Despite Covid-19, why is M&A booming in these regions?

While the coronavirus pandemic has had a negative impact on many businesses throughout 2020, a recent rebound in mergers and acquisitions (M&A) has pointed towards a partial recovery in investor sentiment – as well as demonstrating that certain sectors have taken on greater importance as a result of Covid-19.

During the third quarter of the year more than $1trn of M&A transactions were conducted globally, according to statistics from financial market data provider Refinitiv.

These results represent a rise of 80% from the previous quarter, during which the virus-related disruptions to mobility and trade brought much business activity to a standstill.

Broken down regionally, M&A activity in the US increased three-fold to total $414bn in the third quarter, while it spiked by 67% in the Asia-Pacific region to reach $274bn; and 21% in Europe to reach $231bn.

The data revealed that much of the M&A activity has been concentrated in virus-resilient industries such as tech and health care.

Given the importance of such sectors during the pandemic, many investors and large corporations have moved to re-evaluate their strategic plans and look for new opportunities.

However, despite this rebound, the value of transactions over the first nine months of the year – $2.2trn – was still 21% lower than the same period in 2019.

Gulf finance looks towards consolidation

While many of the M&A have taken place in the US, Europe and Asia, there has also been some activity in emerging markets elsewhere.

As OBG detailed in May, Covid-19 forced a number of banks and financial institutions in the Middle East to consider mergers to help overcome the region’s twin challenges of the coronavirus and low oil prices.

In April the Central Bank of Oman signed off on a merger between Oman Arab Bank and Alizz Islamic Bank, while in October it was announced that the National Commercial Bank – Saudi Arabia’s largest lender – had agreed to a merger with the Samba Financial Group.

Once completed, the tie-up will create the third-largest bank in the Gulf with $223bn in assets, behind Qatar National Bank and the First Abu Dhabi Bank.

Following on from significant market consolidation in the region last year, the increase in M&A in the Gulf banking sector should create larger, more stable financial institutions capable of supporting the private sector and broader economic diversification.

Asia bucks the trend

Despite a 15% year-on-year (y-o-y) fall in global cross-border M&A over the first nine months of the year, according to UNCTAD – the UN’s trade body – the situation in Asia looks very different, with activity rising by 60% (y-o-y) over the period.

While there had been a fall in overall investment in the region in the early part of the year – as OBG reported in July – there was significant appetite for expansion and consolidation.

Indeed, a global survey of more than 2900 C-suite executives, published by multinational consultancy EY in May, found that 47% of South-east Asian respondents would actively pursue M&A in the coming 12 months, above the 10-year average of 43%, while three-quarters said they were anticipating an increase in competition for assets within the next year.

Summing up the situation, UK-headquartered law firm Bird & Bird described M&A as the “perfect marriage” between financially strapped start-ups in South-east Asia and larger companies looking for cheaper strategic investments.

Given the increased demand for digital platforms and delivery services throughout the early months of the pandemic, it is perhaps not surprising that the sector has experienced attention from investors.

For example, in February the Singapore-based ‘super app’ Grab announced the purchase of wealth-tech start-up Bento, while Grab’s biggest rival in South-east Asia – Indonesia’s Gojek – acquired Indonesian point-of-sale start-up Moka in April and Vietnamese e-payment start-up WePay in September.

Elsewhere in the food delivery sector, in July the delivery app Line Man, owned by Japan’s Line Group, announced a merger with Thai restaurant review platform Wongnai after securing $110m in financing from BRV Capital Management.

Aside from sectors that have been successful during Covid-19, investment opportunities are also expected to emerge in underperforming companies that have struggled in recent months.

“Hotels and hospitality is one area where I see the potential for significant M&A activity. Bangkok and the major resort areas [in Thailand] have a lot of hotels that have been closed for several months due to the pandemic and not all of them will have the financial capacity to weather this sudden downturn,” Paul Ashburn, co-managing partner at business consultancy BDO Thailand, told OBG in July. 

“It was already very competitive before the pandemic so those operators that are more leveraged could now be looking to exit, and I would expect to see some consolidation in this sector.”