KUALA LUMPUR (Sept 13): Asia-Pacific merger and acquisition (M&A) activity hit an all-time high in the first six months of 2021 (1H21) as markets began to revive from the Covid-19 pandemic, fuelled by technological innovation and environmental, social and governance (ESG) agendas, according to Ernst & Young PLT (EY).

Based on EY’s new analysis, M&A values targeting the region increased to US$535 billion (about RM2.22 trillion), almost doubling from US$284 billion in the same period last year.

In a statement, the firm said so far this year, there were more than 50 deals worth over US$1 billion announced that targeted Asia-Pacific, increasing by almost five times from last year.

The technology sector continued to lead deal activity in the region, accounting for almost one-third (28%) of the cumulative deal value in 1H21, as M&As targeting technology companies hit a record high in the region with deal value increasing by 88% year-on-year (y-o-y).

The consulting firm said advanced manufacturing and mobility were the subsequent most active sectors in terms of deal activity.

EY Asia-Pacific strategy and transactions leader Yew-Poh Mak said M&A activity in the tech sphere of Asia-Pacific was fuelled by the emergence of next-generation technological applications, such as the industrial Internet of things (IoT), artificial intelligence (AI), electric vehicles (EVs) and sustainable, fuel-efficient technologies.

“For advanced manufacturers who pursued M&A, the primary activity was bolt-on acquisitions in the same sector designed to increase market share or transformative deals that would enable a more sustainable business model.

“Consolidation is a means for businesses to combine and complement their strengths to differentiate themselves and, in the technology sector, to focus more on a target’s business resilience, digital technology alignment and to gain market share,” said Mak.

Outbound value in Asia-Pacific rebounded to pre-Covid-19 levels of US$85 billion.

Meanwhile, inbound value reached a historical high of US$74 billion, jumping by more than 170% compared to the pre-Covid-19 pandemic average.

Ernst & Young PLT strategy and transaction leader Preman Menon said the consulting firm expects to see M&A trends in Malaysia mirroring the trends seen globally, albeit lagging behind the recent pace seen in the larger markets.

“The Covid-19 pandemic accelerated the need for Malaysian businesses to review and realign their strategy and formulate their transformation journeys for the future.

“While plans and growth trajectories vary by sector, we observe common themes centring around transformation, agility and sustainable growth. In line with this, we believe that M&A activity will be featured as companies look to acquire technology and skill sets, favouring ‘buy’ versus ‘build’,” Menon noted.

In addition, M&A activity in the renewable energy (RE) sector almost tripled globally in 1H21, compared to the same period last year, as chief executive officers (CEOs) looked to meet ambitious environmental targets through transactions.

The value of these ESG-related deals jumped from US$35.7 billion in 1H20 to US$96.5 billion in 1H21.

EY global vice chair for strategy and transactions Andrea Guerzoni said: “ESG is increasingly becoming an integral part of investment decisions, with many CEOs and investors committing to adapting their current and future deal strategies with sustainability and long-term value creation at the forefront."

Looking forward, the appetite for deals in Asia-Pacific is at its highest level since 2010 with almost 90% of companies in the region indicating that they are on the lookout for cross-border acquisitions in the next 12 months.

EY Asia-Pacific’s Mak said: “Digitalisation remains paramount in Asia-Pacific and globally. Companies are actively putting customer expectations at the centre of their plans. One aspect that arose from the Covid-19 pandemic was the splintering of value chains, both upstream to suppliers and downstream to customers, due to repeated lockdowns. Any acquisition of emerging technology and innovative solutions will enable companies to scale up their existing technological capabilities, accelerate the digitalisation of the customer journey and transform business processes. 

“Identifying potential areas of growth to make acquisitions and making the difficult decision to divest underperforming assets are both firmly on the corporate agenda in Asia-Pacific and worldwide,” Mak added.