With global businesses and investors growing weary of China's anaemic economic rebound and geopolitical upheaval, Southeast Asia has continued to solidify its standing as a key regional destination for dealmaking.
While 2023 didn't match the highs of 2022, either in terms of deal value ($129.8 billion versus $90.6 billion) or volume (1,278 versus 933) – as per research from Mergermarket, White & Case, and ION Analytics) – last year dwarfed 2021 in terms of number of deals, and beat both 2019 and 2020 in terms of total amount.
Topping the Southeast Asia deal table in 2023 was the Vietnam-based EV maker VinFast's $23 billion SPAC deal with Black Spade Acquisition, according to LSEG data. That transaction contributed a fourth of the global volume last year, according to a PwC report.
Coming into 2024, lawyers are looking ahead to another notable year for M&A in the region, particularly as it begins to shrug off the cobwebs. Jon Nair and Tan Teng Sen, corporate and finance directors at Drew & Napier, point out that recession concerns and rising interest rates have resulted in a slow recovery in dealmaking as buyers exercise greater caution amid higher financing costs and market volatility.
"We expect such trends to continue into the first quarter of 2024, as investors continue to scrutinise larger deals more carefully, and to consider lower-middle market deals which require less financing more attractive," add Nair and Tan.
However, they believe the excessive amount of dry powder is one of the reasons to be optimistic about Southeast Asia's M&A prospects. "Given that prospective sellers facing a liquidity crunch due to the economic climate may be forced to divest businesses at deflated valuations, we expect that investors may take this opportunity to acquire previously inaccessible targets. As interest rates are expected to fall in 2024, we may also see more blockbuster deals in 2024 compared to 2023," they add.
Singapore has been turbocharging Southeast Asia's M&A momentum as the city-state participated in 353 deals, including the sale of a 36-percent stake in Singapore's Halcyon Agri Crop to China Hainan Rubber Industry Group at $1.3 billion. Indonesia and Vietnam have also been driving deal activities, each involved in over 110 deals. One of the main deal drivers in these jurisdictions, PwC concluded in its report, is reforms that ramped up their attractiveness to foreign direct investment (FDI), such as Vietnam's Law on Investment.
Nair and Tan, however, call for caution, urging companies to take note of FDI regulations and assess whether such regulations would apply to their transactions in view of factors such as the target's industry or sector and the stake being acquired. For example, Singapore's recently passed Significant Investments Review Bill aims to regulate investments into and control over entities critical to Singapore's national security interests.
"Companies should also take note of antitrust regulations, especially given the increase in active enforcement of competition laws in Southeast Asia," note Nair and Tan. For instance, "the Malaysia Competition Act 2010 is being amended to make it more extensive and to bring Malaysia's competition law in line with international practices, by introducing a merger control regime and enhancing the investigation and enforcement powers granted to the Malaysia Competition Commission."
From the sector perspective, technology-related deals continue to dominate activities in Southeast Asia, with over 200 deals announced in 2023. The region's growing appetite for green energy and related infrastructure has also fed the M&A pipeline in industrial and energy sectors, as evidenced by the VinFast deal.
In 2024, Nair and Tan expect sectors such as technology, healthcare and renewable energy to be ripe for dealmaking due to the increasing focus on digital transformation, health technology and healthcare delivery systems and environmental sustainability.
"There has also been a rise in M&A activities within the real estate, hospitality and oil and gas sectors in 2023, which is likely to continue in 2024," they say, adding that Indonesia, Malaysia, Thailand, Vietnam and the Philippines are expected to contribute significantly to Southeast Asia M&A activities in the rest of the year.
In order to capitalise on the momentum and achieve inorganic growth and transformation for organisations, Nair and Tan believe it is key for in-house counsel to keep up to date on changes in relevant laws, regulations, and policies which may affect their transactions; and to be aware of transaction solutions such as warranty and indemnity insurance to mitigate any deal risks.
"Separately, in-house counsel should be ready to advise on deal structures, payment mechanisms and completion arrangements such as earnouts, deferred consideration payments or rollover equity consideration (which are commonly used to mitigate a buyer's risks)," they add.
