In the midst of economic uncertainty and volatility, dealmakers are taking a more cautious stance in valuations and dealmaking, leading to fewer big-ticket deals in the Asia Pacific region.
The geography saw a reduction in headline-grabbing deals with mid-market transactions ( between $10 million and $250 million) dominating M&A activity.
For the year to date in 2016, mid-market deals accounted for 58 per cent of APAC deal volume and 22 per cent of overall value. As such, they have consistently contributed to more than half the deal count since 2011, when compared to global totals of 32 per cent by volume and 13 per cent by value.
Baker Tilly International’s thought leadership publication Dealmakers: Mid-market M&A in Asia-Pacific 2016, produced in collaboration with M&A intelligence provider Mergermarket, suggests that trends and opportunities shaping the mid-market space in Asia-Pacific will see strong growth in 2017.
The Asia Pacific mid-market M&A space has grown its share of the world’s mid-market activity by 11 per cent over the last five years, from 28 per cent in 2011 to 39 per cent in 2015. In 2015, the Asia-Pacific mid-market saw 2,405 deals worth $163.9 billion, registering an 85.4 per cent increase in value and a 71.9 per cent increase in volume as compared to 2011.
Activity in YTD 2016 is following a similar trend having seen 1,147 mid-market deals worth $78.5 billion.
Sectors driving Asia-Pacific mid-market M&A from 2011 to 2016 (to date) include industrials and chemicals (22% of total deal volume); technology, media and telecommunications (17%) and consumer (11%).
In Singapore, Siong Yoong Mun, Partner, Baker Tilly TFW Singapore, says, “Clients are interested in carry trades from locations like Singapore or Japan into higher yield plays across mainly education, manufacturing and construction. These industries represent either defensive positions or targets with attractive valuations.”
Masafumi Takeno, Managing Director, ClifixFAS Co Ltd, contributed: “Japanese companies in the mid-market, regardless of what industry, are waiting for opportunities to expand in Asia Pacific. For the M&A market in Japan, cases of manufacturing and real estate acquisitions by Asian investors are becoming noticeable. Additionally, both buyers and targets these days are often multinational.”
Asia Pacific dealflow
In 2015, Asia-Pacific posted 763 cross-border mid-market deals worth $52.6 billion, accounting for 32% of total mid-market volume and 32% of value in the region. In 2016 so far, the region has seen 364 cross-border mid-market deals worth $25.8 billion, or 32% in volume terms and 33% by value.
Jerry Ding, Partner, Baker Tilly China, commented: “The main driver of [China’s offshore] transactions is Chinese organisations’ penchant for seeking growth through overseas expansion opportunities, particularly in the areas of high technology, healthcare and TMT, however any company with good IP will prove lucrative and attractive.”
Meanwhile, in Australasia, Michael Sonego, Partner, Baker Tilly Pitcher Partners, shares that Australia continues to be a proactive market for both domestic and international investors. Sonego observed: “We are increasingly receiving intelligence from banks and other sources that show key focus areas for all buyers is mid-market deals, rather than transformational bulge bracket deals.”
On India, where he spearheads dealmaking in South Asia, Neha Paul, National Leader – Corporate Finance Advisory Services, Baker Tilly DHC remarks, “Recent FDI norms and the much awaited GST will perhaps be a game changer and will further accelerate the deal activity from an inbound investment, domestic M&A and PE perspective. There is strong interest from domestic players in buying out stressed assets. Investors are looking at this as an opportunity to buy quality assets which could yield high returns.”
A survey of South Korea’s M&A market suggests that the market is seeing mostly inbound and outbound domestic-activity, with a strong focus on real estate, leisure and related industries.