Analysis: M&A activity in Asia-Pacific stays firm

M&A activity in the APAC region has been robust, as domestic and technology-targeted deals helped to secure $403 billion in H1.
A night view of the Hong Kong skyline across the Victoria Harbour from West Kowloon on 15 July 2022.
A night view of the Hong Kong skyline across the Victoria Harbour from West Kowloon on 15 July 2022.

Asia-Pacific (APAC) mergers and acquisitions (M&A) activity has been robust for the first half of 2022 (H1), with 648 deals and a total value of $403 billion, according to data from EY Global.

M&A activity is down 14% against 2021 H1, but up 85% compared with H1 2020, and in line with the average of the previous, pre-pandemic cycle (2015–2019).

One reason for the rise compared with 2020 is a return to in-person business in the region.

"You can't acquire a company over a Zoom call," said Paul Gardner, ACMA, CGMA, the CEO of Fresh Accounting, a management accounting practice based in Hong Kong. "I think what you'll find in Asia is that contracts are still handshakes, and agreements are still done face to face."

He added, however, that while COVID-19 had closed borders and stopped people from travelling, it hadn't necessarily stopped new businesses or new ventures.

Gardner said domestic and regional deals have become more accessible and that there is "wealth to be spent" in Asia. "It's easier for investors in Singapore to invest in Malaysia than it is for investors in the United States," he said.

Areas of growth

The technology sector stood out as the most sought after sector in the region, according to a press release from EY Global, with technology-targeted deals accounting for 21% of cross-sector deals.

Australia was also highly active in H1 with the combined value of its outbound, inbound, and domestic deals jumping to $48 billion, according to EY. This was an increase of 123% compared with the average of the last deal cycle (2015–19).

"If you can make something work in Australia and New Zealand, you can expand outwards," Gardner said. "It's interesting to see how regional solutions have also expanded internationally quite quickly. I think that Australia has developed sophisticated stock markets." 

SMEs and other businesses need to invest in technological solutions wisely, Gardner said. He said that business-to-business (B2B) models are more sustainable, there are more B2B technologies coming out of the region, and cloud accounting has made information handling more accessible.

"I think SMEs have this huge opportunity, and I think cloud accounting has really driven business solutions," he said.

Key drivers for M&A 

EY Global said that a strong flow of private capital is a driving force behind M&A activity in the APAC region.

Gardner said that there are many incentives for SMEs to merge and that Asia is very interconnected: "If we use something in Hong Kong, we also use it here in Singapore. But the idea is that it is about efficiency, automation, simplification, and creating process."

Domestic deals in APAC were up 15% in H1 2022 against the pre-pandemic average (2015–2019).

"There are a lot more local startups and more local businesses; you're seeing more local business concepts taking off," Gardner said.

While local business is flourishing in Asia, Gardner said that the pandemic has presented challenges and many areas are still recovering, making it harder for international businesses to tap into Asia due to a restricted ability to network. He said while there is wealth in areas such as Hong Kong, to make even a domestic deal, you need to go and see a business before investing in it.

Despite limitations enforced by the pandemic, Gardner is confident that businesses in Asia will continue to progress. "Businesses haven't stopped, and the ideas haven't stopped."

International risks

International deals present a greater risk now, Gardner said, amidst the uncertainty of globally rising inflation, higher interest rates, a war in Ukraine, and social unrest risks.

The share of outbound deals from APAC in H1 fell significantly (13% in 2022 vs. an average of 23% over 2015–2019), according to the EY Global data. Gardner said there are more opportunities in APAC, where there are "growing markets and growing populations".

APAC market uncertainties

Gardner said Asia had suffered from COVID-19 ahead of other market regions and that businesses had to go into survival mode quickly: "It was about reducing costs and trying to increase revenues and new customers."

In Asia, businesses must be "mindful of restrictions", Gardner explained. "It's not as easy as things used to be."

But, for businesses and SMEs to prepare for market uncertainties, he suggested that it's not all about being mindful of costs — you must also be mindful of other businesses and continue to invest in services and product development.

Gardner added that Asia is experiencing a shortage of labour due to the Great Resignation and British National (Overseas) visa opportunities. He explained that it is necessary to have a robust recruitment and retention methodology in place, as there are staff shortages both inside and outside of Asia.

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