M&A activity in Asia-Pacific at 10-year high

Singapore

COMPANIES continued to leverage on the Asia-Pacific region as a growth driver in the first half of 2015, leading to a surge in merger and acquisition deals to US$561.8 billion during the period, the highest deal value in over a decade.

According to the latest findings by accounting firm Ernst & Young, the record-high figure is a 55 per cent increase from the same period last year, and despite a 9 per cent decrease in deal volume from 6,159 deals in H1 2014 to 5,621 deals.

"Following an incredibly strong 2014, the first half of 2015 continues to be very good for M&A globally. In Asia-Pacific, we are seeing an increase in deal value across almost all sectors," said John Hope, Asia-Pacific transaction advisory services leader at Ernst and Young.

Companies, however, are not doing deals for deal's sake, he added, as the decrease in the deal volume suggests a high level of discipline in selecting the right deals.

In terms of value, M&A activities involving companies from mainland China topped the chart, recording 1,393 deals worth US$247.6 billion, an 88 per cent year-on-year increase. The figure includes inbound activities worth US$25 billion, or a 211 per cent increase compared to the same period last year.

In terms of deal volume, however, Japan led the region with 1,500 deals worth a total of US$79.4 billion. Other active markets were Australia (688 deals worth US$54.1 billion), India (645 deals worth US$27.8 billion), South Korea (572 deals worth US$66.3 billion) and Hong Kong (281 deals worth US$97.8 billion).

Attributing the frenetic pace of deal activity to the recent period of volatility, which has led corporates to streamline their capital allocation, define their focus, and build scale across their core businesses, EY's Asean M&A leader, Luke Pais, expects the momentum to continue into 2016.

Differentiated by industry, technology proved to be the most robust sector, recording 1,562 deals worth US$89.6 billion, or 18 per cent and 90 per cent year-on-year increases, respectively.

The professional services sector came in second in terms of deal volume, with 522 deals worth US$19.9 billion, while the financial services sector took the third spot in terms of deal volume, witnessing 368 deals worth US$46.6 billion.

"Technology will be an exciting space, with lots of deal activity over the next few years. The impact of technology is felt across industries, which see existing business models being disrupted and re-engineered. There is a lot of capital available to technology companies; and existing brick and mortar businesses are also actively embracing technology for growth," said Mr Pais.

Apart from acquisitions, companies are also looking to improve portfolio performance and shareholder returns through divestments, according to an earlier EY study, "Global Corporate Divestment", in which nearly two-thirds of executives in Asia-Pacific expect the number of strategic sellers to increase in 2015.

Coupled with favourable government policies, such as the Asean Economic Community's plans to create an integrated economy among the 10 member countries, M&A activities in Asia are expected to stay abuzz for the rest of the year and beyond, says Mr Hope.