In investing, some things change; some stay the same

OVER the last few years, a lot has changed in the deal landscape involving mergers and acquisitions (M&A), private equity (PE) and venture capital (VC) investments in Singapore, Malaysia and Indonesia. As we have been working in and observing such transactions in the region in recent years, it is interesting to take a critical look at the key trends that have emerged - some changes were dramatic, some incremental and some things remain unchanged.

In our Transaction Trail Report - an annual analysis of transactions in the region - the reported value of US$70 billion worth of M&A, PE/VC investments and initial public offerings (IPOs) in 2013 nearly doubled to US$136 billion by 2018 and stabilised at close to US$100 billion in 2019.

Taking a closer look at the key trends:

WHAT HAS REMAINED THE SAME?

It may be easier to start with the few aspects that have not changed much in recent years.

Composition of M&A transactions

Key drivers

Sector composition

WHAT HAS CHANGED?

The changes to deal-making and investing over the last few years can be mostly attributed to one factor - technology. Technology has been one trend that connects the dots across several other trends we have observed in the regional deal landscape.

This is not surprising considering how South-east Asians have gone from four in five people not having Internet connectivity to becoming the most engaged mobile Internet users in the world (360 million Internet users). Of these, 90 per cent them connect primarily through their mobile phones.

While M&A transactions have witnessed several technology sector transactions in recent years, a more notable impact was seen in the PE/VC investment space in the region. In 2019, transaction value increased to nearly US$10 billion, from US$3.2 billion in 2013. A significant proportion of this increase has been from VC investments with an increased focus on new economy sectors, primarily technology and tech-enabled segments. While South-east Asia still lags behind the US, China and India on alternative fund investments into new economy sectors, the share of the technology sector in PE/VC investments has been increasing. It rose from 8 per cent in 2013 to 52 per cent in 2019 in Singapore, and from 3 per cent in 2015 to 51 per cent in 2019 in Indonesia.

Some of the key trends we have seen in the regional transaction landscape include:

Unclear differentiators

IPOs and exits

Valuation impact

Looking ahead

In terms of the way forward for the transaction scene in the region, political and regulatory changes - including trade wars, political uncertainties etc - could have a negative impact.

However, there are several positive aspects, such as increased technology adoption, availability of capital and resources, increase in population, economic growth, etc that continue to provide a boost to transactions.

In addition, South-east Asia is expected to enter a Golden Age of rising affluence with a significant focus on Internet and tech sectors - especially considering the region's strong demographics along with growing income, rapid urbanisation, an increase in the population size of young adults and the region's ability to better weather global crises and volatility.

In summary, we continue to expect robust activity, which may come with significant disruptions and more changes to the landscape, over the next decade.

It is therefore critical to continue to focus on a business-friendly regulatory regime, with a significant emphasis on corporate governance.