Strategic M&A activity will be a key driver of the post-pandemic recovery right across Asia Pacific, as companies more aggressively move to acquire technology and skills, while in some cases divesting to reduce their regulatory burdens, said multinational law firm Baker McKenzie recently when releasing results of a survey of 800 senior executives in the region.
- Executives across Asia Pacific are sending a clear signal that deal making will be integral to their renewal and growth strategies over the course of this year and into 2022 — 77% of respondents expect M&A in their industry to increase in the year ahead, including 42% that say there will a major uptick in transactions.
- In terms of industries, the tech sector was far and away the most bullish, with more than three quarters (78%) predicting transactions would increase markedly over the next 12 months.
- When asked what the key drivers of their own deal activity would be, more than half of respondents (57%) cited acquiring new technology and associated expertise, which jumped to 74% of healthcare companies, 85% of financial institutions, and a full 92% of technology, media and telecoms companies.
- This signals major consolidation across the tech sector, as fast growth companies snap up rival firms and complementary platforms, and move into new markets.
- Accessing new markets also ranked highly among respondent considerations (40%). Many business leaders recognize that to survive in the current market, organizations must expand their regional and global footprints, despite travel and other restrictions.
Andrew Martin, Managing Principal, Baker McKenzie Wong & Leow, Singapore, said that: “While overall economic outlook does affect investor outlook, factors such as regulation and access to new markets — and therefore demand — will also shape the deal landscape,” said Andrew Martin, Managing Principal, Baker McKenzie Wong & Leow, Singapore. “The power of financial investors, including private equity and venture capital, infra and credit funds, as well as family offices, will also inform the deal climate in the region."
There is also more distressed investment opportunities expected across the region, with 63% of consumer goods and retail companies citing obsolete sales and distribution models as the biggest driver of distress in that sector, the law firm pointed out.
Regulatory landscape shift
Meanwhile, across every industry, regulatory enforcement is now expected to be one of the leading factors driving possible insolvencies, the firm said.
Companies in Indonesia and Thailand are most worried about increased regulatory enforcement, while companies in India are most concerned about new regulations coming in, the firm added.
“The regulatory landscape has shifted considerably since Q2 2020,” said Kate Jefferson, Asia Pacific M&A Steering Committee Member and Partner, Sydney. “Many regulators now have an expanded set of “tools” at their disposal to hold companies accountable for non-compliance with increasingly onerous regulations, and the reach of the measures being implemented by regulators is unprecedented.
Although often substantial, fines and penalties may be small in comparison to the actual cost for a business of a regulatory breach, she observed.
More serious consequences of breach include significant reputational harm, asset divestment orders and class action proceedings, all of which can quickly lead to insolvency, she added.