The impact of the COVID-19 pandemic led to a faster decline in M&A activity across Asia Pacific countries and globally during Q3 2020 than the global financial crisis of 2007-2008, but APAC’s M&A scene rebounded faster, said EY recently when releasing results of its research on Q3 2020 M&A activity in the region.
M&A activity in many sectors across Asia Pacific has been resilient during the pandemic, EY pointed out, adding that sectors that have experienced growth in deal activity in the first nine months of 2020 (y-o-y) include telecommunications (19%), life sciences (9%) and power and utilities (9%).
The most active sectors in terms of M&A deal volume within Asia-Pacific continue to be technology, advanced manufacturing and consumer, according to the firm.
Notably, technology was one of the first sectors to rebound in Asia Pacific, with deal volume returning to 2019 levels, while continuing to drive M&A as part of the transformation agenda across industries, EY said.
- Global M&A volume fell by almost a quarter (23%) in the first half of 2020, with a 20% drop during 1Q20 in Asia-Pacific – two years ahead of the decline recorded during the GFC.
- For the first nine months of 2020, Asia-Pacific deal volume dropped by 8% year-on-year (y-o-y), while the decline in deal volume has been far more acute in the Americas (20% lower y-o-y) and EMEIA (Europe, Middle East, India, Africa; 15% lower y-o-y).
- M&A activity is rebounding more quickly for some countries and regions in Asia-Pacific than for others.
- For example, China’s deal volume rose to the 2019 monthly average level in March and April 2020 and has remained relatively steady for the second half of 2020.
Early movers and bold decision-makers achieve better results
Reviewing transactions in the immediate period following the GFC, EY finds that companies that were early movers and made bold choices on portfolio-transforming acquisitions saw a 26% increase in total shareholder return over the following decade, compared to those that didn’t.
In addition, companies that proactively reshaped their portfolios by taking steps to divest assets achieved 24% higher returns over the same period, EY noted.
The research also shows that companies that actively invested in their businesses through elevated capex and R&D following the GFC witnessed two-three times higher returns over those that took a more cautious approach, the firm added.
Industry and corporate reorganisation driving up APAC M&A value and volume
Asia-Pacific countries and regions have experienced the impact of the pandemic in different stages, EY pointed out.
While China’s M&A activity has already returned to pre-COVID-19 levels, Australia’s monthly deal volume has only begun to gradually recover in the most recent quarter, EY said.
Japan’s M&A activity was relatively unaffected in 1Q20 compared with most other regions in Asia-Pacific, but it has since begun to slow as a result of the COVID-19 pandemic-related restrictions and the resulting impact on business, the firm added.
While outbound activity has declined and many deals have been put on hold due to travel restrictions, mega domestic deals have driven Japan’s domestic M&A value to a 15-year high in 3Q20, according to the research.
Overall, Asia-Pacific saw high value deals reach US$392 billion in Q320, the highest third quarter on record — driven by domestic combinations and technology deals, EY said.
In particular, mega deals — deals more than US$10 billion — in China and Japan increased deal value in 3Q20, with a Chinese oil and gas consolidation representing the largest deal globally to date in 2020, EY noted.