In January, mergers and acquisitions (M&A) volume in terms of number of deals made in the Asian-Pacific region rose 60% from a year earlier. Volume in dollar terms more than tripled to about $25 billion. This drastic surge has been fueled primarily by Chinese and Japanese companies. In contrast, M&A activity in Southeast Asia has been falling as of late, as the region only accounted for 13% of Asia’s M&A activity this January – down from 18% a year ago.
China’s Lenovo Group Limited, a multinational technology company, executed two multibillion-dollar deals in a one-week span, accounting for over one-fifth of the region’s M&A dollar value. Chinese and Japanese companies have widened their scope beyond the Asian-Pacific region and have acquired companies in the United States and South Africa in the past month. It is no surprise that large, multinational holding companies headquartered in China and Japan were responsible for the largest mergers & acquisitions.
According to a partner in Ernst & Young’s Asian-Pacific financial services office, companies are interested in doing deals in Southeast Asia but are unsure if 2014 is the best time to do so. This hesitancy is a result of political instability in the region and a viewpoint that these markets are currently overvalued. Indonesia, Southeast Asia’s largest economy, has experienced a decline in the number of M&A deals, a trend that is thought to be the result of stricter regulations recently imposed on foreign investors. These new regulations cap the initial stake that foreign investors can invest in Indonesian companies at 40% for banks and 50% for mining assets. Concerns are also circulating around Indonesia’s economy, as the rupiah is down about 19% against the dollar in the last six months.
Southeast Asia, despite some political issues, is still attracting a lot of investment from Japan. In fact, J.P. Morgan’s head of M&A in Asia predicts that Singapore, Malaysia, and the Philippines could receive significant Japanese investments this year. Hopefully the dramatic increase in M&A activity in North Asia will have a ripple effect and other parts of the Asian-Pacific region will too experience a surge in M&A activity.