Southeast Asia shows considerable M&A potential and is attracting increasing investor attention. This comes in spite of the broadly downbeat feeling in the global M&A arena and low levels of big-ticket dealmaking in the region over the past three quarters.
According to the most recent economic forecasts by the International Monetary Fund, “emerging and developing Asia” is projected to grow by 5.2 percent in 2023 and by 4.8 percent in 2024, far ahead of the global estimates (3 percent and 2.9 percent, respectively). Among Southeast Asian nations specifically, the Philippines and Cambodia are expected to enjoy the fastest rates of economic expansion this year, of 5.3 percent and 5.6 percent, respectively.
The region, comprising ten countries—Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam—generated 598 M&A deals worth a combined US$61.3 billion through the first three quarters of 2023. Advanced-economy Singapore generated the lion’s share of this activity, followed by Indonesia and the Philippines.
Those figures represent declines of 25.6 percent in volume and 10.9 percent in value from the same period in 2022. The former is slightly steeper than the equivalent for global M&A, which is showing a nearly 20 percent year-on-year drop in volume, but the latter is far more encouraging, with the total value of global M&A over the last three quarters declining by 28.5 percent compared to the same period in 2022.
Lion City roars
Singapore is the undeniable titan of Southeast Asia’s deal market. Nestled at the crossroads of global trade routes, its strategic location combined with investor-friendly policies, a predictable and transparent regulatory landscape, and a large, mature financial sector has given the island state a head start over its peers.
The city-state counted 214 deals in the first three quarters of this year (35.8 percent of all transactions in the region) valued at a combined US$34.7 billion (a 56.7 percent share). Singapore’s bustling tech and fintech sectors continue to deliver steady flows of M&A activity in Southeast Asia, with the technology, media and telecommunications (TMT) industry providing more deal volume and value than any other sector in the country in the past five years. TMT contributed a third of all transactions in Singapore so far this year.
Thunes, a Singapore-based startup in the cross-border payments space, has been especially active. Over the summer it raised US$72 million from a variety of investors including EBDI, the venture capital arm of Singapore’s Economic Development Board; San Francisco-headquartered Visa; and UK hedge fund Marshall Wace. Thunes’ payments infrastructure allows businesses to move money across 132 countries, covering four billion bank accounts and three billion mobile wallets. The startup is well embedded in large emerging markets with sizable unbanked populations, including Indonesia, India and Nigeria, and the recent investment will enable Thunes to expand its presence in China. It has ambitions to challenge the primacy of SWIFT, the world’s dominant international financial network.
Technological innovation is generating high-level dealmaking in other sectors as well. For instance, the largest deal announced in Singapore in the first three quarters of 2023 fell in the automotive sector. In May it was announced that US-based special acquisition company (SPAC) Black Spade and electric vehicle start-up VinFast were merging through a de-SPAC transaction that assigned VinFast an equity value of US$23 billion.
The EV specialist, which was founded in Vietnam and moved its legal and financial headquarters to Singapore in 2022, debuted on the NASDAQ in August of this year. Its stock price quickly climbed, at one point achieving a valuation of US$200 billion in September, eclipsing automotive giants including Ford and Volkswagen.
Other countries in the region boast thriving M&A markets that may close the gap with Singapore in the next five years as their manufacturing capacity expands, household incomes rise and technology adoption grows, all of which are spurring economic growth and acquisitions.
Indonesia, for instance, generated 108 deals collectively valued at US$9.4 billion in the first three quarters of 2023. The largest of these saw the country’s sovereign wealth fund invest almost US$1.4 billion in two sections of the Trans-Sumatra Toll Road, which will run from the crown to the heel of Sumatra, the largest island in the Indonesian archipelago.
Another major transaction was the merger by PT Telkom Indonesia of its IndiHome broadband business with its subsidiary Telkomsel. The deal, with a reported value of US$1.36 billion according to Mergermarket, will create a merged entity worth almost US$4 billion. Telkomsel is looking to capitalize on the rapid growth of Indonesia’s fixed broadband market, which currently has a penetration rate of 14 percent, versus 40 percent across Southeast Asia. The deal is also indicative of the spate of restructuring in the telecom space over the last few years as companies adapt to take advantage of greater digital transformation and the transition to 5G in the region.
After Singapore and Indonesia, the next-largest contributors to regional M&A were Vietnam, Malaysia and the Philippines, with 85, 77 and 58 deals, respectively, through the first nine months of 2023. Malaysia, notably, is the only Southeast Asian country to see deal volume rise in each quarter this year and to maintain roughly the same level of activity as in 2022.
Of those three nations, however, it was the Philippines that generated the highest aggregate deal value, with transactions worth a combined US$5.6 billion. The archipelago’s largest deal, announced in August, saw national conglomerate Aboitiz Equity Ventures and UK-based Coca-Cola Europacific Partners move to acquire bottling and distribution company Coca-Cola Beverages Philippines for US$1.8 billion in enterprise value.
April saw another sizable deal announced in the Philippines, relating to social infrastructure and utilities. A consortium led by Japanese conglomerate Mitsui & Co made a tender offer to acquire 36.6 percent of Metro Pacific Investments, the Philippines-based infrastructure firm engaged in water utilities, power generation, toll roads and hospital businesses, for around US$873 million. In July the consortium raised its offer to US$992 million.
Notwithstanding the raised purchase price, dealmakers have long considered Metro Pacific to be an appealing target for strategic investment, reflecting its attractive valuation on the Philippine Stock Exchange. Other attractively-priced assets could potentially be found throughout all of Southeast Asia—the Nikkei Asia300 ASEAN Index, which covers the performance of key stocks in the region, stood at a year-low 1,176.61 on October 23, down from a multiyear peak of more than 1,333.72 on January 27.
Frontier markets in Southeast Asia are taking significant steps to remove barriers to investment and stimulate economic growth. In Vietnam, the revised Law on Investment implemented in January 2021 marked a notable shift, replacing its previous “positive list” of sectors that were open to foreign investment with a “negative list,” a move that affords foreign entities the same investment access as Vietnamese companies, except in the case of prohibited sectors.
Similarly, in March last year, the Philippines amended its Foreign Investment Act to encourage inbound investment.
More recently, Singapore and the European Union—the city state’s fourth-largest goods trade partner and its second-largest services trade partner globally—opened negotiations on a digital trade agreement that builds on the free trade agreement established in 2019. The key goals, per the European Commission, are to build consumer trust, remove unjustified barriers to digital trade, and ensure legal certainty for businesses in both markets.
Concerted efforts to open markets and relax investment restrictions demonstrate a commitment to enhancing competitiveness and creating opportunities for foreign investors, at a time when developed M&A markets in the West are becoming increasingly insular. These reforms aim to attract capital, technology and expertise, which will contribute to job creation, knowledge transfer and overall economic development in a region that is currently enjoying the fastest rate of growth in the world.