Following the COVID-19 pandemic, mergers and acquisitions (M&A) are expected to crawl back to life in the next 12 months.
According to EY Global Capital Confidence Barometer (CCB), around 75 per cent respondents in Southeast Asia and another 74 per cent in the global market believe there will be increased competition to buy assets in the year ahead. The majority of these people believe that competition will come from private capital players.
Besides, the majority of the companies are assuming a recovery in the medium-term with 47 per cent of the respondents in Southeast Asia indicating that they will actively pursue M&A over the next 12 months.
“Firms have learnt from past recessions where M&A activity remained muted for several years where the winners were those that took bold actions to avoid the ‘zone of regret’,” said Vikram Chakravarty, EY Asean Transaction Advisory Services Leader during the EY Global CCB briefing.
“When we came out through the global financial crisis, it took a while for M&A to come back…between three and four years. The companies that (are) doing it in 12 to 24 months, actually can come out better,” said Chakravarty.
M&A activities signal investor sentiments – how they feel about the overall industry. “M&A is only one part but it signals a larger commitment to make an investment,” he added.
So far, almost all businesses are experiencing the impact of COVID -19 outbreak and almost all respondents expect that the pandemic will result in a decline in profitability.
A few sectors such as technology and pharmaceuticals may not be adversely impacted.
However, the pandemic is likely to lead to the transformation of industries with changes in business operations and models. Going forward, all businesses may ramp up focus on digitization and robotics.
EY’s survey showed that the deep-rooted intentions to digitize and automate remain strong in the long-term. “This may well be an opportune time for firms to consider M&A to acquire digital firms where valuations have tumbled,” Chakravarty added.
But the crisis may hasten the decline in some other sectors such as physical retail or those related to oil and gas. Further, the impact will be worse on tourism and several businesses may be prompted to shut shop. The exceptions, however, will be those with large capital support.
“Some industries will really need to fundamentally rethink what they’re going to do, or must restructure their businesses,” he said.