- Outbound M&A from Asia Pacific countries hit 302 deals worth US$71.8bn in Q4, pushing transaction totals to a record high of 1,268 deals worth US$313.4bn in FY 2015
- Half of those outbound deals targeted assets in countries outside Asia Pacific, with cross-regional transactions accounting for 60% of deal values in FY 2015
- During 2015 Asia Pacific buyers targeted technology firms in North America (53 deals), industrials firms in the EU (48 deals) and consumer products companies in the EU (36 deals)
- Inbound deals into Asia Pacific rose to US$76.5bn in Q4, totaling 1,085 deals worth US$210.1bn in FY 2015, matching values in 2014
Outbound M&A activity from Asia Pacific countries reached a record high in 2015, rising to 1,268 deals worth US$313.4bn. Backed by a period of solid economic growth within the region, available credit and governments pushing their companies to expand in certain sectors, Asia Pacific buyers targeted everything from banks and insurance firms to high-tech and consumer products companies.
For the past three years, the majority of outbound transactions by Asia Pacific buyers have focused on targets outside the region and 2015 was no different. Cross-regional deals accounted for 51% of outbound activity by volume and 60% by value, with motivations for these acquisitions often differing by country.
Japanese buyers, for example, are seeking new customer bases as they face a shrinking and aging population in their home market. In Southeast Asia, companies in stronger economies like Singapore and Malaysia must look abroad for expansion because of a lack of depth in their own markets. Meanwhile, China is making a big push into industries like consumer products and technology as the country’s population continues to grow in education level and affluence.
“China no longer needs so much Western capital for the development of production,” says David Fleming, head of Baker McKenzie’s Asia Pacific M&A Group. “But it does need technology and access to Western markets.”
Within the region
Cross-border deal activity within Asia Pacific also remained strong, bolstered by pressure from the Japanese and Chinese governments, as well as those in Southeast Asia, for their domestic companies to establish a strong presence in the ASEAN Economic Community, particularly in the financial services sector.
“Intra-regional acquisitions of banks and insurance companies has been high because business leaders realize they have to build an ASEAN financial platform to compete within ASEAN when it reaches its full potential,” says Mark Innis, a foreign legal consultant at Hadiputranto, Hadinoto & Partners, Baker McKenzie’s member firm in Indonesia.
Besides sector-specific opportunities in ASEAN, population growth is also driving Asia Pacific buyers to invest within the region. Japanese consumer products and financial services companies are particularly interested in acquiring younger, faster-growing consumer bases. Nippon Life’s US$1.7bn purchase of National Australia’s insurance division in October is just one example of this burgeoning trend.
“Japanese banks and insurance companies have been very active in other Asia Pacific countries because they are regulated industries and you need licenses,” says Hideo Norikoshi, an M&A partner in Baker McKenzie’s Tokyo office. “It’s hard to build these businesses from scratch and they want customers.”
The value of inbound deals into Asia Pacific by Western buyers and others outside the region reached US$83.4bn in 2015, up 2% from 2014. Despite continuing concerns about legal and regulatory uncertainty in Asian markets, India emerged as a top target for inbound acquisitions in 2015. India’s technology sector was particularly attractive to foreign buyers last year, rising to 44 deals, including transactions such as US-based IT outsourcing firm Virtusa’s acquisition of a 53% stake in India software company Polaris for US$350m.
“A lot of people consider President Modi’s administration to be a stronger government than the previous administration,” Innis says. “A number of sectors have been liberalized, which gives people comfort that there may be a reform road ahead.”
Eye on the future: three key trends to watch
- Open doors: Next year could bring greater liberalization of industries in various Asian countries as government leaders seek to attract more inbound investment to bolster their economies. “A number of the ASEAN countries will be looking to cut red tape and bureaucracy, including Indonesia which has launched eight economic regulatory reform packages since August 2015,” Innis says.
- Up-and-comers: Myanmar, Vietnam and the Philippines are likely to draw more interest from foreign buyers in 2016 as their domestic markets continue to develop. “In Myanmar it may be more foreign direct investment at first, but there are also M&A opportunities in infrastructure, real estate, tourism and manufacturing,” Fleming says.
- Chinese currency milestone: Following the IMF’s approval of the Chinese yuan as an official global currency in November, further liberalization of China’s currency is likely to continue. Broader use of the yuan in trade and finance could open the door for more M&A deals in 2016.