Asia-Pacific M&A hit highest value on record fueled by technological innovation and ESG agendas
By Digital News Asia September 14, 2021
- Tech, advanced manufacturing & mobility sectors topped regional deal activity
- M&A targeting tech firms hit record in Asia-Pacific, deal value up 88% Y-on-Y
Asia-Pacific mergers and acquisitions (M&A) activity hit an all-time high in the first six months of 2021 as markets begin to revive from the Covid-19 pandemic. M&A values targeting the region increased to US$535 billion (RM2.2 trillion), up from US$284 billion (RM1.18 trillion) in the same period last year, according to new analysis by EY.
Despite many parts of the global economy still operating under restrictions, cross-border transactions have also staged an impressive comeback, increasing by almost three times year-on-year to US$159 billion.
[RM1 = US$0.241]
There were more than 50 deals over US$1 billion announced targeting Asia-Pacific so far this year, increasing by almost five times year-on-year. The technology sector continues to lead deal activity in the region, accounting for almost one-third (28%) of the cumulative deal value in the first half of 2021. M&A targeting technology companies hit a record high in the region, with deal value increasing by 88% year-on-year. The advanced manufacturing and mobility sectors were the subsequent most active in terms of deal activity.
Yew-Poh Mak, EY Asia-Pacific Strategy and Transactions Leader, says:
“The pandemic has propelled innovation and significant business transformation across all industries. In the tech sphere, M&A activity in Asia-Pacific has been fueled by the emergence of next-gen technological applications, such as industrial Internet of Things (IoT), AI, electric vehicles and sustainable, fuel-efficient technologies. For advanced manufacturers who pursued M&A, the primary activity has been bolt-on acquisitions in the same sector designed to increase market share or transformative deals that would enable a more sustainable business model.”
Mak adds: “Consolidation is a means for businesses to combine and complement their strengths to differentiate themselves and, in the technology sector, to focus more on a target’s business resilience, digital technology alignment, and to gain market share.”
Outbound value in Asia-Pacific rebounded to pre-COVID-19 levels to US$85 billion. The inbound value reached a historical high at US$74 billion, jumping by more than 170% compared to the pre-COVID-19 pandemic average.
Like Asia-Pacific, the Americas and Europe have witnessed record growth, with transaction value totaling US$1.6 trillion – almost double the average seen in the five years prior to the pandemic – and US$653 billion, respectively.
Preman Menon (pic), Malaysia Strategy and Transactions Leader, Ernst & Young PLT says: “We expect to see M&A trends in Malaysia mirroring the trends seen globally, albeit lagging behind the recent pace seen in the larger markets. The Covid-19 pandemic has accelerated the need for Malaysian businesses to review and realign their strategy and formulate their transformation journeys for the future.
While plans and growth trajectory vary by sector, we observe common themes centering around transformation, agility and sustainable growth. In line with this, we believe that M&A activity will feature as companies look to acquire technology and skillsets, favoring ‘buy’ versus ‘build’.”
ESG-related acquisitions drive global deal activity
In addition, M&A activity in the renewable energy sector almost tripled globally in the first half of 2021, compared to the same period last year, as CEOs look to meet ambitious environmental targets through transactions. The value of these environmental, social and governance (ESG)-related deals has jumped from US$35.7 billion in 1H 2020 to US$96.5 billion in 1H 2021.
Andrea Guerzoni, EY Global Vice Chair – Strategy and Transactions says: “ESG is increasingly becoming an integral part of investment decisions, with many CEOs and investors committing to adapt their current and future deal strategies with sustainability and long-term value creation at the forefront.”
Asia-Pacific M&A deal appetite at highest level since 2010
Looking forward, the appetite for deals in Asia-Pacific is at its highest level since 2010, with almost 90% of companies in the region indicating that they are on the lookout for cross-border acquisitions in the next 12 months, according to the EY Capital Confidence Barometer. 65% globally are considering M&A within the same time frame.
Mak says: “Digitalization remains paramount in Asia-Pacific and globally. Companies are actively putting customer expectations at the center of their plans. One aspect that arose from the Covid-19 pandemic has been the splintering of value chains, both upstream to suppliers and downstream to customers due to the repeated lockdowns. Any acquisition of emerging technology and innovative solutions will enable companies to scale up their existing technological capabilities, accelerate the digitalization of the customer journey and to transform business processes.
“Identifying potential areas of growth to make acquisitions and making the difficult decision to divest underperforming assets are both firmly on the corporate agenda in the Asia-Pacific and worldwide.”