Outbound investments to drive SEA M&As in 2016

Singapore

SOUTH-EAST Asia merger and acquisition (M&A) activity this year will continue to be driven by outbound investment, given that the limited domestic opportunities will push countries to look outside of the region.

Singapore will lead this trend, with a particular focus on the United States, the United Kingdom and India, said a Mergermarket report.

The report released on Thursday, which tracks M&A trends in the region, named the "most targeted" sectors as technology, media and telecommunications, business services and leisure; each of these sectors has registered steady outbound M&A growth in the last three years.

In 2015, M&A activity targeting South-east Asia - both inbound and domestic - experienced a four-year low in terms of deal value and count; 383 deals worth US$47.5 billion were sealed, 57 fewer deals and a 14.2 per cent drop in value compared to 2014.

In terms of intra-regional M&As, the value plunged 60.2 per cent year on year to US$21.3 billion, with 49 fewer deals.

But the region's inbound M&As benefited from the currency depreciation within the region, particularly in the Malaysian ringgit and Indonesian rupiah. Deal value reached a record high of US$25.5 billion.

Greater China accounted for the lion's share - 35 per cent - of inbound activity, with US$9.2 billion in deals announced last year, the report said.

It added that China overtook the US and Japan to become the largest contributor to South-east Asian M&As, with US$6.1 billion in deals reaching a new record in deal-making.

As for outbound South-east Asian M&As in 2015, 141 deals worth US$51.6 billion were recorded. This was 5.3 per cent lower in value than 2014's historical peak of 179 deals worth US$54.5 billion. Still, the report said, outbound M&As had the second highest deal value on record.

The report noted that there was a re-allocation of investments, with 2014's leader, real estate, experiencing a large fall in value, down to just US$8 million from US$12.8 billion, with 12 fewer deals.

Technology, on the other hand, ballooned to US$34.9 billion, increasing five times by value over the 2014 figure, even though it had six fewer deals.

Vietnam and the Philippines registered a significant growth in M&A activity despite the slump experienced elsewhere in South-east Asia.

This, as Vietnam's low-inflation environment and high demand for exports sped up its economic recovery, resulting in a historical high for M&A activity of 42 deals worth US$3.1 billion.

Over in the Philippines, M&A activity rose 27.8 per cent in value to US$5.1 billion compared to 2014, as a result of sustained fixed investment, public spending and strong private consumption.

Meanwhile, traditional key players in the region such as Thailand, Malaysia, Singapore and Indonesia faced significant challenges due to depreciating emerging-market currencies and slow growth of regional economies, said the report.

As result of the significant challenges facing domestic investment, Singapore shifted its focus to countries outside South-east Asia last year, with 99 deals worth US$45.5 billion made, hitting an all-time high outbound value.

The US was the Republic's investment destination of choice, with US$35.8 billion in transactions accounting for 78.8 per cent of total outbound M&A, said Mergermarket.

Singapore also had its eye on India and the UK, which attracted US$1.3 billion and US$2.2 billion in deals respectively.

With its attention turned outward, Singapore's domestic M&A took a drop of 50.7 per cent to US$6.2 billion, compared to 2014.

In the region, the report said M&A targeting Indonesia and Malaysia fell by 51.7 per cent and 39.3 per cent compared to 2014, attracting just US$2.8 billion and US$7.1 billion in deals respectively.