Southeast Asia’s emerging middle classes drive M&A activity

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Early-stage mergers and acquisitions (M&A) activity in Asia-Pacific (APAC) so far this year shows 9.7% growth compared to the same period in 2015, according to the Deal Flow Predictor (DFP) report released by Intralinks Holdings.

The company, a global provider of software and services for managing M&A transactions, reports that the Southeast Asian region – including Singapore, Malaysia and Indonesia – is demonstrating a 44% increase in early-stage M&A activities, which means that there will be a spike in M&A activities in this region in six months’ time.

In general the APAC region – with the exception of Australia – remains the bright spot for early-stage M&A activity this year; in contrast to other regions such as North America (NA), Europe, the Middle East and Africa (EMEA) and Latin America (LATAM).

Despite the slowdown in Chinese economic growth, Intralinks DFP report forecasts that announced early-stage M&A activity over the next six months should continue to increase from 2015 levels in APAC as compared to the same period last year, with the following breakdown:

• Southeast Asia (Indonesia, Malaysia and Singapore), shows a 44% rise in early-stage M&A.
• North Asia (China, Hong Kong and South Korea) reports 29% growth in early-stage M&A.
• India is showing 22% growth.
• Japan is still growing, showing a 13% increase.
• Australia is slumping, with a 22% decrease in early-stage M&A growth.

“Southeast Asia is once again demonstrating its attractiveness as a destination for acquirers with the highest growth in early-stage M&A activity in the APAC region so far this year, driven by increased deal pipelines in the consumer and industrials sectors,” said Philip Whitchelo, vice president of strategy and product marketing at Intralinks.

“Southeast Asia has consistently shown its ability to ride out the economic bad news and market turbulence stemming from China, as dealmakers look for acquisitions to benefit from the regions’ fast-growing economies and growing middle class.”

Looking at early-stage M&A activity by sector across the APAC region, the industrials, telecommunications, media and technology (TMT) and healthcare sectors are showing the greatest increases in early-stage deal flow, whereas the materials and energy/power sectors are showing decline. The decline in the materials sector is reflective in the early-stage M&A downturn for Australia.

“Australia continues to experience a downturn due largely to the country’s M&A market’s historic dependency on the metals and mining, which has been hit hard by the collapse in commodity prices and weakening Chinese demand,” said Whitchelo.

“In Australia, the question now is what local dealmakers will do to encourage deal activity and make up for the shortfall.”

Other Intralinks DFP regional findings include:

North America:

Early-stage M&A activity in NA declined by 9.2% – the lowest level for over six-years.

Intralinks believe that a combination of factors such as a slowing US economy, changes to the interest rate, expected weakness in reported first quarter 2016 earnings by US companies and concerns over a deteriorating outlook for global economic growth, have weakened dealmakers’ confidence in initiating M&A transactions.

The tight race for the US presidential nomination and uncertainty over the outcome of the election itself is also a likely contributor to the decline in M&A activity in North America, as dealmakers adopt a risk-off attitude.

Europe, the Middle East and Africa:

Early-stage M&A activity in EMEA is up by 7.5%, second only to APAC.

Uncertainty over the forthcoming European Union (EU) membership referendum in the UK and a decline in Germany due to weakening Chinese demand and political concerns are slowing growth down. This is despite increasing levels of activity in the Benelux, Nordics, France, Italy and Spain.

Latin America:

Early-stage M&A declined by 9% due to the severe economic deterioration in Brazil, the continent’s largest economy.

The slump in commodity and oil prices, combined with a growing political crisis precipitated by the investigation into corruption at state-owned oil company Petrobras, and moves to impeach President Dilma Rousseff, are all causing an abrupt halt in M&A activity in Q1 2016.

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