After a long lull in investment activity, M&A deals are picking up across Asia. Vandana Chatlani reports.
### A Shifting Landscape in Asia’s M&A Scene
In recent years, Asia has often been hailed as a region ripe with growth potential. However, the past several months have seen a significant slowdown in mergers and acquisitions (M&A). According to PwC’s analysis, in the first half of 2024, deal volumes and values in the Asia-Pacific decreased by 23% and 35%, respectively, when compared to the same period in 2023. This downturn has raised questions about the overall economic environment in the region.
Private equity activity has also seen a decline. Concerns over sluggish economic growth, high-interest rates, and escalating geopolitical tensions have made investors cautious. In 2023, Asian private equity funds raised a mere USD 100 billion—marking the lowest figure in a decade, as reported by Bain & Company.
### Signs of Recovery
However, hope is on the horizon. Jon Nair, a director of corporate and finance at Drew & Napier in Singapore, notes that while the start of 2024 saw muted M&A activity, there has been a noticeable uptick in preparatory steps taken by financial sponsors. “This suggests a warming up to the market as more favorable economic conditions and stable or falling interest rates are anticipated,” he explains, hinting that the latter half of the year may witness a resurgence in M&A deals.
In Japan, the trend looks even more promising. Ken Lebrun, a Tokyo-based corporate partner at Davis Polk, remarked that M&A activity has been vibrant in 2024, particularly among private equity transactions. Notably, ambitious firms such as Nidec and Dai-ichi Life are taking advantage of recent corporate governance reforms, embarking on unsolicited takeover offers that signal a robust investment climate.
### Domestic and International Opportunities
As investors adopt a wait-and-see approach, some Asian firms have proactively pursued opportunities both domestically and internationally, especially in expanding sectors like healthcare, technology, and infrastructure. For instance, in December 2023, Malaysian firm Gentari acquired a 49% stake in the Hai Long offshore wind project in Taiwan, showcasing a commitment to renewable energy and regional cooperation.
In another notable investment, Singapore’s Thomson Medical Group made headlines by purchasing FV Hospital in Ho Chi Minh City for USD 381.4 million, marking the largest hospital acquisition in Vietnam’s history. “This acquisition helps us access essential markets and talent, while paving the way for further growth in neighboring countries,” said Kiat Lim, the executive vice chairman of Thomson Medical.
Additionally, overseas investments have seen action, with Mirae Asset Financial Group from South Korea acquiring India’s Sharekhan brokerage, and Tokyo Gas purchasing Rockcliff Energy II in Texas. These moves reflect an expansive outlook among Asian investors eager to tap into growing markets.
### Trends in Domestic Consolidation
The trend of consolidation within countries has also gained momentum. Late last year, Amorepacific, a prominent South Korean beauty brand, increased its stake in COSRX—a hypoallergenic skincare brand—to over 93%. This consolidation exemplifies how companies are strengthening their footholds in competitive industries.
Elsewhere, Malaysian conglomerate Sime Darby sold its interest in Ramsay Sime Darby Health Care to Columbia Asia Healthcare for USD 1.2 billion. Meanwhile, Thailand’s WHA Corporation acquired a 50% stake in GC Logistics Company to enhance its logistics capabilities, further indicating a shift towards strategic consolidation within domestic markets.
### Regulatory Landscape and Market Conditions
The regulatory environment across Asia is critical for M&A activity, as shifting laws can either hinder or facilitate growth. Recent regulatory changes show a dual trend: while some countries relax foreign ownership restrictions, others tighten competition laws, necessitating a careful approach to due diligence.
Nair points out the importance of understanding antitrust laws in Southeast Asia. Countries like Malaysia are poised to amend their competition regulations, introducing a merger control regime that will impact transaction timelines and due diligence.
In Vietnam, reforms passed recently are expected to establish clearer land management practices, which could facilitate foreign investments in crucial sectors. These regulatory updates aim at providing greater stability and predictability, indispensable for long-term investment strategies.
### The Future of M&A in Asia
Interest in M&A within Asia looks promising as global sectors like energy, healthcare, and digital infrastructure continue to attract attention. Simon Cooke of Latham & Watkins noted an uptick in M&A activity particularly influenced by cash-rich strategic investors who are less reliant on external financing amidst evolving market conditions.
Moreover, the return of market auctions signifies a renewed vigor in deal-making, as seen with competitive bidding in transactions like Bora Pharmaceuticals’ acquisition of Upsher-Smith Labs.
Navigating the diverse regulatory frameworks across the region will be critical for success. Robust legal counsel, along with an understanding of market dynamics, will be essential in capitalizing on the opportunities that are beginning to resurface.
The evolving role of general counsel has considerably influenced M&A closures, with in-house legal teams becoming more integral to strategic discussions, ensuring risk is managed while driving corporate governance. This shift, alongside the pursuit of efficiency in deal-making, suggests a transformation in how Asian companies are approaching acquisitions.
As M&A activity picks up speed, the potential for growth remains distinctly promising across Asia. Companies focusing on energy transition, technological advancement, and healthcare are likely to pursue acquisitions actively, laying the groundwork for a vibrant investment landscape in the years to come.