Thailand’s strong inbound activity stands out in Asia

Thailand saw a resurgence of inbound and domestic deal-making activity this year thanks robust economic performance, but the country will follow the global trend of a decline in mergers and acquisitions (M&A) by 2020, according to Baker McKenzie.

A highly notable M&A deal was Hong Kong-based FWD Group’s acquisition of Siam Commercial Bank Life Assurance in July. Valued at US$3 billion (90.8 billion baht), the transaction was touted as the largest insurance M&A deal in Southeast Asia.

FWD executives see Thailand as a promising insurance market because of its favourable macroeconomic environment and demographics.

“Thailand remains attractive to investors because of numerous opportunities in the market, as well as the ease of doing business in the country and openness to trade,” said Theppachol Kosol, a capital markets and securitisation partner at Baker McKenzie’s Bangkok office.

Thailand, alongside Indonesia and Vietnam, stood out in contrast to Asian neighbours as they saw strong inbound activity despite the region’s deal-making activity as a whole, which fell from a high in 2018.

Thailand will, however, follow the global trend of a decline in M&As by 2020. Baker and McKenzie’s annual report, titled “Global Transactions Forecast”, predicts total M&A transactions will drop from $10.8 billion in 2019 to $6.3 billion in 2020, a decline of 42%.

The same trend will apply to the country’s IPOs, as the report predicts a decrease from $1.3 billion in 2019 to $1.2 billion in 2020, a decline of 8% year-on-year.

The country can bounce back as Thailand’s strong economic conditions can support a rebound in deal-making by 2021-22. The report predicts total M&A transactions will rise to $8.9 billion by 2022, while total IPO transactions may reach $2.9 billion.

Global deal-making will experience a continued hangover in 2020, attributed to the ongoing worldwide economic uncertainty and the risk of a global recession, according to the report.

The report projects that M&A value will decline globally from $2.8 trillion in 2019 to $2.1 trillion in 2020. The report predicts a downward trend in IPO proceeds from an estimated $152 billion in 2019 to $116 billion, a 23% year-on-year drop.

For Asia-Pacific, the report predicts M&A activity will decline 18% from $634 billion this year to $529 billion in 2020, and IPO activity will likely continue its slower trend from this year, which is expected to amount to $36 billion, a 43% decline from 2018. IPO proceeds are predicted to dip even further to $33 billion in 2020.

The region’s weaker performance this year can be attributed to a reduction in Chinese outbound deals due to government restrictions on outward investment. On a broader scale, there is a loss of economic momentum across Asia-Pacific, linked to the slowdown in global demand.

“Make no mistake — deals are getting done, but the current slowdown is inevitable, considering the continued uncertainty around trade and regulation,” said Ai Ai Wong, chair of Baker McKenzie’s Global Transactional Group.

“We know around the world, there are many investors and companies with capital on the sidelines, waiting to move forward with domestic and cross-border deals.”

A range of upside and downside risks could impact the global economy and lead to a rise or drop in deal values and volumes that differ from the central transaction forecasts presented in this report.

To explore both upside and downside risks, the report looks at five different economic scenarios: trade war escalation, protracted euro-zone slowdown, US recession spreading globally, no-deal Brexit, and trade war fears fade.

Thailand remains attractive to investors because of numerous opportunities in the market. THEPPACHOL KOSOL Capital markets and securitisation partner, Baker McKenzie’s