Singapore companies are “cleaning house” before embarking on more targeted and larger deals

Singapore, 2 July 2018

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  • 83% of Singapore executives see portfolio transformation as the most prominent boardroom issue
  • 40% of Singapore companies intend to pursue acquisitions in the next 12 months
  • Singapore is among top investment destination as corporates in Singapore and Southeast Asia (SEA) look homeward for deals

As Singapore companies seek to continue to be competitive in the future, a strong 83% (SEA: 72%) see portfolio transformation as a top priority in their boardroom thinking. Through continuous assessment of current operations, risks and opportunities, executives are looking for ways to identify strategic gaps in their current portfolios – something they will need to do more of if they want to boost their ability to see deals through to completion.

This is according to the 18th EY Global Capital Confidence Barometer, a biannual survey of 2,500 executives across 43 countries, including 30 from Singapore and 180 from SEA (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam).

Vikram Chakravarty, EY Asean Managing Partner, Transaction Advisory Services at Ernst & Young Solutions LLP says:

“We are seeing Singapore companies restructuring themselves currently, hence some portfolio shifts can be expected before a spate of larger and more targeted M&As take place. As well, while interest in conducting M&A in the region is very high, internal and external pressures are impacting the ability to complete deals. A more effective and structured portfolio transformation may be necessary to ensure that deals close and are successful. Deal competition is increasing and evolving. Traditionally, corporate buyers have dominated the SEA M&A market. However, we are now seeing an increasing number of private equity firms, which have significant dry powder funds to invest, looking to pursue high-value assets in this part of the world.”

The survey also found that M&A appetite in Singapore and SEA have dipped amid emerging challenges and potential headwinds in the regulatory and geopolitical fronts. 40% of Singapore executives (SEA: 50%) indicate that they plan on pursuing deals in the next 12 months, down from 52% (SEA: 56%) six months ago. However, confidence in the local M&A market remains robust as 83% of Singapore executives (SEA: 73%) believe that it is improving, more than doubled from the 40% (SEA: 53%) who shared such sentiments six months ago. At the same time, all (100%) of Singapore executives (SEA: 99%) expect corporate earnings globally to either improve or remain stable.

Despite the upbeat sentiments, Singapore companies appear to experience challenges in completing deals: 87% (SEA: 83%) shared that they have failed to complete or canceled a planned acquisition in the past 12 months. The reasons cited by the respondents include competition from other buyers or disagreement in price of valuation (Singapore: 62%, SEA 54%); concerns about competition or antitrust views (Singapore: 23%, SEA: 22%) and intervention by activist investors (Singapore: 12%, SEA: 15%).

Technology adoption feature prominently on board agenda

Cloud computing and big data (Singapore: 34%, SEA: 39%) and distributed ledger technology such as blockchain (Singapore 33%, SEA: 29%) feature prominently on the board agenda of the Singapore corporates, which look to improve overall decision-making and boost company performance through these technologies.

Interestingly, artificial intelligence and robotic process automation is not among the technologies that feature prominently in the boardroom agenda, as in the case of SEA corporates (21%). As more companies adopt new technologies, close to two-thirds (Singapore: 63%, SEA: 64%) indicate that they are struggling to hire people with the right skillset.

Joongshik Wang, EY Asean Transaction Digital Leader and Partner, Ernst & Young Solutions LLP says:

“Digital transformation is driving companies to adopt a laser focus on portfolio transformation. Opportunities offered by new technologies as well as the potential threats posed by digitally savvy competitors are now key factors in businesses’ transformation plans toward the new economy.

“As well, analytics and real-time data gathering technologies are gaining popularity and digital leaders are using them for better decision-making and to monetize corporate activities. The implementation of these technologies should ideally build on each other and be scaled across the organization meaningfully for end-to-end transformation. Leading companies also employ data-driven decision-making to assess the suitability of their portfolio in the context of new competition, which can lead to more efficient and competitive value chains.”

Demand in Singapore for “smart” public infrastructure investment

Singapore executives see government spending as a critical driver of their growth plans as 97% expect government investment in infrastructure to increase over the next 12 months. This is much higher than expectations from respondents in the US (59%) and across Europe, Middle East and Africa (69%), as well as SEA (90%).

Andre Toh, EY Asean Valuation & Business Modelling Leader and Partner, Ernst & Young Solutions LLP says:

“Governments in the region are focused on building smart cities, improving transport infrastructure, using new technology and building digital ecosystems. With initiatives like China’s One Belt One Road, Singapore’s focus on smart nation and digital economy, and significant infrastructure budgets in other countries, we are seeing notable deal activity in sectors such as technology, utilities, automotive and transportation driven by this investment and expect this trend to continue.”

Singapore companies look homeward for deals

The top investment destinations among Singapore respondents are Singapore, Malaysia, China, Japan and Australia.

Among respondents in SEA, Singapore also features strongly as among the top five investment destinations. The top investment destinations for SEA respondents are Malaysia, Singapore, Indonesia, Thailand and Vietnam.

Purandar Rao, Singapore Head of Transactions, Ernst & Young Solutions LLP says:

“We are seeing more companies setting up their regional headquarters in Singapore, which is a business hub for many industries. The connectivity, infrastructure, political stability, pro-business government and availability of top talent in Singapore are some of the key elements that help the country to maintain its edge as an investment destination for companies.”

The top sectors in Singapore looking to make acquisitions are real estate, hospitality and construction; financial services; automotive and transportation; consumer products and retail; and telecommunications. Across SEA, those that intent to make acquisitions over the next 12 months are from power and utilities; oil and gas; industrials; automotive and transportation; technology; and life sciences sectors.

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