Why M&A Activity in Asia Pacific could Fall this Year

Investors in the region recorded the worst performance in 2018

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As the global mergers and acquisitions market continues to struggle since its peak in 2015, M&A activity in the Asia-Pacific (APAC) region will be muted this year.

According to a report by Willis Towers Watson, a global advisory, broking and solutions company, and the Cass Business School in the UK, which looked at the completed M&A deals with a value of at least $100 million, 2018 was a tough year for deal makers, who recorded their worst annual performance since the financial crash in the year of 2008.

The fall

The report notes that acquirers in APAC recorded the worst annual performance across all regions last year with underperformance of 17 percentage points (pp) below the regional Morgan Stanley Capital International (MSCI) Index.

Last year saw 17 mega deals, valued at over $10 billion, which underperformed the market by 14.55pp. In Singapore alone, mergers and acquisition activity witnessed a decline of 30.7 per cent year-on-year basis to $66.2 billion in 2018, with the average closing deal sizes reaching $97.7 million, as per the findings of a report by Refinitiv, the Thomson Reuter’s financial and business risk arm.

“The ability to deliver anticipated benefits in terms of shareholder value for the buyer is at a ten-year low. On top of this, the market stress that characterized 2018 will persist, with rising regulatory uncertainty, ongoing trade and tariff negotiations, including Brexit talks and the US-China trade disputes, making it ever more challenging to deliver deals successfully,” says Jana Mercereau, head of corporate mergers and acquisitions for Great Britain, in a statement.

When it comes to cross-border deals, the report expects a global decline as well owing to regulatory constraints fuelled by an increasing trend towards protectionism. This, the report adds, will lead to a more defensive strategy of domestic consolidation, for which some nations will be better equipped. “The US domestic M&A market, for example, has traditionally shown itself to be very robust, so we expect volumes to remain stable as acquirers focus their firepower on domestic targets,” states the report, which also highlights how acquirers from Japan and Korea are eyeing the US for investment after the pullback in Chinese investment into America.

The future ahead

The report notes that although complex headwinds remain, the market will bottom out in 2019.

Mercereau says, “Political and economic uncertainty remain, impacting large cross-border deals and inevitably leading to some degree of volatility in terms of volume, but deal activity will prevail.”

“Technology disruption, changing consumer behaviour, the slowdown in the growth of emerging markets and record cash reserves will drive companies to get into the M&A market. With many targets looking more expensive than they were during previous M&A peaks, such as in 1999 during the dot-com boom and in 2008 before the global financial crash, there has never been a more important time for decision-makers to focus on target selection, diligence and execution before jumping into a deal if they are to give themselves the best chance of success,” the expert adds.