Corporate deals in SE Asia down sharply

Southeast Asian countries like the Philippines were hit with volatile market conditions and slowing economic growth, smothering the pace of mergers and acquisitions (M&A) among the region’s corporations, a new report this week showed.

In its annual report on M&A deals in the region, American financial giant Merrill Lynch said 2015 saw a sharp slowdown in big corporate deals in contrast to last year’s record high.

“The region has been punching above its weight in recent years, and saw record levels of activity in 2014,” Merrill Lynch’s Southeast Asia M&A Regional Report for 2015 read. “However, the boom came to a grinding halt in the first nine months of this year,” the firm said.

Between January and September, the value of M&A deals in the region was more than halved to $63 billion from $140 billion a year ago.

Deal activity in the region is usually lumpy, with a handful of big-ticket deals skewing the numbers. This year, the bank said the region was hit by a “perfect storm” as Southeast Asia got caught in the cross-hairs of several major events.

These include the slowdown of the Chinese economy, a decline in commodities prices which hit Indonesia and Malaysia hard, political instability in Thailand and Malaysia, which put potential deals on hold, and a sell-off in emerging markets powered by a soaring dollar.

An overall lack of confidence has hit the flow of mega deals that drove activity in 2014. In Malaysia, for example, deals fell to $7 billion, from $29 billion in 2014, when activity was driven by a single jumbo transaction: the attempted $22.3-billion three-way merger between Malaysian banks’ CIMB, RHB Capital and Malaysia Building Society.

Ultimately, that deal was blocked by regulators following a sharp fall in the share price in CIMB. Its failure slammed the brakes on an expected wave of consolidation in the country’s overbooked sector, Merrill Lynch said.

“That deal would have been a catalyst for further activity but confidence is low now,” the report read.

One rising trend is the region’s companies looking for acquisition targets outside. The slowdown in China and volatility across Southeast Asia have prompted some companies to look overseas to diversify their portfolios, the report said, adding “2014 has been the year of the Chinese buyer overseas and in the coming years, there are signs that baton will soon be taken up by the Philippines and Thailand.”