Reasons to be cheerful: Southeast Asia offers hope for Asia-Pacific M&A

Data InsightDealspeak 12 September

Reasons to be cheerful: Southeast Asia offers hope for Asia-Pacific M&A

It has been a gloomy year thus far for deal volume across Asia-Pacific, down 27% in the year to date (YTD; 7 September 2023), but the picture is a little brighter in Southeast Asia, with volumes sliding only 7% to USD 58.7bn. The clouds have parted in Singapore, the Philippines, and Vietnam, which all reported higher volumes than last year, with the auto, food and beverage, and technology sectors lighting the way. This stands in contrast with Thailand and Indonesia, where deal volumes have contracted.

APAC’s largest deal, which helped to prop up volumes, has been Hong Kong-based Black Spade’s [NYSE:BSAQ] USD 23bn swoop for Singaporean electric vehicle (EV) manufacturer VinFast Auto [NASDAQ:VFS]. The move reflects a broader trend in the region this year, with targets dominated by China and South Korea. Note that analysts anticipate a pick-up in deal activity in Thailand, a hub for combustion engine vehicles, as it transitions to EVs; and Indonesia, a major source of nickel, a key raw material required to make EV batteries.

The largest deal in the Philippines has been Coca-Cola’s [NYSE:KO] sale of a local subsidiary to Coca-Cola Europacific Partners [NASDAQ:CCEP] for USD 1.8bn. In Vietnam, headlines were made as Japan’s Sumitomo Mitsui Financial [TYO:8136] agreed to buy a minority stake in Vietnam Prosperity Joint Stock Commercial Bank [HOSE:VPB] for USD 2bn, a deal which is expected to close later this month. Other hot sectors in the region have been transportation and technology.

Return of the Middle Kingdom

Chinese investment in Southeast Asia has been subdued over the past two years, in part the result of the government’s strict zero-tolerance approach to coronavirus (COVID-19), which nixed outbound deals. While the country’s global appetite remains muted in light of geopolitical tension with the US, Southeast Asia is one region where Chinese deals have picked up, with Chinese firms shelling out USD 3.5bn across 19 transactions in 2023 YTD compared with USD 602m across 13 deals in 2022 YTD.

The Middle Kingdom is keen to diversify its manufacturing centres by hoovering up targets in Southeast Asia, particularly in the spaces of semiconductors, electronics, and industrials.

 Other sectors are also drawing Chinese attention. This year’s top two deals have seen China Hainan Rubber Industry [SHA:601118] land a 36% stake in Singaporean rubber manufacturer Halcyon Agri [SGX:5VJ] for USD 1.3bn, and Alibaba’s [HKG:9988] USD 845m purchase of online shopping platform, Lazada Southeast Asia.

Tech on top

Despite Asia-Pacific volumes falling for a third year in a row, technology has consistently posted the highest deal count during this time. In 2023 YTD, there have been 125 tech transactions for USD 5.1bn, down from 202 for USD 10.3bn last year. More than 57% of targets are from Singapore, with Indonesia contributing a further 17%. Buyers originate in China, the US and Malaysia.

Many of APAC’s technology targets are fintech firms, perhaps unsurprising given the region’s underdeveloped financial system. These include payment providers, companies offering credit financing online, cash loans, and book-keeping, such as Indonesia-based fintech-as-a-service group DeGioia Bios and digital financial services provider Kredivo Holding. Other targets include semiconductor companies like solar solutions firm Vietnam Sunergy Cell; printed circuit applications developer MFS Technology; social media providers of digital content, and social media marketeers such as Singapore’s social media app Fenix 360 and marketing platform Insider SG.

 Potential targets in the sector, per Mergermarket’s proprietary Likely to Exit (LTE)* formula, could be Philippines-based KKR [NYSE:KKR]-backed Voyager Innovations, which announced it could seek a capital raise in June; Singapore-based Beyonics Technology, which manufactures computer storage devices and in which China’s Shaw Kwei & Partners has a stake; and Singapore-based cloud migration services provider Cloud Kinetics Tech, whose owner, I Squared Capital Advisors, is looking for an exit.

Analytics by Manu Rajput

*Mergermarket’s LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a de-SPAC transaction.

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