The last few years have provided slim pickings for merger and acquisition specialists in APAC. Market data from BCG indicates that deal value was down by 5% across the region in the first nine months of last year – a period during which global deal value rose by 10% – while deal volume was down 13% on the same period in 2023.
But there was encouragement to be found in BCG’s analysis of average deal closing times, which revealed that the time taken to close small and medium-sized deals had fallen across the region. Such deals now close more quickly in Asia than in either Europe or North America.
Another positive development was an increase in cross-border mergers and acquisitions, with more than three-quarters of the deals announced in the first three quarters of 2024 transacted with an entity outside the region.
Notable recent deals include Singapore Telecommunications and investment company KKR’s agreement to invest SG$1.75bn in ST Telemedia Global Data Centres.
“In-market consolidation has been a driver of M&A activity, illustrated by the merger of Indonesia-based mobile network operators XL Axiata and Smartfren and IHH Healthcare’s acquisition of Island Hospital in Malaysia,” explains Ralf Pilarczyk, Head of M&A and Diversified Industries M&A ASEAN at Standard Chartered.
The energy transition has prompted deals such as sustainable infrastructure investor Actis’s investment in the Terra Solar integrated renewables and energy storage project in the Philippines. “Another notable key driver of deal activity is continued strong investor appetite for digital infrastructure such as telecoms towers, fibre and data centres,” adds Pilarczyk. “EBITDA multiples in recent data centre transactions have often exceeded 30x, enabling leading players to raise equity at highly attractive terms.”
At regional level, China and India have seen some slowdown – driven by high USD interest rates – while Japan’s M&A market remains a bright spot explains John Corrin, ANZ Head of Corporate Finance, International. “We expect ongoing growth in M&A activity in Japan and South-East Asia, driven by increasing corporate governance and ‘China-plus-one’ strategies,” he says. “For the rest of the region, upturns will be fuelled by shifting global economic trade winds. Technology is playing a crucial role in driving portfolio expansion and investment interest across the region and another key area is private healthcare, driven by demand linked to lifestyle factors associated with higher income populations.”
Elizabeth Lin, Head of Corporate Finance and Advisory at UOB agrees that positive demographics – such as a burgeoning middle class and rapid urbanisation – have contributed to M&A interest in the region.
“In many cases, especially for strategic acquirers, diversification and connectivity are driving forces,” she says. “These acquirers are keen to buy strategic assets to help them expand into new markets or into adjacent industries. Private equity and infrastructure funds also have significant dry powder and global funds have continued to raise large Asia-focused funds to deploy into investments.”
Energy has been one of the most interesting industrial sectors of late, with Gulf Energy Development Public Company and Intouch Holdings Public Company announcing a strategic amalgamation that will lead to the establishment of a newly listed public limited company in the second quarter of 2025.
The acquisition of Pavilion Energy by Shell Eastern Trading is expected to be completed by the end of the current quarter. According to Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director, the deal will strengthen Shell’s leadership position in LNG, bringing material volumes and additional flexibility into its global portfolio.
A spokesperson for the energy giant says the acquisition of Pavilion Energy is in line with the priorities put forward in Shell’s capital markets day and energy transition strategy to deliver disciplined growth of its integrated gas business.
“Global demand for LNG is estimated to rise by more than 50% by 2040,” she adds. “The acquisition will enable us to capture value from these new volumes that add to the scale and flexibility of our global LNG portfolio.”
Looking ahead, M&A activity is forecast to rebound, fuelled by multiple factors including interest rate cuts, government initiatives (for example, financial services investment is now on the Indonesian government’s ‘priority investment’ list), lower valuations, opportunistic corporates, venture capitalists and private equity programme funds with large reserves of dry powder, economic reforms and market liberalisation suggests Hikaru Okada, APAC Head of Deal Advisory at KPMG.
“But while the immediate outlook remains optimistic, deal sizes are likely to remain lower than historical levels and include more complex structures to support deal financing and downside protection for all parties,” he says. “Successful dealmakers will be those that are prepared, act on the right opportunities and execute on their strategic objectives to deliver sustained outcomes through a well-considered value creation plan.”
The M&A market is running hot and a strong forward-looking pipeline of opportunities is being driven by many Japanese companies being undervalued and cash-rich with low price-to-book ratios. Increased investor activism prompted by recent market volatility is putting some listed companies under renewed pressure to focus on the cost of capital, which is driving significant carve-outs and divestments in large, listed corporates.
That is the view of Jiak See Ng, Deloitte Asia Pacific’s Strategy, Risk & Transactions Leader, who refers to an increase of more than 60% in foreign direct investments since the beginning of current financial year.
