Asia Pacific M&A: Green shoots for optimism

The Asia Pacific M&A market has had a turbulent past 2-3 years, but there are plenty of reasons to be optimistic about the outlook for 2024. One of the unique characteristics of the APAC market is its combination of major developed economies like Australia and Japan with the largest growth engines globally, including China, India, and Southeast Asia. The APAC M&A market has evolved from very much a China-centered one, into a more diversified market, and with increasing intra-region deal flows compared to just a few years ago.

Asia Pacific is expected to grow faster than the world average (the IMF projects 4.2% GDP grow for the region vs 3.0% world average), making it attractive for deal sourcing and fund raising. Although the valuation reset is still ongoing, there is clear pent-up demand from well capitalized companies and financial sponsors who are now proactively exploring opportunities during the market downturn for transformational deals to stay ahead of future competition. We are entering an era of great change, full of opportunities. The revolutionary impact from digitalization and AI, the rising importance of climate change and broader ESG elements, and the necessity of infrastructure spending driven by regulation and new policies are all propelling innovation and efficiency across industries. Many corporations went through belt tightening exercises over the past few turbulent years and are now gearing up for growth. That, combined with the record levels of dry powder piling up to be deployed, sets the stage for first movers to begin transacting to transform through M&A once again.

Having said that, despite the promising sense of optimism in the backdrop, disciplined cautiousness is still much needed in the current environment. Geopolitical risks and a tightened FDI regime are still complicating the deal making and transaction execution processes. With many elections taking place across the world this year, including in the US, UK, India, and EU among others, market players tend to pause entering transactions until they can regain visibility of new political and regulatory frameworks. And while the rates hiking cycle may have come to an end, interest rates are expected to stay “higher for longer”. This means deal makers need to build stronger strategic conviction with greater value creation, through potentially more complicated and innovative deal structures, to get these transactions over the line. Needless to say, other uncertainty factors and the fear of recession are not yet fully diminished in many markets.

Looking toward 2024 and beyond, we think we will continue to see the theme of embracing uncertainty with cautious optimism.  Don’t let the much talked about M&A market upturn surprise you in the not-to-distant future - be optimistic with a vision, and ready to take off. In the meanwhile, remain cautious and continue to “expect the unexpected” - stay focused, disciplined and agile.

M&A is an essential tool that will keep transforming the APAC business landscape towards a more innovative and positive future. We are working diligently with our clients by exploring key transformational themes, while being prepared for the next window of opportunity. And similar to 2023, we will continue to see many M&A transactions being completed with more complicated structures and longer execution timelines - broader considerations of risk factors and carefully thought business scenarios are critical to bridge the valuation gap.

As the Asia Pacific region and M&A market continue to evolve, our team is looking forward to working with our clients, our affiliate M&A Partners and Natixis CIB teams across the region for a productive year ahead!