Embark on a Helicopter Tour of APAC M&A

On the first Monday of August, a key theme from our January Outlook Investment Mosaic came to play – recession risk. As predicted then, the ongoing macro narrative tug of war between recession risk paranoia vs rates normalization and rate cuts, has continued, bolstered by the ever present global geopolitical risks and election uncertainty.

This all came to a head on 5 August 2024 when the financial markets were rocked. We witnessed the immediate effects in Japan and the US, with the aftershocks reverberating around the world. Since then, the financial markets have substantially recovered, but given the volatility, the M&A market confidence has been shaken. Near-term deal activity in the M&A market continues to be stressed.

Fundamentally, our outlook for the second half of 2024 will not change. 

Interest rates globally seem to be following a downward trajectory towards lower rates, with the Fed recently starting the long-awaited rate cut cycle. However, the combination of higher rates compared to historically lower rates and overall uncertainties will continue to impact investment appetite, contrasted with the large amount of pent-up demand. Private equity is sitting on substantial dry powder and the pipeline remains strong, so ultimately, we still see the year ending slightly up.

However, this violent volatility spike coupled with recession risk coming back on the table in a more prominent way continues to impact confidence in dealmaking – both from the corporate M&A and private equity side, especially in the near-term for Japan, which faces an upward trajectory in rates. The ongoing economic downturn in China continues to impact global M&A and APAC deal activity.

Investor Appetite and Deal Making

If investors were to embark on a helicopter tour of APAC, these would be the key themes we believe they’d see for each location in terms of valuations and opportunity set.

China

• Cautious & Waiting
• Deep Value

Some investors see deep value in China but continue to have a cautious mindset, especially given policy uncertainty, and low business and consumer confidence.

India

• “FOMO” Effect = Frothy Valuations
• “Goldilocks” period

Investors are driving capital into India due to the “FOMO” effect - with global public and private investors rushing in and pushing up valuations. Consequently, valuations are reaching frothy values. Long-term growth prospects remain high with a secular uptrend.

Japan

• Large-scale opportunity set
• Structured solutions

Investors are seeking bespoke transactions, carve-outs, and activist situations. Shareholder value illumination is high on the agenda. Outbound impetus is accelerating – FIG transactions will be important.

Australia

• Leverage buy-out activity resuming
• Steady as she goes

Australian M&A activity continues to chug along steadily with the thematics of renewables, infrastructure and data centers as high priority sectors.

Southeast Asia

• Nuanced
• Opportunistic

Regional M&A activity in Southeast Asia varies heavily depending on the country, sector, and size of the deal.

So: what’s next for investors?

 In M&A, it’s important to never discount the value of hard work and resilience. As we’ve seen with the athletes competing at the Paris Olympics, when you fall: how do you get back up?

Resilience for athletes is built by dedication and lots of preparation, such as going to the gym every day. For investors to build resilience, they must also be consistent and constant in their workout of assessing M&A activities. This is what we call “long-term systematic acquisitions” – not just transformational deals, but a consistent focus on undertaking mid-cap, bolt-on deals.

When financial markets are experiencing a rocky time, and the world is a complex place, investors must be powered by strategy, not throttled by fear. With the right strategy, they have the tools to build resilience and bounce back. All participants need to understand that we are operating in a VUCA world, and the strategies and corporate actions must reflect that.