EY: Strong M&A appetite and robust market confidence seen among SEA corporates
KUALA LUMPUR: After recordhigh deal intentions six months ago, mergers and acquisitions (M&A) outlook across Southeast Asia (SEA) has tempered slightly but confidence remains strong for the local M&A market.
This is according to the 18th EY Global Capital Confidence Barometer, a biannual survey of 2,500 executives across 43 countries, including 180 from SEA (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam).
It said, half (50 per cent) of SEA executives indicate that they plan on pursuing deals in the next 12 months, down from 56 per cent six months ago.
It also pointed out that confidence in the local M&A market remained strong with about three-quarters of SEA respondents (73 per cent) believing that it is improving, up from 53 per cent six months ago.
At the same time, nearly all (99 per cent) SEA executives expect corporate earnings to either improve or remain stable.
Despite the upbeat sentiments, it noted that SEA companies appear to experience challenges in completing deals: 83 per cent shared that they have failed to complete or canceled a planned acquisition in the past 12 months.
The reasons cited by SEA respondents include competition from other buyers or disagreement in price of valuation (54 per cent); concerns about competition or antitrust views (22 per cent) and intervention by activist investors (15 per cent).
In a press statement, EY Asean Transaction Advisory Services leader Vikram Chakravarty said: “While interest in conducting M&A in the region is very high in SEA, 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 highvalue assets in the region.”
As SEA companies look to prepare themselves for the future, EY pointed out that about three-quarters (72 per cent) view portfolio transformation as the top priority in their boardroom thinking.
It said, 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.
Cloud computing and big data (39 per cent), distributed ledger technology such as blockchain (29 per cent) and artificial intelligence and robotic process automation (21 per cent) also feature prominently on the board agenda of the SEA corporates, which look to improve overall decision-making and boost company performance through these technologies.
“As more companies adopt new technologies, 64 per cent of SEA respondents indicate that they are struggling to hire people with the right skillset,” it added.
Chakravarty noted: “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.”
Ernst & Young and Malaysia Transaction Advisory Services leader and partner George Koshy, commented: “Governments in the region are focused on building smart cities, improving transport infrastructure, using new technology and building digital ecosystems. With investments including those from China’s One Belt, One Road initiative and focus on the digital economy, as well as significant infrastructure budgets in the region, 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.”
Meanwhile, EY highlighted that the top investment destinations among SEA respondents are Malaysia, Singapore, Indonesia, Thailand and Vietnam. Power and utilities, oil and gas and industrials are the top sectors across SEA that look to make acquisitions. Automotive and transportation, technology and life sciences sectors are also hunting for assets as they address the impact digital disruption has on their business.