SEA executives expectant on future M&As as economy recovers

EXECUTIVES in the Southeast Asia (SEA) region are emboldened to drive internal transformation (via digital and cost reduction) and their mergers and acquisitions (M&A), based on a recent EY Global Capital Confidence Barometer (CCB23).

The survey revealed some strong optimism among the surveyed business executives as they expect a recovery in profitability to pre-pandemic levels by 2022 (59%) or even (12%).

Respondents also believe that the key areas where their organisations have outperformed during the pandemic include operational stability (66%), digital transformation (54%) and engagement with local communities (53%).

Conversely, innovation of new products and services (54%) scored the highest in underperformance.

“While respondents may feel that good progress has been made, they need to continue to sharpen their strategic focus, embrace the power of digital transformation, actively engage their customers and stakeholders and positively contribute to the communities in which they operate,” said EY global strategy leader and EY Asean Strategy and transactions leader Vikram Chakravarty.

The survey also showed that the SEA region is ready to generate more M&A opportunities in the near-to-medium term.

Specifically, with their optimism for business recovery, over half of corporates (56%) are looking to actively pursue M&A in the next 12 months.

About half (46%) of corporates expect that SEA will generate the most growth prospects and opportunities for their organization in the next three years. Other geographic regions that are expected to generate growth opportunities are India (18%), Japan (15%) and Oceania (11%).

Meanwhile, the top investment destinations (cross-border and domestic) among SEA corporates are India, Singapore, Japan, Thailand and China, with technology, advanced manufacturing, power and utilities, consumer and financial services making it to the top the list of the most acquisitive sectors.

Additionally, an overwhelming 95% of respondents indicate that they are targeting cross-border deals.

Driving this acquisition appetite are concerns about tariffs and trade flows (24%); strengthening of technology, talent and new capabilities (24%) and growth into adjacent business sectors or activities (22%).

“SEA is an attractive region from a medium- to long-term growth perspective. Hence, it is no surprise that corporates are favouring the region,” said EY Asean M&A and private equity leader conditions for M&A Luke Pais.

“Furthermore, conditions for M&A, including low interest rates, accommodative capital markets and abundant private capital, remain highly supportive. Companies that are bold coming out of a crisis tend to generate far greater value over the long term,” he added.

SEA corporates are also seeking to sharpen their strategic focus and are open to partnerships in order to succeed.

Respondents to the survey shared that their main strategic considerations currently are to identify and invest in talent (24%), divest underperforming assets or businesses (22%), and make strategic acquisitions (13%). Key constraints to effective strategy implementation include a lack of leading technology (20%), cost and capital constraints (16%) and a lack of external advice (14%).

A majority (83%) of respondents are currently undergoing a significant business and technology transformation programmes.

“We know from history that companies that transformed and transacted after a crisis came out stronger, relative to their competitors. Hence, companies in SEA must act boldly and embrace digital transformation and M&A as a way to win in the post-pandemic world,” Chakravarty concluded. – April 7, 2021

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