What makes Southeast Asian M&As thrive amidst testing times

600 deals are being done.

Southeast Asian global investment market has seen a surge in the past few years as 600 deals are being transacted just in Asia-Pac alone. These investments are mainly concentrated in Singapore, Malaysia & Indonesia also known as the Golden Triangle. Investors from home are the most active in M&A as two thirds of deals are done by Southeast Asians. Inter-region is 63% in volume and 61% in value.

In a conference Deloitte organised, Mark Pacitti, Global Leader-Corporate Finance Advisory Deloitte LLP, revealed that this impressive growth could be attributed to the rapid growth in the ‘emerging markets’ that ensure maximum returns. He also said that most companies look for capturing IP, Brands, Technologies and Resources. Southeast Asia meets most of these requirements which makes it a viable place for investors.

But the rosy data does not come without a flaw. In the past few years we witnessed a decreasing trend in M&A activities from Europe. There has been a 30% decrease in value and 33% decrease in acquisition. The main reason for slow growth in European investment in Asia is due to the low confidence of European buyers in the Southeast Asian economy. Moreover Europeans target technology, brands and maturity of the market and would entre such investment despite facing slow growth in them.

USA and China do not invest in SEA despite having strong investments in other parts of the world. According to Ronald Chao, Leader of Financial Advisory Services of Deloitte, China only does foreign investment for energy. Its main investment is in oil, minerals and other resources which are not offered in SEA. China relies on the fact that SEA would invest in them and not the other way round. 

The United States, on the other hand, invests heavily in technology and in the Asian region they focus on dealing with Japan, China and Korea according to Kevan Flanigan, National Managing Director- Deloitte Corporate Finance LLC. “They use financial assistance from the golden triangle but that is limited as such services are offered in China too, hence limiting their investment in SEA. Apart from that USA focusses on doing business with south and Latin America for its resources,” he said.

But these buyers are just a few of the investors who face challenges in the Southeast Asia markets. According to Jeff Pirie, Executive Director- Corporate Finance Advisory Deloitte Southeast Asia, the region experiences various forms of turmoil ranging from political to its economic environment, which may worry investors. Rules and regulations drastically change with the shifting of government and this affects the economy adversely. Business practice issues also scare investors as suppliers fail to deliver on time and thus face many supply side issues. Investors also get the jitters from the fact that SEA is prone to (liquidity Driven) asset bubble.

The good news is that amidst the challenges SEA offers many opportunities for its investors. SEA has galloping growth and is predicted to continue expanding rapidly over the years. It also offers high returns and is deemed one of the best when it comes to returns on equity. SEA acts as one concentrated market that leads to the profitability on investment.