By Robert Torio, Content Marketing Manager, APAC
Part 2 of a two-part blog series featuring insights from the Deal Drivers: Southeast Asia & India – M&A in H1 2020 and beyond webinar hosted by Datasite and Mergermarket
According to the Deal Drivers: Southeast Asia and India 2020 report published by Datasite and Mergermarket, there were 196 deals announced in Q1, down 8% from the 213 reported in Q4 2019. However, deal value jumped by more than 45% from USD 31.6bn to USD 46bn. The top sectors that dominated in Q1 by deal value include consumer, financial services, financial services, energy mining & utilities, and construction.
At our recent live virtual briefing hosted by Riddhima Saxena, Emerging Markets Editor at Mergermarket, she led the discussion about sectors, trends, cross-border activity, and strategies that will drive deals in Southeast Asia and India with our panelists:
The report also indicated that financial services deals were the dominant theme and it featured in the top three sectors since 2019. While the industrials sector had dominated the deals chart previously, it has shrunk with manufacturing practically coming to a halt at the start of 2020. H1 2020 saw sectors such as consumer, real estate, financial services and energy dominate instead.
Tan said, “It is vey important to draw a distinction between the sectors that have been severely or less impacted by COVID-19. For the sectors that have seen deal activity at the start of the year, we expect that to continue in the second half. We see growth in sectors such as technology, e-commerce, biotech, pharmaceuticals, and logistics. They have largely been unimpacted and will be more important in a post-pandemic world.
“In terms of sectors that have been hugely impacted such as aviation, tourism and hospitality, we are likely to see M&A activity increasing as countries in Southeast Asia come out of lockdown and government support ceases. Also, well capitalized players and private equity players will be making a play for assets that have been left vulnerable by the crisis.”
Meanwhile, Shah is more cautiously optimistic about the second half of the year for India. “I would expect to see varying levels of M&A activity in four different buckets in India: distressed companies (airlines, retail, tourism, entertainment, retail); strong, fundamentally capable companies who have experienced a boost in activity on account of the pandemic (digital services, fintech, healthcare, pharma, IT, e-commerce); sectors either positively or negatively impacted by the current regulatory and legal environment in the country (telecom); and disposal of non-core assets by companies on the verge of financial stress.”
Arora added, “As a headline theme in India you will probably see domestic consolidation being the primary driver. Private equity would clearly emerge as one of the biggest buyers of assets in the next 12 to 18 months. Within various sectors, deal activity in life sciences has seen some good traction in the last couple of months and I think that traction will continue. You will also see deal activity in the API space, formulations, and to some extent capital raising in the biosimilar space.
“In financial services, you would see insurance and NBFCs as two key segments from a deal traction standpoint. Manufacturing would be largely about carve outs – non-core assets would be carved out and they could be gobbled up by buyout funds as there would be limited interested from the global players. We’ve also seen good traction in the renewables and infrastructure spaces in India, which is expected to continue. In the emerging space new Tech space like Ed-Tech, Consumer tech and health tech – these are 3 buckets where investors are chasing assets and good platforms from where they can deploy capital.”
Cross-border deals that has largely been dominated by North Asian buyers has slowed down. There has been a steady growth of intra-regional M&A activity in Southeast Asia led by the Thai corporates in sectors such as financial services, oil and gas, cement, and consumer. Meanwhile, private equity (PE) activity has been impacted since the start of the year. However, this changed with India’s Reliance Group raising around US$15bn from a consortium of global PEs and Facebook.
India and Southeast Asia, which are largely target markets, have seen a decline in inbound deals. Singapore and Malaysia are the two mature markets in the region that saw around 41% and 85% drop in deal value, respectively, when to compared to H1 2019. Thailand witnessed a 60% increase over the same period while India had a slow start to the year with nearly 50% of the deals being government lead disinvestments.
Goel explained, “M&A volumes have been low because corporates have focused on operational issues and securing business continuity especially in the second quarter. More efforts were also being made in capital raisings and in that sense capital markets have been fairly constructive especially in the last two months where we have seen high ECM and DCM volumes.
“We are now seeing M&A becoming more active and there has been a revival of the dialogue, however the growth in M&A volume will not be uniform across the region because countries are at different stages of handling the COVID-19 crisis.”
Saxena noted, “Intraregional deals in the first quarter were scarce, with just two transactions featuring in the top 20 overall. No major intraregional transactions were struck in Q2. Inbound activity into the region also decreased. For instance, Indian companies were targets in just 39 transactions involving international bidders in Q2 2020, down 13% drop from the previous quarter.”
Chua observed that the traditional buying audience clamped up because they had to ensure their house was in order and re-evaluate the so-called valuations of potential acquisition targets. “Datasite facilitates 10,000 deals annually worldwide and we saw a steep drop in the first 3 months of the year. However, as the COVID-19 crisis stabilized in the Southeast Asia and India regions, we observe a huge uptick in deal activity in the latter half of Q2, especially with the 20% year-on-year increase in estimates in the month of June. The consensus among our clients is that the sentiment is very positive, and they are looking forward to the second half of the year.”
Get more in-depth insights shared by our expert panelists about these topics by watching the webinar recording on-demand via the link below.