Domestic consolidation to drive Asia M&A revival during COVID-19 fallout

Domestic consolidation will likely drive the recovery of dealmaking in the Asia-Pacific region, bankers said, after the novel coronavirus outbreak sent the value of mergers and acquisitions in the first half of 2020 to a seven-year low.

The total region-wide deals value fell 20% from the same period a year earlier to $381.2 billion, data from Refinitiv showed. Globally, dealmaking plunged 43.5% to $1.16 trillion.

The virus, which has infected over 9.5 million people with COVID-19 and led to nearly half a million deaths globally, has caused demand to plummet across industries such as retail and travel, making it difficult for many firms to raise new capital, if to survive at all.

That has created opportunities for consolidation as bigger, better-positioned companies seek to acquire smaller or distressed peers at bargain prices, bankers said.

“We are just starting to see the emergence of what a potential post-COVID situation will look like,” said Greg Peirce, co-head of global M&A at UBS. “Larger corporations with stronger capital structures and good access to debt markets are well placed to look for opportunities.”

Ongoing examples include Singapore state investor Temasek Holdings supporting a $1.5 billion rights issue by money-losing rig builder Sembcorp Marine Ltd.

Parent Sembcorp Industries Ltd plans to reduce its 61% stake after the deal, meaning Temasek – which is also trying to buy control of the parent of another rig builder – could become the largest shareholder.

“There are domestic consolidation discussions underway in almost every market,” said Rohit Chatterji, co-head of Asia-Pacific M&A at JPMorgan.

China’s Zhejiang Geely Holding Group Co Ltd – Daimler AG’s largest stakeholder and owner of Volvo Cars – is set to take over automaker Chongqing Lifan Holdings Ltd, whose prolonged sales fall has been exacerbated by the impact of the virus, Reuters reported this month.

“We are seeing less appetite for venturing into new markets with risky new bets and more desire to get an asset down the street that you know you can run well, and where you can take lots of costs out,” said Chatterji. “That then makes the shareholders happy and it makes it easier to get financing to back the trade.”

PRIVATE EQUITY AT PLAY

Private equity firms have stayed busy, with 912 deals being the record number for a six-month period. By value, deals rose 4.2% to $41.9 billion.

The industry holds a record $382.1 billion in investable funds for the region, data from Preqin showed.

This month, a consortium led by KKR & Co Inc invested $650 million in Vietnamese property firm Vinhomes JSC as parent Vingroup JSC revamps businesses.

Buyout firms are also considering the potential to take listed companies private, betting valuations that dropped during the pandemic could eventually yield profitable re-listing or sale opportunities.

A consortium involving General Atlantic and Warburg Pincus LLC is set to take Chinese online classified advert firm 58.com Inc private in a deal valuing it at about $8.7 billion – the region’s largest private equity take-private deal so far this year.

To be sure, there is increased uncertainty for deals to close, bankers said, as buyers may seek bigger discounts to compensate for an economic outlook made less predictable by the virus.

“If there is a long wait before a widely available and effective vaccine for COVID-19 is found, then we will have to ask difficult questions about the prospects of sectors such as tourism, conferences & conventions, cruises, gaming, hospitality, aviation, and certain categories of leisure services,” said Choe Tse Wei, head of strategic advisory at DBS Bank.

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.