Geopolitical tensions and the drag from global supply chain disruptions may dampen M&A deals in Asia-Pacific after the number of such deals fell in the first three months of 2022.
A total of 123 finance sector M&A deals were reported in the January-to-March quarter, compared with 165 in the same period of last year, S&P Global Market Intelligence data show. The ongoing war in Ukraine, supply chain bottlenecks and inflation concerns slowed down deal-making in the first quarter.
"We expect to see deals start and stop as companies try to time when best to take the plunge," said Sophie Mathur, partner and Asia head of corporate at Linklaters, a law firm. Despite the emerging opportunities, businesses will find themselves questioning the market timing as the strongest headwind will be market volatility, Mathur said.
The Ukraine-Russia conflict has dragged on for much longer than most analysts initially expected. The pandemic has forced lockdowns in Shanghai and Beijing, with knock-on effects on the world's second-biggest economy and on global supply chains. Many global central banks have become more hawkish amid soaring prices of commodities, setting the stage for continued volatility in the coming months.
Need to stay lean
Many financial firms will look at divesting non-core assets in a push to remain lean. Others may look for opportunities to build scale. DBS Group Holdings Ltd. and United Overseas Bank Ltd. in January announced deals to acquire chunks of businesses from Citigroup Inc. that the buyers said would be earnings accretive and boost their customer base.
"As global financial institutions reassess their strategy in the face of key geopolitical issues and megatrends, we may see some global or regional financial institutions making possible divestments of non-core businesses or markets, while others might venture into new markets or acquire new or adjacent businesses capabilities," said Tzu-Chung (TC) Liang, Southeast Asia financial services strategy and transaction leader at EY.
Still, there could be some terminations of already-announced transactions as both buyers and sellers may rely on material adverse change provisions, such as the war in Ukraine. Such provisions are generally included in M&A deal agreements to address unforeseen events that could adversely impact the target's valuation and overall transaction, said Miranda Zhao, head of mergers & acquisitions, Natixis Corporate & Investment Banking, Asia Pacific.
Sanctions on Russia may have an indirect impact on businesses in the Asia-Pacific that are much harder to discern, said Mark Uhrynuk, partner at law firm Mayer Brown's corporate & securities practice.
"While this may not prevent deals from getting done, it may extend deal timelines," Uhrynuk said. "These are things that are not conducive to deal making and could have a cooling effect on certain M&A and private equity activity."
Digitization, payments
In the first quarter of 2022, six of the top ten largest deals happened in the asset management space. Digitalization efforts by banks will continue to drive M&A activity in the financial services space in Asia-Pacific. Blockchain and cryptocurrency, which are becoming more mainstream, will also see greater M&A activity, analysts said.
Payments will continue to be a hot sector for M&A. The region saw 11 M&A deals in the payments space in the first three months of 2022, according to Market Intelligence data. Chinese financial technology giant Ant Group Co. Ltd. announced the acquisition of Singapore-based payments platform 2C2P on April 18. More such deals are likely as tech giants Meta Platforms Inc. and Singapore-headquartered Sea Ltd. continue to develop their payments capabilities.
Market Intelligence data showed that M&As slowed in mainland China and Australia, though deal numbers India and Japan were stable. Most buyers remained from within the Asia-Pacific region, the data showed.
