Exactly 30 years ago, renowned US political scientist Francis Fukuyama predicted the “end of history” and the ascendancy of Western liberal democracy with the publication of his seminal best-seller. Whether a new world order is arriving or not one thing is clear, current global political tensions are manifesting in a bumpy ride for all, and uncertainty is contagious.
Russia’s invasion of Ukraine has unleashed a major geopolitical storm across Europe, which is threatening to spread east, as evidenced by dealmakers in Asia-Pacific (APAC) hitting the brakes in 1Q22.
M&A activity tumbled to USD 188.8bn in the first three months, marking a 34% fall from the same period a year ago and down 46.1% sequentially on the previous quarter. The number of transactions also plunged more than 34.8% year-on-year (YoY) to 2,058.
In the mix: China drawn into big slowdown
In China, too, the spectre of US sanctions, an economic slowdown, a resurgence of coronavirus (COVID-19) infections and a relatively conservative monetary policy approach by the People’s Bank of China (PBOC) are contriving to soften M&A activity in the country.
The world’s second-largest economy inked USD 67.3bn-worth of transactions in 1Q22, a 51.7% YoY decline from the same period last year. Nearly half of all deals were brokered in January before activity dwindled as the quarter progressed. Activity in Japan and India – which rank second and third in M&A this year – also dipped in March.
Numbers game: Finance sector beating the trend
While the technology sector has dominated M&A in the APAC region, deal value in the sector during 1Q22 retreated 18.2% YoY to USD 47.7bn. By contrast, the finance industry outperformed the broader market, with M&A jumping 73.6% YoY to USD 34.1bn.
Four out of the top five Asian deals have come in finance, led by the USD 7.4bn acquisition in March of Hong Kong-based Baring Private Equity Asia by Swedish investment group EQT AB [STO: EQT]. The third-largest transaction in Asia has been China-based Zhongyuan Bank’s [HKG:1216] US 4.5bn swoop for three local banks – Bank of Luoyang, Bank of Pingdingshan and Bank of Jiaozuo China Travel Services – as part of ongoing consolidation in China’s financial sector.
Citigroup [NYSE:C] has been the fulcrum of the next two largest deals. The US bank agreed to sell its consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam to United Overseas Bank Limited [SGX: U11] for USD 3.6bn, while hiving off its consumer banking business in Taiwan to DBS Bank for USD 3.3bn, as it focuses on wealth management.
Empires of the future: What’s next on APAC’s horizon?
Despite global headwinds, some major SPAC deals remain afloat. Edtech firm Byju, India’s highest-valued start-up, is reportedly looking at a traditional IPO after previously weighing going public in the US via a SPAC merger. Chinese cartech group ECARX is also thought to be considering a merger with a blank-check firm.
Unicorns are eyeing blockbuster fundraising transactions, with Geely-backed electric truck maker Farizon Auto seeking to raise capital at a USD 5bn valuation, according to Mergermarket.
National security is expected to play a role in the dealmaking landscape. TuSimple [NASDAQ:TSP], a self-driving heavy-duty truck company based in California, but backed by China’s Sina Corp, is exploring options for its Chinese operations.
And infrastructure could have representation, with Australia’s TPG Telecom [ASX:TPG] reportedly looking to separate its infrastructure assets, while Philippines-based Ayala [PSE:AC] is examining a sale of its stake in Light Rail Manila.
China appears most likely to drive dealmaking in Asia over the coming quarters. Energy security, state-owned enterprise (SOE) reforms across a variety of sectors including steelmaking and raw materials, mergers of regional banks, an overhaul of the real-estate sector, consolidation among carmakers, and investment in advanced technologies are all anticipated to shape the M&A landscape for the rest of this year.
