading countries in solar power, wind power and electric vehicle deployment. Various countries in Asia-Pacific are aiming to reduce their greenhouse gas emissions by double digits under international climate agreements. 

Tackling climate change is no longer regarded solely as a matter of corporate social responsibility. It impacts a company’s financial performance, stakeholder expectations and business competitiveness. 

Asia-Pacific executives have a robust appetite for M&A

Despite the risks and uncertainty, Asia-Pacific companies express an eagerness for M&A, with 53% of respondents saying that they are actively planning to pursue acquisitions in the next 12 months. M&A appetite in Asia-Pacific has been unaffected by COVID-19 and is higher than the Asia-Pacific average of 45% from the EY Global Capital Confidence Barometer since 2010. Key drivers for M&A activity include acquiring technology and innovative solutions and responding to regulatory changes to secure supply chains.

Private equity (PE) funds are also looking to increase their investment in Asia-Pacific. More than four in five Asia-Pacific respondents indicate that they expect increasing competition for assets in the coming year, with 57% saying they’ll be competing against PE firms.

Concerns about competition or antitrust reviews and valuation were key reasons for deal termination in 2020, as 53% of Asia-Pacific respondents indicate that their company failed to complete or canceled a planned acquisition in the last 12 months. Interestingly, this percentage is lower than the response of 64% to the same question in the last edition, indicating that the pandemic has not led to more deal cancellations.

Eighty-nine percent of senior executives indicate they will be looking for cross-border acquisitions in the next 12 months. The enthusiasm for cross-border M&A is particularly strong for Japan and countries in South-East Asia. Top investment destinations vary from country to country. However, 71% say they are planning to invest within the region, with India, Singapore, Japan, China and Thailand the top five investment destinations.

Regional trade agreements help build familiarity and improve confidence for dealmaking. The RCEP alone is expected to accelerate dealmaking with neighboring countries. The RCEP will also further enhance supply chain integration in Asia-Pacific — something senior executives cite as one of their top strategic drivers for pursuing M&A.

Senior executives acknowledge they face challenges as they fast-track transformation post-COVID-19

COVID-19 has turbo-charged plans for transformation as companies reimagine their competitiveness in a post-pandemic landscape. Asia-Pacific companies’ appetite for M&A also provides a clear indication that they see transactions as a key lever to business transformation.

Eighty-five percent of Asia-Pacific respondents say their organization is undergoing a significant business and technology transformation. While nearly half (49%) of Asia-Pacific respondents believe their digital transformation programs have overperformed relative to their competitors during the COVID-19 pandemic, 25% acknowledge that they have underperformed.

Accelerated business and technology transformation

85%

of Asia-Pacific respondents say their companies are undergoing a significant business and technology transformation program due to the pandemic.

Overall, Asia-Pacific executives are confident in their ability to outperform competition in the new normal

In summary, Asia-Pacific companies have demonstrated throughout the COVID-19 pandemic the agility to navigate the crisis. As the initial shock subsided, Asia-Pacific senior executives pivoted, conducting comprehensive strategic portfolio reviews to reimage their competitive position in the new normal. Now, they are seeking to rev up their M&A and transformation programs as they look to reshape their future in a post-pandemic world.

Executives recognize they will face challenges in the months and years ahead. However, this edition of the EY Global Capital Confidence Barometer shows that Asia-Pacific companies will push forward boldly, buoyed by an informed view of a better tomorrow and a clear view of how to get there — reset, realign, restart.

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.

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