Survey: companies optimistic about M&A in Asia

Respondents to an M&A survey predict a higher level of activity in the next 18 months with China, India and Southeast Asia ranking high on both perceived opportunity and attendant risks.
M&A activity in the region is expected to grow, according to a survey conducted by the Economist Intelligence Unit with Marsh, Mercer and Kroll, but concerns remain about investments in China, India and Southeast Asia.

Confirming that the Asia-Pacific region is expected to best weather the global recessionary fears, 82% of respondents expect to put money to work in the region with 57% specifically targeting China, India and Southeast Asia. Cross-border deals are expected in energy, mining, financial services and power and utilities. Deals are expected to be concentrated in the mid-market segment, though this segment was not explicitly defined in terms of size in the survey.

Of the respondents, only 35% derived more than 10% of their revenues over the last 18 month period from acquisitions, but 58% expect this to be the case over the next 18 months, which suggests that for this set of respondents at least subprime nervousness or tighter funding markets are not factors affecting their decision-making. The results may, however, be skewed by the size of respondents. Respondents with annual revenues less than $500 million have higher expectations that M&A will drive revenue growth than those with revenues larger than $500 million. And as smaller firms are likely to pursue smaller targets, these deals could well continue to flourish.

Corroborating the now established trend of Asian acquirers moving out of their home markets via M&A, companies in the Asia-Pacific region expect to rely most heavily on an M&A growth strategy. The survey did not have any respondents managing private equity funds but corporate respondents still expect private equity to compete strongly for targets. But, not so obviously, respondents expect competition for target assets from their own home markets to be more fierce than competition from private equity or other financial buyers.

Despite the intention to grow via M&A, around 50% of respondents rated the Middle East, China, India and Southeast Asia as high risk, following only Africa in terms of relative ranking. Specific concerns with respect to China, India and Southeast Asia are problems with red tape/bureaucracy, intellectual property protection, insufficient financial recourse against the seller, and bribery and corruption.

Representatives from Marsh, Mercer and Kroll said in an exclusive interview with FinanceAsia that the findings highlight how critical it is that thorough due diligence on key acquisition variables is undertaken in order to minimise subsequent surprises.

Within the Asia-Pacific region, Australia, Japan and Korea are seen to be the safest investment destinations with the only notable risks cited by respondents being protectionist sentiment and organisational cultural differences.

Respondents cited enhancement of shareholder value, geographic expansion, acquisition of new customer base and products and services, and market expansion as key factors driving their M&A strategies over the next 18 months. Acquiring research and development capabilities was another driver of deals especially among respondents in the information technology and media sectors.

The survey collated results from 670 respondents with 30% of them coming from the Asia-Pacific, 50% from Europe and North America, and the rest from the Middle East, Africa and Latin America. More than 50% of respondents worked at companies with annual revenues of more than $500 million.
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