A SURVEY by professional-services firm Grant Thornton of business leaders in 36 economies found that 33 per cent of respondents planned to make an acquisition at some point over the next three years.
The total value of merger and acquisition (M&A) activity was a very buoyant US$3.8 trillion in 2015. But transaction confidence on both the buy and sell sides has taken a knock because of global economic instability. Still, the regional picture is varied because of differing macroeconomic conditions.
The data in this report are drawn from interviews conducted between September and November last year with more than 2,500 chief executive officers, managing directors, chairmen and other senior decision-makers in mid-market companies across all sectors.
Asean countries are showing an appetite for acquisitions, with many affluent investors looking for lucrative overseas deals. The main driver for this is to enter new geographical markets. While businesses in emerging markets are more likely to engage in cross-border M&A activity to leverage new technology or for increased brand recognition, southern European businesses are more likely to engage in acquisitions as a defensive measure against hostile takeovers.
Julaporn Namchaisiri, managing director of corporate finance at Grant Thornton in Thailand, said: “Cross-border activity increases as the economic recovery gains more traction in developed economies.
“In Thailand, M&A is still a development short cut for both listed and non-listed businesses [that] have purchasing power. It helps them grow rapidly and strengthen their organisation.
“But in this pessimistic economy, we see M&A trends as a way to reduce business risk by diversifying into other businesses that may not be directly related with the initial core business and are more stable, thus rendering growth in the future.”
Despite cheap sources of funding and increasing propensity to acquire in some regions, vendor confidence slipped 5 per cent globally in 2015, signalling fewer tangible selling opportunities. This sets the stage for increasing valuations as the disparity between supply and demand widens. The recognition that better valuations are ahead may be contributing to the 5-per-cent decline in businesses expecting a change in ownership in the near future. As a result, the difference between future acquisition demand and supply is 24 per cent, further signalling favourable market conditions for sellers. “Acquiring new talent or skills is a main driver for businesses across all regions, but it also reflects the fast pace of technological progress and a lack of such skills internally,” Julaporn said.
“For acquirers seeking to buy in depressed economies, there are a range of opportunities. But turnaround for many of these economies is slow and they will continue to face challenges in the near term. Rather than seek quick returns, acquirers need to take a mid-term view, looking at how an acquisition supports their business strategy.
“Businesses should consider acquisition as a route to accessing new markets, recruiting new talent and skills into their firm and building scale to grow – as long as those opportunities support their middle and long-term strategic goals rather than a short-term objective of speedy financial return.”