Singapore bucks regional M&A downtrend with 154% jump in H1 deal value

Singapore

MERGERS and acquisitions (M&A) activity in most South-east Asian countries bucked the overall downtrend in the Asia-Pacific (Apac) ex-Japan for the first half this year, with Singapore recording US$17.1 billion in deals - a 154 per cent jump from a year ago.

Real estate behemoth CapitaLand's US$8.1 billion acquisition of Ascendas-Singbridge from Temasek accounted for almost half the city-state's total and remains the largest deal in Apac ex-Japan for the first six months this year.

"Political uncertainties and clouds over economic growth have impacted equity and bond markets, spurring investors to increase their allocations into the real estate sector," Riccardo Ghia, research editor of Apac at Mergermarket, told The Business Times on Tuesday.

"Singapore is seen as a safer haven compared to Hong Kong, which is going through a period of political instability due to a combination of domestic factors and international forces," he added.

Overall, M&A activity in Apac ex-Japan slowed to levels unseen since 2013, amid an escalating US-China trade and technology war, the report said. The region generated 1,525 deals valued at US$241 billion in H1 2019, as its global market share shrank to 13.4 per cent from 18.6 per cent last year.

Following a disappointing first quarter, deal-making further decelerated in Q2 within the region, the report noted. China and Hong Kong together accounted for a little more than half of the total regional deal value. Specifically, China's deal value plunged 44.7 per cent, while Hong Kong posted a more modest 11.1 per cent decrease over the same period, largely thanks to Hanergy Thin Film being taken private in a deal worth some US$6.8 billion.

Meanwhile in South-east Asia, Indonesia recorded US$6.6 billion worth of deals representing an 88.6 per cent increase, and Malaysia posted US$3.7 billion, or 16.4 per cent up from a year ago.

The Philippines clocked in at US$2.2 billion, a 398.2 per cent or almost five-times jump from last year, making it the fastest-growing Apac market. This was largely driven by the flagship Build, Build, Build campaign of President Rodrigo Duterte, which is spurring consolidation among cement players, the report said. The largest deal in the country was San Miguel Corporation's acquisition of an 85.7 per cent stake in Holcim Philippines for about US$1.9 billion.

Mr Ghia said infrastructure investments related to the China-led One Belt One Road plan and/or individual national governments' policies also contributed to South-east Asia's strong M&A activity.

That said, he pointed out that "Thailand remains a sore spot in the South-east Asia region, as dealmaking activity slid by 64.7 per cent year-on-year in value to US$3.1 billion amid growing political uncertainty, caused by the ongoing power struggle between pro-military allies and opposition parties".

Separately, outbound activity plunged 25 per cent to US$41.2 billion across 192 deals, despite the US$10.2 billion takeover of US-based liquid petroleum products pipeline operator, Buckeye Partner, by Australia's institutional investment manager, IFM Investors.

By sectors, all industries posted a decrease in both value and volumes, with the exception of the consumer sector, which recorded a 7.6 per cent year on year increase in value to US$23.2 billion across 144 deals. Meanwhile, the technology sector fell by 66 per cent in value to US$22.9 billion across 174 deals.

Mr Ghia added that the tech war between the US and China is threatening to disrupt the supply chain, creating a "digital iron curtain" between countries using US technologies, and those that adopt Chinese ones.

According to the report, the outlook for private equity (PE) buyouts also appears bleak, and is expected to worsen in the near future, as PE fundraising activity fell dramatically in China.

PE buyouts amounted to just US$28.8 billion across 160 deals in first half this year - a steep decline from 263 deals worth US$67.1 billion last year. Private equity exits activity was also weak, recording 82 deals worth US$28.25 billion, compared to 129 deals valued at US$73.4 billion a year prior. However, the launch of a Nasdaq-style tech board on the Shanghai Stock Exchange in June could revive exit plans in the second half of the year for investment funds that invested in Chinese tech companies, the report said.