Historically, global M&A activities have been hit by major financial crises. The dot-com bubble (2001), the global financial crisis (GFC, 2008), and the economic slowdown caused by trade hits (2015) resulted in 24-48% lower overall M&A deal values in the year following the crises.
In volume terms, M&A deals have swayed in both directions. It fell 22% year-on-year following the dotcom bubble but, by and large, remained flat post-GFC and the 2015 trade hit, show data compiled in DealStreetAsia’s latest report M&A in SE Asia: What’s next?.
Impact of COVID-19 on M&A in SE Asia
In Southeast Asia, the M&A landscape has historically been more sensitive to regional economic tremors than global events.
In COVID-marred 2020, there was a 17% year-on-year fall in M&A deal value in the region, showed data from Duff & Phelps, which tracked deals in Singapore, Malaysia, and Indonesia, where the bulk of all M&A transactions in the region take place.
Both Singapore and Indonesia saw a steep fall — 23% and 34% respectively — in M&A deal volume last year.
Deal value for Singapore fell 18% year-on-year to $59.2 billion, while in Indonesia, the overall deal value rose 35% from 2019 to $9.7 billion due to several large deals.
In contrast, in Malaysia, the number of deals was flat, while overall deal value fell 41% to $5.3 billion.
This time it’s different
The 17% fall in M&A deal value in Southeast Asia in 2020, is small compared with the global decline of 24% — a sign of the region’s resilience, according to Duff & Phelps.
Moreover, the COVID-19 crisis was rather unique. Being a health crisis rather than a financial tremor, M&A activity may not witness a downward trajectory in 2021.
Among the sectors leading the M&A rebound could be tech, which traditionally contributes only a small portion of M&A deals. However, increasingly more tech investors are exploring M&As as a means to exit. This is particularly true for Indonesia, which has a vibrant startup scene.
Tech has also been a favoured sector among PE and VC firms — some 66% of deal value went to the tech sector in 2020. Data from Cento shows that the top three sectors that net the lion’s share of tech investments in the region were multi-verticals, retail, and payments.
Outlook for M&As in 2021
Experts we spoke for the report expect M&A deals to pick up this year, defying the trend of a slump in the years following a crisis. Tailwinds include: overall buoyancy in public markets, political change in the U.S. filtering through, and the emergence of SPACs.
An EY Capital Confidence Barometer survey on more than 2,400 C-suite executives globally last month showed that 53% of survey respondents in APAC expect their companies to pursue M&A activities in the next 12 months vs 49% of global participants.
“The increase in late-stage capital allows startups (not only unicorns) to become more acquisitive. Also initiatives like Southeast Asia’s 1B fresh capital will lead to more M&A activity,” said Michael Lints, partner at Golden Gate Ventures whose interview appears in the report. His firm projects that M&A exits will grow from 108 in 2020 to more than double in 2023. This will add to M&A volumes.
Meanwhile, SPACs will create new competition for PE funds in general, this will be good for companies in the short-term (say in the next 1-2 years), according to Mark White, VP, SEA Technology M&A from Corum Group Ltd. “Longer-term, the public markets will come off their current highs, and only the best of the best SPAC-quisitions will be able to credibly sustain their lofty valuations. I would hate to be a shareholder in an also-ran SPAC post-acquisition,” added White.
Other highlights of this report, available exclusively to DealStreetAsia – Research & Analytics subscribers, include:
- M&A landscape in SE Asia amid COVID-19.
- How tech deals will propel M&As.
- Outlook for Southeast Asian M&As in 2021.
- Insider Insights from top executives.
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