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Amid growing global and regional headwinds, doing deals in Asia Pacific is becoming increasingly complex. Dealmakers are under more pressure than ever before to deliver value in disruption – we already know that close to half of deals analysed in Asia Pacific have destroyed value and/or underperformed industry peers, based on Total Shareholder Returns. However, Asia Pacific remains the ‘sweet spot’ for global growth and plenty of opportunities exist to generate a premium. To take advantage of these opportunities, a new approach is needed – a comprehensive and disciplined value creation lens needs to be embedded across the entire corporate lifecycle and linked to strategy.
Deal volumes in Asia Pacific are growing in significance - in fact, the region’s share of M&A continues to increase over time, buoyed by sizeable private equity dry powder of over USD600bn.
However the region is not without its market challenges: high inflation, impacts of pandemic, unique territory nuances, increased regulatory scrutiny.
Research shows that deals executed during downturns typically yield a 5-10%+ premium over those executed in more stable conditions.
Executing deals in the region is only going to get harder, not just because of the macro and territory environment, but also because of cross-region deals, fragmented data quality, differing stakeholder needs, variable sector maturities.
Success today depends on structure, discipline and comprehensiveness – consideration of a full suite of value drivers is required, and not simply traditional financial engineering that we may have relied on previously.
"Asia presents the most exciting market for Value Creation globally but the practice of solely relying on underlying market growth, financial manipulation and opportunistic deals is over. Sellers need to better lay out the opportunity, and buyers need to have a more creative and holistic strategy to both win and deliver successful deals."
We have observed some emerging ‘ways to play’ in deals, including ‘roll-ups’ of smaller players, carve-outs for large family businesses/conglomerates, transacting as a catalyst to transform and innovate, funding expansions through minority ownership/partial trade sales, and shift towards intra-Asian deals as SEA looks to build resilient supply chains.
To successfully drive value creation catering to Asia Pacific’s nuances, we recommend six pragmatic responses for dealmakers:
Embed value creation early and do so holistically
Focus on capabilities that drive long-term, sustainable premiums
Commit time and effort to understand different cultures, business and market practices to shape people strategy
Continually uncover value from data and do so early
Use ESG to elevate premiums
Invest appropriately in integration to de-risk execution
