6 minutos de lectura 23 oct 2019
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Asia-Pacific M&A ambitions remain resilient despite uncertainties

Por

Harsha Basnayake

EY Asia-Pacific Transaction Advisory Services Managing Partner

Harsha es un líder con experiencia en transacciones, asesoría sobre capital y operaciones exitosas en Asia. Ha sido pionero en muchos negocios en Asia-Pacífico y es un apasionado defensor de la diversidad de equipos.

6 minutos de lectura 23 oct 2019

C-suite in region focused on achieving long-term growth through mergers and acquisitions.

A
sia-Pacific companies are identifying and seizing growth opportunities amid a sea of challenges. Global and local geopolitical shifts, the US-China trade dispute and technology-led innovations that are changing consumer, supply chain, labor and regulatory dynamics are motivating corporate executives to stress-test trusted business norms.

Despite these challenges, 49% of Asia-Pacific respondents say they are actively pursuing M&A in the next 12 months, according to the EY Global Capital Confidence Barometer. This is a small decline from 51% six months ago, signaling that companies continue to see consolidation and expansion opportunities through dealmaking. However, their outlook for dealmaking has softened as they look forward, with 55% expecting the global M&A market to improve over the next 12 months, down from 86% a year ago.

APAC actively pursue M&A in next 12 months

Asia-Pacific executives’ determination to stay the course in their growth ambitions may stem from their confidence in the stability of both global and local economies. Seventy-two percent of Asia-Pacific executives see the global economy as growing. A smaller, but still substantial, number (58%) of Asia-Pacific respondents perceive their local economies to be growing. While confidence has declined from 69% a year ago, a majority of Asia-Pacific executives expect the region’s economy to remain resilient.

This is supported by the sentiment of 68% of executives who do not expect an economic downturn in the near term — 14% higher than the global respondents.

This suggests that Asia-Pacific executives consider the likelihood of a recession in the near term a minimal threat, despite suggestions from some commentators that a recession is on the immediate horizon.

Asia-Pacific economic expectations

M&A outlook reflects growth potential

The positive M&A outlook across the region reflects shifting growth possibilities and acquisition ambitions in different markets across Asia-Pacific.

In China, despite outbound investment challenges many Chinese acquirers face, appetite for acquisitions by Chinese companies remains healthy at 46%, an intention that is at its highest level since early 2018. Survey results show that most China-based executives are seeking domestic deals. Europe also continues to be a popular investment destination — a trend seen in the market that’s been sustained since 2013.

In Japan, 57% of executives intend to pursue deals over the next 12 months, one of the highest deal intentions from Asia-Pacific respondents. Many Japanese companies are looking to grow inorganically amid a slowing local economy. There is a desire to take advantage of the lower cost of acquisition financing and expansion opportunities overseas. Meanwhile, Japan’s outbound M&A activity shows no sign of slowing down as companies plan to proactively ease competitive pressure from new and existing competitors.

In Southeast Asia (SEA), as the confidence in local economic growth has declined, so too have deal intentions. With just 41% expecting to pursue M&A in the next 12 months, this is slightly below the region’s long-term average of 42% and represents SEA’s lowest appetite since 2016. SEA corporates rated geopolitical or local political uncertainties as the greatest external risk to the growth of their businesses, causing investors in the region to take a wait-and-see approach. However, SEA buyers still recognize opportunity within the region, where the top investment destinations are Indonesia, Singapore and the Philippines.

The US, China and the UK are the top investment destinations for Asia-Pacific respondents. For global respondents, China (4), Australia (8), Japan (9) and Singapore (10) are among the top 10 investment destinations.

Across the Asia-Pacific region, 78% of executives expect private equity (PE) to be a major acquirer of assets in the next 12 months as PE dry powder continues to be at record levels in Asia-Pacific. As a result, Asia-Pacific executives expect strong competition for assets. Eighty-two percent anticipate an increase in hostile and competitive bidding in the next 12 months.

Competition from private equity

78%

of Asia-Pacific respondents expect private equity to be a major acquirer of assets in the next 12 months.

Increasing competition fuels deal intentions

Asia-Pacific respondents highlight increasing competition from existing competitors as the most significant challenge to their growth ambitions. This view is different from global respondents, who identified margin pressure as their most significant challenge. Industry consolidation across the region, access to private capital and the emergence of Asian unicorns with a wider industry focus are reinventing the competitive landscape. The competition extends beyond customers to talent and skills, posing a challenge to their growth plans.

Meanwhile, regional consolidation continues to fuel M&A activities. In 2019, more than half of the cross-border deals in Asia-Pacific markets have been intra-regional deals. These deals are motivated by corporate interests looking to expand into new markets and acquire new technologies and new production capabilities within the region.

This reflects a different deal environment compared to a decade ago, when inbound investors to Asia-Pacific markets were mainly from the US and Europe, and Japanese investors contributed to the majority of these intra-regional deals within Asia-Pacific.

The digital technology imperative drives investment activity across the board

Asia-Pacific respondents acknowledge that digital transformation is blurring the boundaries between industries. As a result, Asia-Pacific acquirers have been pursuing more cross-sector deals compared to their global counterparts.

They increasingly are building capabilities using both corporate venture capital funds and external funds to invest in a range of new technologies. This approach offers more optionality and provides a range of potential digital futures.

Digital investments

67%

of Asia-Pacific respondents are investing in digital assets through venture capital, direct investment and acquisitions, and alliances.

The three most popular sectors for M&A activity over the next 12 months include life sciences, media and entertainment, and technology. Interestingly, this is the first time we are seeing media and entertainment sighted as a top three target sector for Asia-Pacific respondents.

These sectors are most acutely experiencing the effects of digital disruption. As a result, companies in these sectors are turning to M&A to acquire new business models amid pressure to stay competitive and fend off a high volume of competition from startups.

Looking ahead, M&A will help to propel long-term growth

Although overall deal intentions across Asia-Pacific may be down slightly from October 2018 and the outlook for M&A over the next 12 months is more tempered, more Asia-Pacific executives (50% versus 43% a year ago) expect their M&A pipeline to improve and more (58% versus 53% a year ago) expect to close deals in the year ahead.

Asia-Pacific M&A pipeline change in next 12 months

Ultimately, Asia-Pacific executives are relying on M&A as the route to expand into new markets, acquire new technology and production capabilities, and win new talent to create sustainable, long-term growth.

Key takeaways

Critical questions Asia-Pacific executives should ask themselves to drive better M&A in today’s deal economy:

  • Can you measure your relevant economy? GDP statistics provide an overarching view of the macro economy, but fully understanding your individualized economic ecosystem and addressable market can help Asia-Pacific companies to be more effective in proactively managing capital strategy to support sustainable long-term growth.
  • What is your capital strategy to invest in digital? The right digital transformation strategy should be at the heart of boardroom planning as Asia-Pacific companies look at buying today to prepare for tomorrow.
  • Can you afford to walk away from the deal table? To stay ahead of the curve, Asia-Pacific executives need to remain flexible, keep their options open and seize the right advantages as they arise. Walking away now could mean missing an opportunity that competitors will fully exploit — at your expense.
  • Can you predict your own future trade flows? Understanding the future interplay between supply chains and market access can help Asia-Pacific executives to better manage risk and accelerate opportunities for growth.

 

Resumen

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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Por

Harsha Basnayake

EY Asia-Pacific Transaction Advisory Services Managing Partner

Harsha es un líder con experiencia en transacciones, asesoría sobre capital y operaciones exitosas en Asia. Ha sido pionero en muchos negocios en Asia-Pacífico y es un apasionado defensor de la diversidad de equipos.