Asean M&A appetite stable despite uncertainty: EY survey

THE merger and acquisition (M&A) appetite in South-east Asia remains stable despite global uncertainty, according to the latest EY Global Capital Confidence Barometer released on Nov 12.

Some 41 per cent of respondents in South-east Asia had acquisition plans in the next 12 months, below the global average of 52 per cent but close to the 10-year historical average of 42 per cent for the region.

EY Asean transaction advisory services leader Vikram Chakravarty warned: "Perhaps SEA firms should take the current slowdown and trade tensions more seriously. The macroeconomic headwinds are real, and firms must seize this opportunity to restructure themselves to focus on the business and reduce costs while they still have strong balance sheets."

"This could also present an opportunity for them to shed lesser-performing business units and acquire relevant assets and capabilities," he added. "However, the capital agenda strategy as a whole has not been suitably re-adjusted."

Conducted in August and September 2019, the survey covered over 2,900 executives from 45 countries, including almost 220 from the Asean markets of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Confidence in growth has decreased, with just over half of South-east Asian respondents believing that the local economy was growing, down from three-quarters a year ago.

Nevertheless, 61 per cent do not expect an economic downturn in the near- to mid-term -- more optimistic than the global average of 54 per cent.

The top motivations for South-east Asian respondents in pursuing acquisitions were access to new markets (cited by 23 per cent), acquiring technology, new production capabilities or innovative startups (22 per cent), and acquiring talent (21 per cent).

This is in line with the continued technological push, with 45 per cent of South-east Asian respondents planning to allocate more than a quarter of their total investment capital to technology -- though this lags behind the global average of 65 per cent planning to do so.

More than two thirds of South-east Asian respondents face difficulties getting the right skills and talent, with the biggest challenge being hiring or training talent "with specific technical skills relevant to the core business".

Talent and skills shortage was also the second greatest challenge to growth for South-east Asian respondents, cited by 15 per cent. Other challenges were increasing competition from existing competitors (20 per cent) and new market entrants (15 per cent).