“India is expected to maintain strong earnings momentum due to falling rates and robust services export growth,” she says. “Foreign inflows have lowered due to high equity valuations, which have been bolstered by strong investments from domestic investors. This could eventually result in a market correction, but there is likely a floor as the long-term investment case remains highly compelling.”
India stands out as one of the leading destinations for ‘friendshoring’ in Asia, potentially boosting foreign direct investment and driving growth in the manufacturing sector.
Elsewhere, the technology cycle boom continues to support Taiwanese companies as key beneficiaries of the AI infrastructure build-out. Korean equities continue to face challenges but could eventually participate, as the cyclical technology cycle picks up.
Jiak notes that India is also diversifying its investment strategy as Indian companies try to access new markets and geographies across all continents. “Investor optimism is likely to improve in the second half of the year as India’s private consumption shows resilience with global commodity prices stabilising and domestic inflation softening.”
Transportation and infrastructure are also attracting high value investments as a result of a combination of government investment, high capex and logistics development. The manufacturing sector is expected to spur M&A activity with deal growth expected in auto components and electric vehicles. “The energy sector transition is currently a major driver of M&A across Asia Pacific, as companies actively rebalance their portfolios to accelerate their journey toward net zero emissions,” agrees Jiak. “This trend is expected to persist, influencing deal making in the region.”
Companies are particularly focused on expanding their portfolios in solar, wind and other green energy technologies, reflecting a broader commitment to sustainable energy sources.
The life sciences sector is also witnessing substantial growth in M&A activity. The medical landscape in Asia Pacific is expanding as global firms increasingly conduct clinical trials and manufacturing closer to patients. Additionally, digital health models and generative AI technologies are gaining traction across Asian markets. “Investments in disruptive technologies have become fundamental to recent M&A and venture activities,” says Jiak. “Notably, sectors such as space exploration and quantum computing are emerging as new frontiers for commercial investment, attracting significant interest from various stakeholders.”
Funding for M&A transactions tends to be highly bespoke according to the specific deal structure, industry and sponsors. Lin reckons there is generally excellent appetite across the various pools of debt and equity capital (commercial and investment banks, private and public equity, credit and infrastructure funds, development banks, asset managers) to fund Asian M&A transactions.
“With regard to bank lending, there remains visibly strong and deep liquidity in the Asian bank lending market,” she adds. “We believe growth opportunities in the region will remain strong.”
Following the Fed interest rate cuts, Standard Chartered observed a notable increase in deal activity by private equity firms, supported by access to leverage at attractive terms. Transactions included investment firm EQT acquiring Singapore property website PropertyGuru, while Affinity Equity Partner acquired Indonesia-based sweet manufacturer Yupi. “We also observe bank appetite to support sellers by way of providing stapled financing (a financing package arranged by the seller and its financial advisers which is offered to potential purchasers, usually as part of an auction process), most notably KKR launching the sale process for Philippines private hospital group Metro Pacific Health and offering a stapled financing package from local banks to bidders,” says Pilarczyk.
According to Corrin, financial institutions continue to have strong appetite to fund M&A activities. “We have seen more banks broaden their lending focus to better service large conglomerates and pursue more complex transactions, such as structured deals, M&A financing and financial sponsor-driven deals,” he says.
Stephen Bates, Head of Deal Advisory in Singapore KPMG agrees that financial institutions in Asia continue to have an appetite for funding M&A transactions, albeit with a degree of caution. “While the global economic landscape has presented challenges, the region’s long-term growth potential and increasing strategic importance have kept M&A activity relatively robust and the overall economic outlook in Asia – particularly in major economies like China and India – remains positive,” he says.
Strong GDP growth, rising disposable incomes and increasing urbanisation continue to drive demand for capital. While regulatory hurdles can sometimes hinder deal-making, many Asian countries have implemented reforms to streamline processes and attract foreign investment.
However, not all regulatory changes are designed to make deal-making easier. For example, the Malaysia Competition Commission’s proposed amendment of its merger control policies is likely to result in compulsory notifications for mergers above a certain deal value threshold.
Mergers that may result in a substantial lessening of competition can be prohibited under the proposed regime, so larger deals involving significant concentration of market share will be subject to closer scrutiny.
Singapore’s Significant Investments Review Act was introduced in January 2024 and came into effect in March. It affects entities that are deemed critical to Singapore’s national security – which are subject to mandatory ministerial approvals and special administrative orders – although the impact of the act is likely to be limited to deals involving entities that operate in critical functions of the nation’s security.
Interest rate trends significantly impact borrowing costs and overall deal activity. While rising interest rates can dampen deal enthusiasm, many Asian central banks have adopted a more cautious approach to monetary policy, providing some relief. “Financial institutions’ risk appetite varies based on factors like market volatility, geopolitical tensions and credit quality,” concludes Bates. “While some may be more conservative, others are willing to take calculated risks, especially in high growth sectors.”
