20-6-2023 (SINGAPORE) Bankers anticipate a resurgence in mergers and acquisitions (M&A) activity in Asia during the second half of the year, driven by increased deal making in Southeast Asia and a revival of private equity transactions. M&A volume in the first half of the year had slumped to its lowest level in a decade.
Preliminary data from Refinitiv reveals that the total value of Asia M&A deals from January to June plummeted by 41% compared to the previous year, reaching $362 billion. This marks the lowest figure since 2013. The decline aligns with the global trend, where factors such as higher interest rates, market volatility, and geopolitical tensions have weighed on deal making worldwide, leading several Wall Street banks to downsize their workforce in the past year.
In Asia, the decline in activity can be attributed to a significant drop in deal making related to China, caused by deteriorating Sino-U.S. relations and a slower-than-expected recovery of the world’s second-largest economy.
During this period, bankers in the region earned a total of $1.4 billion in fees from completed M&A deals, reflecting a 44% decline compared to the previous year and also hitting a ten-year low.
Choe Tse Wei, managing director of strategic advisory at Singapore’s DBS Group, highlighted that geopolitical uncertainties have redirected Chinese outbound investments away from Western Europe, Australia, and North America towards Southeast Asia and other emerging markets. At the same time, investments into China have been affected. Choe added that this shift has attracted Western flows of foreign direct investment (FDI) into India and Southeast Asia, while encouraging domestic reinvestment through the relocation and nearshoring of production facilities.
Data from Refinitiv shows that deals involving Chinese companies dropped by 35% year on year to $125.4 billion in the first half, marking a ten-year low. Outbound M&A reached $7 billion, plunging by a third and hitting the lowest point since 2006.
Investment bankers believe that momentum in Southeast Asia is picking up due to consolidation in various sectors within local markets. Rohit Chatterji, co-head of M&A, Asia Pacific, at JPMorgan, stated that domestic consolidation in sectors such as financial institutions and technology, media, and telecoms (TMT) continues to drive activity in Southeast Asia.
According to Refinitiv data, the largest M&A transaction in the Asia Pacific this year originated from Southeast Asia. Vietnamese electric automaker VinFast announced in May its plans to list in the United States through a merger with a special purpose acquisition company (SPAC) called Black Spade Acquisition Co, valuing the company at $23 billion.
Chatterji noted that multinational companies reshaping their strategies, particularly in the oil and gas sector, and deciding to consolidate or divest certain assets in favor of national champions could also contribute to deal making in Southeast Asia.
Notable deals in the Asian pipeline include the sale of Fujitsu’s controlling stake worth $2.7 billion in Shinko Electric Industries, a stake sale in India’s Kotak Mahindra Bank’s general insurance company, and a stake sale in the Asia-focused Edotco group in Malaysia.
Bankers also anticipate a gradual return of private equity (PE) firms to the market. Refinitiv data reveals that PE-backed deals totaled $53 billion in the first half, down 37% compared to the previous year. However, PE firms currently hold a record-high deployable capital of $417 billion in the region, despite fundraising challenges, according to Preqin data.
Overall, strategic activities, asset sales by private equity firms, and take-private deals are expected to gain momentum in the second half of the year, according to Raghav Maliah, global vice chairman of investment banking at Goldman Sachs.
