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Analysing the return of the South East Asian market

COVID-19 slowed down South-East Asian economies, but confidence is returning. Nicholas Neveling reports on deal culture and diversity within the region’s deal markets

Corporate Financier edition imageSixty years ago this July, Thailand, the Philippines and the Federation of Malaya (now Malaysia) united to form the Association of Southeast Asia. Six years later, it became the Association of Southeast Asian Nations (ASEAN). As well as seeking to address security concerns, the union has kept an eye on economic and trade development among its member states – Brunei, Cambodia, Singapore, Malaysia, Myanmar, Vietnam, Indonesia, the Philippines, Thailand and Laos. Today, there are two-thirds of a billion people in those 10 countries, and the various economies are very disparate.

As has been the case for M&A markets around the world, the past 12 months have proven challenging for South-East Asian dealmakers. The region may have contained the first COVID-19 wave relatively successfully in 2020, but it was still buffeted by the global impact of the virus. Pandemic uncertainty has also taken its toll on stock markets and GDP. The S&P Southeast Asia 40 index was 8.4% down for the year to 22 June, and the International Monetary Fund has downgraded its forecasts for 2021 growth in the five largest developing economies in the region from 5.2% to 4.9%. This comes after the region saw GDP contract by 4.2% in 2020 as a result of the pandemic, as well as growing political and trade tensions between the US and China.

In the face of these macroeconomic headwinds, deal activity dropped. According to Mergermarket, year-on-year South-East Asian M&A activity tailed off in Q1 2021, with deal value down 44% to $14.3bn, and deal count down 21.6%. This followed a 24.4% year-on-year fall in deal value in 2020 to $51.5bn, and 19.2% drop in deal count.

Karl Fredericks, director at Thinkat Advisory, a boutique corporate finance advisory firm based in Kuala Lumpur, explains the impact on the Malaysian market. “Activity really slowed,” he says. “The inability to travel made it difficult for investors to build up a feel for the operations of targets, and to conduct meaningful due diligence.”

Reasons to be cheerful

Despite the challenges of the past year, the outlook for M&A activity is upbeat, with corporate and private equity dealmakers optimistic that the region is well-positioned to rebound from COVID-19 dislocation.

As a whole, its growth has outperformed global metrics, says Ng Jiak See, financial advisory leader for Deloitte Asia Pacific. “In the five years before COVID-19, ASEAN GDP growth exceeded global GDP growth by a consistent 2% margin every year. This is driven by its favourable demographics, rising income level and the region’s position as one of the world’s manufacturing hubs,” she explains.

It is hoped that these long-term fundamentals will help to get the region back on track. According to the latest EY Global Capital Confidence Barometer, 86% of South-East Asian executives expect revenues to return to pre-pandemic levels by 2022, and 56% say they will be actively pursuing M&A over the next 12 months.

“There is light at the end of the tunnel. Conventional wisdom is that we will see a significant resurgence as pent-up demand comes to a head, as those who paused their transactions in light of COVID-19 seek to re-market their assets as the global economy recovers,” adds Jiak See. She expects a surge in technology deals this year – consumer and services deals outpaced them initially.

Big cross-border tech deals are also happening. The most notable was US special purpose acquisition company (SPAC) Altimeter Growth’s $39.6bn acquisition of the ride-hailing platform Grab. Founded in Malaysia, the company moved its headquarters to Singapore and now operates across South-East Asia.

In Indonesia, technology unicorns Tokopedia, an e-commerce platform, and Gojek, a payments and ride-hailing provider, completed an $18bn merger in May to form GoTo Group, which plans to list in Jakarta and New York. The deal is still subject to antitrust clearance, but if successful will be the largest M&A in Indonesian history.

South-East Asia’s burgeoning technology industry, heritage in manufacturing and growing population make it an attractive option for overseas investors seeking growth beyond their home markets.

“The ASEAN region is a story of population growth, productivity increases in our manufacturing sector and rising incomes, which drive tertiary sectors,” Jiak See continues. “I would expect this region to transition to higher value-added and technical sectors over time, including a modernisation of manufacturing.”

Multinational diversity

Navigating South-East Asia’s M&A market requires an understanding of the key drivers underpinning markets, as well as the nuances and dynamics that drive deal activity.

