Despite sluggish growth in the global economy, outbound merger and acquisition transaction activity from the Asia-Pacific remains robust, although the overall value is lower, according to a new report from Towers Watson and mergermarket.
The report, "Globalising Asia-Pacific: Maximising the Value of Human Capital in Outbound M&A," found that companies based in Asia-Pacific ramped up M&A activity outside the region on average of 20% year-on-year between 2003 and 2011, experiencing an annual growth rate of 37% in terms of value over the same period. And in 2012, for the first time ever, Asian outbound deal activity overtook deal activity by companies outside the region into Asia.
After a brief dip in 2009 following the financial crisis, Asia-Pacific outbound M&A returned with a vengeance in 2010, with total value of transactions growing 176% over 2009 figures. Furthermore, there was a burst of large-scale deals, with 19% of outbound transactions trading above US$250 million.
In 2010, outbound M&A accounted for roughly 40% of cross-border M&A activity in Asia-Pacific, but through the first half of 2012, it accounted for more than 50%.
“Although outbound volume is set to outpace 2011 figures, we are not completely clear of the lingering effects of global uncertainty,” said Andrew Heard, Managing Director, Asia-Pacific Benefits, Towers Watson. “In many cases, deal values are lagging, and there have been fewer landmark transactions. In such an environment, it becomes harder to find value in deals as competition becomes more intense."
Heard further notes that as Asia-Pacific organisations become sophisticated global acquirers, they face multiple challenges in finding enhanced value in deals they do. They also often overlook the human element – a significant factor in all successful deals.
"M&A is a people business and experienced acquirers understand that true revenue synergy is created when the people and culture integration issues have been effectively handled. This is particularly important in cross-border deals where differences in culture can be significant,” says Heard.
According to Mary Cianni, Director of M&A — Global, Towers Watson, organisations that work with HR as a strategic partner from early on in the transaction cycle, starting with target evaluation, are able to anticipate these types of factors — ‘soft’ factors such as culture, leadership and communication, along with ‘hard’ costs including the target’s pension and other benefit liabilities — that will later impact integration and indeed the success of the deal itself.
The report also finds that Asia-Pacific bidders from all over the region are going global through M&A, but some more quickly than others.
Although historically, Japan and Australia have dominated the outbound M&A landscape, in recent years, Chinese outbound activity has begun to pull ahead, fed by insatiable domestic demand. For the moment, though, Japan remains the dominant geography for outbound investment.
In terms of targets, North America and Europe remain popular as Asia-Pacific companies see the current environment as a terrific opportunity to acquire and repatriate technology and resources as well as scoop up market share abroad and acquire established name brands.
However, interest in emerging markets is beginning to rise as well, as companies look to South America — including more established players such as Brazil, Argentina and Chile, but also rising stars such as Peru and Colombia — and the Middle East and Africa.