Asia M&A 2023 Overview

The global M&A market experienced a substantial contraction in 2023, shrinking by 20% to approximately $3 trillion, largely due to high interest rates, geopolitical tensions, and regulatory hurdles. Private equity (PE) funds faced significant challenges in raising capital, with Limited Partners adjusting their allocations and waiting for Distribution to Paid-In (DPI) before committing to new investments. This led to a notable 57% decrease in their participation in M&A activities. In this article, we will review the 2023 Asia M&A market performance and provide insights into 2024 trends and opportunities with expert analysis from Eurogroup Consulting in Asia M&A Consulting.

Regional Performance in 2023

China

China’s economy, with a GDP of about $20 trillion, faced several hurdles in 2023, including trade tensions with the US, supply chain disruptions, and geopolitical instability. These challenges led to a 4.6% year-on-year decline in exports, marking the first annual decrease in seven years. The shift of US trade towards countries like Turkey and Vietnam significantly impacted China’s export performance. Consequently, foreign direct investment (FDI) in China dropped by 8%, as investors sought more stable opportunities elsewhere in Asia. The household saving rate in China remained high, hitting a record $19.13 trillion by the end of the year.

Southeast Asia

M&A activity in Southeast Asia, although lower than its peak in 2021, remained above pre-pandemic levels. Countries like Singapore, Indonesia, and Vietnam led the region, with strong performances in technology, industrials, consumer and retail, energy, and financial services. The food and beverage sector in consumer retail, the electric vehicle (EV) industry, and green energy initiatives were particularly noteworthy. PE-backed investments in Southeast Asia saw a substantial increase, driven by a backlog of delayed exits and higher PE dry powders.

India

India witnessed a significant decline in M&A activity in 2023, with deal values plummeting by 63% from $192 billion to $70.9 billion. High interest rates and geopolitical tensions dampened investment demand. Notably, nearly all deals in India over the past 15 years were under $100 million, reflecting a shift towards smaller transactions.

Japan

In contrast to other regions, Japan saw a surge in M&A deal volume, reaching 1,425 deals between January and November 2023. This growth was fueled by Japan’s low interest rates and near-zero government bond yields, which bolstered investor confidence. The favorable monetary policy significantly benefited the LBO market and mid-market buyouts, with PE deals increasing by 49% from 2021 to 2023.

South Korea

South Korea’s domestic M&A market contracted by 22% to $22.95 billion, impacted by new regulatory requirements for foreign investors and high USD to KRW exchange rates. These factors led to reduced foreign investment interest and outbound investment sentiment.

Asia M&A 2024 Outlook

China

In 2024, China aims to shift its economic focus from infrastructure development to stimulating private consumption. This strategic pivot targets sectors like smart homes, recreation, tourism, and the burgeoning “Silver” economy. The government expects the silver economy to grow substantially, contributing around 10% of the GDP by 2035. Additionally, China’s new energy vehicle (NEV) market is poised for significant growth, supported by policy optimizations and infrastructure improvements.

Southeast Asia

Southeast Asia is expected to maintain its growth trajectory in 2024, with Singapore leading in M&A and debt financing deals. The IMF forecasts the Philippines and Cambodia to experience the highest economic growth rates, creating fertile ground for M&A activities in the energy, healthcare, and ESG sectors.

India

India is projected to achieve an average annual growth rate of 6.7% from 2024 to 2031, driven by investments in healthcare, green energy, e-commerce, and financial services. The 2024 general elections may also spur M&A activities as investors capitalize on emerging opportunities.

Japan and South Korea

Japan’s M&A market is anticipated to remain robust, supported by new guidelines allowing unsolicited takeover bids. The aging population and succession challenges in family-owned businesses will continue to drive M&A demand. In South Korea, anticipated interest rate cuts and substantial PE dry powder are expected to revitalize the M&A market, with increased activity from Middle Eastern and European sovereign funds.

Trends and Opportunities

Looking ahead to 2024, the global M&A market is expected to rebound, driven by potential interest rate cuts and cross-border expansion opportunities. Key sectors to watch include energy, technology, healthcare, and ESG-related industries. Leveraging a partnership with an Asia M&A Consulting expert will be crucial for staying informed on these trends, navigating the evolving market landscape, and capitalizing on emerging opportunities.