Fredericks observes: “It’s a very diverse market. You can’t look at it as one bloc because each country is completely different, with its own economic drivers. Malaysia is strong in manufacturing and Indonesia is strong in agriculture. Thailand has developed into a regional automotive hub, while Singapore is services oriented, with a focus on finance and technology.”

Jiak See concurs, describing dealmaking in South-East Asia as “unique” and “idiosyncratic”.

Large government-linked corporates and sovereign wealth funds (SWFs), such as GIC and Temasek in Singapore, are influential and active players in the market, as are corporates and state-owned enterprises from neighbouring jurisdictions including China, Japan and Korea. In Q1 2021, outbound transaction value from the region increased 8% year-on-year according to Mergermarket.

Those SWFs are significant drivers of outbound activity. In November 2020, GIC partnered with European private equity firm Cinven to acquire specialist insurance and reinsurance broker Miller from Willis Towers Watson. London-based Miller places more than £2bn worth of premiums every year, and it will now look to expand geographically as an independent business with a South-East Asian investor.

Jiak See adds that the private equity industry has developed strongly, and it is a sophisticated presence in the region. Global houses and homegrown buy-out firms are both active and invest across a variety of scenarios. “The unique aspect here is that the mid-market is an extremely fertile segment, with private equity funds providing both growth capital to support overseas expansion or buy-outs to assist with succession planning and transitioning,” she says.

Indeed, even though overall M&A activity in the region slipped in Q1 2021, Mergermarket figures show that private equity buy-out activity posted its highest quarterly total since Q4 2019.

Jiak See says that one of the most distinctive features of M&A is the strong presence of family-held conglomerates. “Typically, such businesses are controlled by the second or third generation, who have institutionalised the business and are investing with the same rigour that we see of those in private equity houses,” she says. “They are seeking business to support their growing platform, although focus on verticals may not be as tight as for a large corporate, so long as there are expected and realistic synergies to be found.”

Tight group

The unique composition of this market is reflected in the way the advisory community operates, and its deal culture. Fredericks says that although the advisory community is smaller than in more developed markets, such as Europe and the US, there are global players – such as the investment banks and Big Four professional services firms – with influential franchises. These international groups are active domestically, but they are especially influential on inbound and intra-regional transactions. Local markets are also well-served by single country-focused boutique firms. Fredericks’ firm, Thinkat, is a member of the Corporate Finance Faculty in order to help it make even more international connections.

For Jiak See, the advisory community is close-knit, but competitive, and characterised by a strong commitment and loyalty to clients. This sense of connection is as important as exceptional technical capability in South-East Asia, as so many vendors and buyers retain close personal links to businesses operating there.

“For many of my clients, their business or wealth was created in their lifetime, either by them, their parents or grandparents. The subject of the transaction is close to their hearts,” Jiak See says. “So, above all, what helps my team and me execute transactions is empathy. Empathy for my client’s position, empathy for my client’s attachment to their business, empathy for views that may seem personal to a corporate, and the ability to then advise authentically and help them hold their course through a turbulent time.”


ICAEW has a network of offices in South-East Asia with a presence in Singapore, Vietnam, Indonesia and Malaysia. Singapore- based Mark Billington, ICAEW’s managing director international, explains its activities in the region.

“We help around 2,500 members across the region. The network is there to serve as the front door of ICAEW in the South-East Asia region. It will be involved in everything from working with local education providers and holding events to helping members who have lost their certificates. We support members through their career, recently including provision of modules on technology and data analytics. We also launched a Data Analytics Certification. It recognises the demand from employers for data analytics and data science skills.

”South-East Asia is a fragmented, diverse jurisdiction, so our work does vary from country to country. In a sophisticated market, such as Singapore, we’ll lead discussions on technical issues and business trends, but in less-developed markets, like Cambodia, the focus is on capacity building and helping local bodies to improve professional standards.

“We want to identify talent, grow our membership, and promote the reputation and influence of the ICAEW brand and the Institute’s qualification as an international kitemark that’s high quality and portable. South-East Asia is a fast-growing market and the workforce has a real appetite for an international qualification recognised in multiple countries. There’s definitely a greater understanding of the value of taking on a professional qualification after tertiary education.

“One thing that emerged from the pandemic is the idea of qualifications without borders. We used to see students from South-East Asia come to the UK to train and take their ACA, but now we can offer examinations in different countries and online. Accounting is a popular career here. There are 170,000 undergraduates and 500,000 people working in accountancy in South-East Asia. This is a region with vast potential, where ICAEW can add huge value.”