The Asian marketplace may have been the first region affected by the COVID-19 pandemic, but it has also been one of the most resilient economies throughout the global crisis.
According to numerous reports and predictions, Asia is likely to be amongst the first territories to rebound after the pandemic when compared with North America and Europe. On closer inspection, mature markets like Australia are expected to become investment destinations.
Confident dealmakers anticipate positive growth in these regions because there’s opportunity for more immediate growth. An active middle-market, positive valuations and tech opportunities are some of the identified areas that are likely to attract M&A (mergers and acquisitions) deals in Asia-Pacific. As this region becomes a hotbed for new M&A activity, our latest blog investigates the points of interest for dealmakers and it how it will impact your operation.
Mergers in Asia: the Bigger Picture
Since the outbreak of the global pandemic, the M&A market has slowed, perhaps cautiously, as economic uncertainty seems to cast a long shadow of doubt over regions in North America and across Europe. In 2020, the volume and value of M&A deals recorded a decline, which caused hesitation in cross-border M&A deal-making. The global pandemic, which has been a disruptive force, caused many across the globe to streamline and focus intensely on operational stability. As markets gain new momentum, businesses owners are looking at how M&A’s can be used to accelerate this growth.
Traditionally, mergers were used as part of a business’ growth strategy. Recovering from the pandemic, mergers in Asia are now focussing how deal-making can exponentially accelerate growth. Doing business in East Asia, dealmakers are vigilant about challenges, such as geopolitics or the aftermath of the pandemic as a global health crisis.
In retrospect, the research reveals the following as key challenges:
- The ongoing global impact of COVID-19
- Unfavourable political conditions that might interrupt trade relations
- National laws, security, and regulations
Despite this, dealmakers estimate Asia’s numerous advantages as a key driver in facilitating cross-border M&A activity.
How Asian Transactions Differ
APAC (Asia-Pacific) transactions look differently from trends in more mature markets, such as North America and Europe. Executives that are hopeful to do business with Asia need to first understand what sets APAC apart from markets that operate more traditionally:
1) The popularity of small and medium sized transactions
Comparatively with markets across the globe, transactions in APAC territories are more commonly small or mid-sized (where the deal value is under $500 million), and this relates to both deal value and volume.
In emerging markets, this is explained where there are fewer large or established businesses. Instead, in APAC territories there tends to be a more vibrant economy focused on small, faster-growing firms. This means high-profile or blockbuster deals are uncommon. It will be key for executives to consider the integration of teams and corporate cultures to ensure successful transactions longer term.
2) Expansion over consolidation
It’s not uncommon in global markets to see deals that purchase multiple assets before consolidating them. This strategy in M&A focuses on sustainability and scalability evenly. Yet, in APAC territories, a higher share of buyers concentrate on new industries or outbound deals that can expand influence, rather than consolidate assets, often at the expense of consulting with teams that are widespread and in different territories, and navigating complex legal landscapes.
Even though M&A activity looks slowed, APAC regions record higher growth than competing markets from around the globe. The success, here, seems to suggest that consolidation is not the only effective strategy, but rather differentiated industries and growth into new ventures can create value. Where there is a troubled economy, merger deals outside of the buyer’s own industry has the potential to create more value, and access new markets and talent capabilities.
3) Weaker economies are opportunistic
During moments of uncertainty, it can seem like hesitation will slow down the volume of deals just as buyers become more nervous. But this doesn’t necessarily apply to APAC, where economic uncertainty has often been seen as a platform for opportunistic M&A deal-making. Certain studies have shown how slower economies – or those characterised by weaker growth – often generated greater value deals.
This pattern of opportunity, where economic conditions appear unfavourable, comes down to a matter of perception. During uncertainty, as assets are undervalued, valuations tend to lower. Additionally, there tends to be less competition for assets.
Weaker economies are advantageous for more veteran dealmakers, those who are seeking growth in adjacent industries, or dealmakers who are ‘always-on’. Tracking performance during economic downturns, reports show long-term rewards, especially where deals can outperform unfavourable conditions.
Conclusions from Asian mergers can reveal interesting lessons for those positioning M&A transactions for growth in the post pandemic rebound. In summary, APAC deals look very different from their Western counterparts.
- Mergers, typically, feature smaller or mid-sized firms (including minority deals)
- Expansions offer value-creation where consolidation doesn’t
- Weaker economies can be favourable for new deals
For those considering new strategies for business growth, M&A activity in the favourable Asian marketplace could help businesses reach new audiences and markets. But expanding globally can be complicated. Keeping people priorities in mind will help your company grow thoughtfully and will keep a focus on your most important assets: Your People. With the expert help of international HR specialists, your operation and your people could go farther than they have before.
Why IRIS HR Consulting
The successful delivery of an M&A deal relies on the alignment of people, policy, and process with business goals. When it comes to your people priorities, IRIS HR Consulting can help through our M&A support services and can support you in remaining compliant in new markets as you grow, all whilst keeping your company culture and employee experience upmost priority.
For more information on how we can help, get in touch today.