BEIJING: Strong Asia-Pacific merger and acquisition (M&A) activity next year depends on improving macroeconomic conditions, after 2022 deals were held at eight-year lows by financing costs, weak equity markets and China’s pandemic controls, dealmakers say.
Deals are set to revive slowly as companies and funds watch out for easier macroeconomic conditions, they said. Hopes that Chinese companies will return to the market have strengthened.
“We expect more certainty around interest rates, inflation, geopolitics and the commodities cycle to emerge from the second quarter onwards,” said Raghav Maliah, Hong Kong-based global vice-chairman of Goldman Sachs’s investment banking division.
“This will provide a more stable backdrop for the return to more robust activity,” said Maliah.
Deals involving Asia-Pacific companies from Jan 1 to Dec 15 were valued at US$1 trillion (RM4.4 trillion), down 41% from 2021’s full-year number and set to be the lowest since 2014, preliminary Refinitiv data showed. Deals in private equity, a major M&A driver, amounted to US$139bil (RM614bil) as of Dec 15, down 52% on all of 2021.
Globally, record rises in US interest rates coupled with the Russia-Ukraine war, which sparked a sell-off in commodities and public equity markets, have battered transactions. Buyers are struggling to obtain leverage financing, which is especially crucial for buyout deals, dealmakers said.
“Banks’ ability to write large checks is still severely hampered,” said Samson Lo, co-head of Asia-Pacific M&A at UBS. “A couple of factors for it to happen are that interest rates have to start normalising and equity markets need to be better.”
He said large transactions would be hard to put together in the first half of 2023 due to valuations and the difficulty in obtaining suitable financing.
The sale of a minority stake in Vietnamese education firm Nguyen Hoang Group has been paused because bids fell short of the valuation expectation of US$1bil (RM4.4bil), Reuters reported this month.
Toshiba Corp, however, said on Dec 16 it would aim to reach a deal with potential partners as soon as possible in what would be a US$16bil (RM70.7bil) buyout of the Japanese conglomerate, as sources said the group’s preferred bidder was moving closer to securing financing.
India stood out as the only major Asia-Pacific market to record growth, with total M&A deal value so far up 33% on 2021, at US$164bil (RM725bil). A big contribution to that was a US$40bil (RM176.8bil) acquisition by India’s largest private lender, HDFC Bank, of its biggest shareholder in the country’s biggest-ever deal.
An improvement in Asian equity capital market volumes from three-year lows will also help M&A deals, dealmakers said.
The value of deals in China, Asia’s biggest M&A market, fell to a nine-year low of US$352.7bil (RM1.56 trillion), down 39%, after the country’s severe Covid-19 restrictions, which abruptly ended earlier this month, stymied economic growth in the world’s second-largest economy.
As the country eases pandemic measures, bankers and lawyers expect pent-up demand to emerge for local transactions and lead to a recovery in cross-border deals.
Thomas Chou, co-head of the Asia private equity group at law firm Morrison Foerster, said reopening and recovery would be accompanied by a notable pick-up in acquisitions and expansions in China’s consumer, manufacturing, materials and industrial sectors.
Chinese companies are also showing renewed interest in Australian targets, including natural resources and agricultural assets, amid hopes that a diplomatic thaw between the two countries will yield more deals next year.
Amit Khattar, Asia-Pacific head of Deutsche Bank’s investment bank unit, said there was also a substantial appetite for global deals with China links in the logistics, renewables transition, electric vehicles, and high-end manufacturing sectors. Interest had dimmed for pure China deals, however, he said.
Elsewhere in the region, takeovers of listed companies in Australia, activist-driven transactions in Japan, and sales of digital infrastructure assets in South-East Asia would also drive deals next year, bankers said. — Reuters
