Market Spotlight: Tech & telecom sectors lead as SEA witnesses increased PE activity

By Robert Torio, Content Marketing Manager, APAC

In the first half of 2021, Southeast Asia's M&A deal value of US$85bn across 482 deals eclipsed the US$31bn accounting for 406 deals during the same period last year. Technology and telecommunications were the best performing sectors in the region, comprising over three quarters of the region’s deal activity combined.

The technology sector recorded 143 deals with an aggregate value of US$47bn, while telecommunications recorded 10 deals valued at US$19bn. Consumer and industrial sectors also contributed to the increase in deals as both these sectors have grown by 90% and 80%, respectively.

Looking at these data points, our panel of market experts discussed current and future trends in dealmaking across Southeast Asia at a webinar we recently hosted with Mergermarket. Sumit Punwani, a Mergers & Acquisitions Partner at KPMG, led the session with the following panelists:

• Mallika Gadepalli, Director of Strategy, PropertyGuru Group
• Khun Thom Peunchob, Partner, Navis Capital Partners
• Jamie McLaren, Partner, Herbert Smith Freehills
• Desmond Chua, Head of APAC, Datasite

Dry powder infuses liquidity as banks cut back lending

Based on the online poll during the webinar, as many as 42% of dealmakers consider high levels of private equity activity as the key factor driving M&A in the market in 2021. It’s followed by corporate carve-outs, divestitures, and restructurings that 28% of the audience deemed is the most important factor, while 16% felt low interest rates will support dealmaking, and 11% gave their votes to high valuations and multiples would propel M&A activity. 

Gadepalli felt that PE is a new route to public markets that was not always the most obvious or the most prevalent in the region as it is linked to the US where the investor base is deep. “Tech startups can aspire to both the growth funding available in public markets as well as the prestige that comes from being a listed company. So, I think we can expect exciting times in Southeast Asia with this new approach.”

Peunchob added, “There's a lot of dry powder in the market as banks cut back on their lending and become more conservative. So there's less liquidity in the market. which represents more opportunity for private equity funding to come in to provide capital.”

Strategy paves the way to power digitization

More than 30% of the audience polled consider strategy, identifying, and screening targets remains the most important factor for success in M&A. More than a fourth believe that conducting due diligence remotely will be very important to the success of the M&A process as will be negotiating and closing deals quickly and virtually (voted by 22%). 

Punwani highlighted that nearly 50% of the audience felt going virtual was the way ahead in M&A as shown by the collective votes polled for answers two and three. “Thirty-one percent of the people have still gone for the traditional way that the most important thing is strategy. First, you need to make sure that strategies are aligned and the right partners are found to do deals with. Deal structuring and virtual asset marketing come later.”

Remote due diligence is key in times of travel restrictions

Over half of attendees believe that due diligence will be the most enhanced by technology and digitization, especially during this pandemic. According to Chua, there has been a significant increase in the amount of content being uploaded on Datasite’s SaaS platform by as much as 110% and that is due to the increased need for remote due diligence. He added that content related to Environment Social and Corporate Governance (ESG) is also increasing. 

“In a survey that we've conducted earlier in the year, it's very interesting to note that 2/3 of M&A professionals state that ESG will climb higher on the due diligence checklist in 2021 and more than 50% of them have actually stated that concerns surrounding ESG, if left unchecked, will be the biggest factor that could derail deals this year.”

Punwani said, “ESG due diligence may just get a lot more robust as we go into the next 12 to 18 months at least and it will be quite interesting to see how that pans out.”