Increased competition fuels resilient Southeast Asia (SEA) M&A appetite despite geopolitical and global trade challenges

Singapore, 4 December 2018

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  • 46% of executives in SEA plan to acquire in the next 12 months – above the 42% historical average for the region since 2010
  • Robust deal appetite despite 50% citing geopolitics and regulation as potential threat to M&A; greater focus on alternative approaches to deals needed

The appetite for mergers and acquisitions (M&A) in Southeast Asia (SEA) remains resilient amid rising competition for assets and geopolitical disruption, with 46% of corporate executives in the region planning to acquire – slightly down from 50% six months ago – but above the historical average of 42% since 2010. For Singapore, deal appetite has held steady at 40% – the same as six months ago.

This is according to the Southeast Asia edition of the 19th EY Global Capital Confidence Barometer (CCB), a biannual survey of more than 2,600 executives across 45 countries, of which 192 are from SEA (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam). The survey – conducted at a time of heightened geopolitical protectionism globally that has significant implications to many parts of the region – shows that SEA dealmakers are looking for growth through M&A while also acknowledging risks.

Half (50%) of the SEA respondents (Singapore: 44%) see geopolitical and regulatory changes as the biggest potential risk to dealmaking, while 28% (Singapore: 27%) also see this as a risk to the growth of their core business.

Vikram Chakravarty, EY Asean Transaction Advisory Services Leader, says:

“Companies across SEA have struggled with the headwinds from ongoing trade disputes as well as rising US interest rates. However, dealmakers in the region have remained resilient and are looking to achieve scale through M&A as the answer to slower growth, underpinned by strong balance sheets and low gearing ratio. Yet, against a potential slowdown of the global economy and high multiples, the risks are very real.”

Fueling this resilient appetite for M&A is increased competition for assets, according to 82% of the SEA respondents (Singapore: 83%). Respondents are split on where they see this competition coming: 39% of SEA corporates (Singapore: 38%) see competition most likely from private equity (PE) and 40% from corporate investment funds (Singapore: 31%). Nearly a-quarter (24%) of SEA respondents (Singapore: 30%) indicated PE as a major theme in the M&A market for the coming year.

Chakravarty says: “There are record dry powder funds globally and a proportion is being earmarked for Asia-Pacific markets. That will need to be deployed. Private capital has also been a good option for unlocking value by many listed, entrepreneurial businesses that have not attracted expected valuations. Some can provide very creative ideas when it comes to carve-outs and deal structures.”

Greater focus on creative approach to portfolios needed

While creative approaches to deals such as carve-outs and joint ventures can be a good alternative, SEA corporates are still not allocating enough resources or focus on these. The capital allocation and strategy issues that SEA respondents are placing the greatest attention and resources on are working capital management (SEA: 26%, Singapore: 33%), existing operations (SEA and Singapore: 25%) and digital transformation (SEA: 18%, Singapore: 15%), followed by acquisitions, joint ventures and alliances (SEA: 15%, Singapore: 14%) and divestitures (SEA: 8%, Singapore: 3%).

Chakravarty says: “Given the economic uncertainty, there is value for companies to consider alternative approaches to portfolios, such as divestments and carve-outs. As companies explore the deals, it is crucial for them to make sure the target or deals fit the corporate strategy. As well, the due diligence and strong execution of the deal will hold the key to a successful transaction.”

The complex environment is also prompting SEA executives to review their portfolios more frequently. The vast majority of executives (SEA: 82%, Singapore: 90%) are reviewing their portfolios at least every six months – far more than their global counterparts (66%). Just 17% of companies in SEA (Singapore: 10%) review their portfolios once a year and only 3% (Singapore: 0%) continuously assess their book of business. As a result of portfolio reviews, more than half of companies (SEA: 63%, Singapore: 80%) have identified assets to divest due to underperformance or risk of disruption, which could see more assets coming to market in the medium term.

SEA firms continue to tap regional opportunities

M&A imperatives and macroeconomic fundamentals in SEA for the longer term remain robust, with 87% of SEA and Singapore respondents expecting the global M&A market to improve and 83% expecting their local market to do the same in the next 12 months. As well, more than half (57%) of SEA executives that are planning M&A cite cross-border deals as a priority. This contrasts sharply with only 28% of global executives looking beyond their own borders for M&A. The key drivers for SEA and Singapore companies to pursue cross-border deals are to acquire talent and gain access to local markets.

Particularly, the surveyed executives recognize the opportunities in the region and look to continue to invest in SEA. The top five investment destinations among SEA executives are Vietnam, Malaysia, US, Singapore and China.

For Singapore corporates, 83% of those that are planning M&A cite cross-border as a priority, with the US, UK, Singapore, Malaysia and Australia as the top investment destinations.

Chakravarty says: “Cross-border expansion is a natural evolution for growing businesses. This has been seen in China, Japan and many of the mature Southeast Asian companies. However, cross-border deals can be complex in nature and managing integration may be challenging. Companies need to consider a deliberate approach to capture synergy as they pursue the deals.”

“The current time is a crucial juncture for dealmaking. There is a possibility that we may be approaching an inflection point in the global deal market and economy. Opportunities are abundant, but the challenges and risks are very real. Hence, it is critical that firms think through their strategy as they consider deals, and do deep evaluations on the target before taking the leap,” Chakravarty concludes.

View the survey online at and follow us on Twitter: @EY_TAS | #EYCCB


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About EY Global Capital Confidence Barometer

EY Global Capital Confidence Barometer is a biannual survey compiled by Euromoney Institutional Investor Thought Leadership of more than 2,600 senior executives from large companies from 45 countries and across industry sectors. This is the 19th biannual CCB in the series, which began in November 2009; respondents for the 19th edition were surveyed in August and September 2018. 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, diversified industrial products, and construction and real estate. The objective of the Global Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. #EYCCB