Asia-Pacific Finance M&A Faces Extended Slump Amidst Economic Uncertainty: S&P

M&A Activity: Mergers and acquisitions within Asia-Pacific's finance sector are encountering prolonged stagnation, with economic unpredictability, escalating funding costs, and geopolitical turbulence casting a shadow over dealmaking confidence.

Mergers and acquisitions in Asia-Pacific's finance sector are unlikely to pick up soon as economic uncertainties, higher funding costs and geopolitical risks dent dealmakers' confidence.

“Economic uncertainties, higher funding costs and increased volatility due to geopolitical risks are among the factors deterring M&A activity in the region, said Raghu Narain, managing director and head of investment banking for Asia-Pacific at Natixis CIB.

According to Narain, these conditions are detrimental to M&A activity because they put a dent in confidence, and therefore the gap between buyers and sellers, valuations, and agreement of deals, persists — and that's what we've been seeing in Asia-Pacific

Deal Volumes Dropped

Deal volume in the sector dropped almost 14 per cent year over year during the quarter ended March 31, dragged by declines in mainland China and Australia, according to S&P Global Market Intelligence data that was compiled on a best-efforts basis.

First-quarter data from S&P Global Market Intelligence unveils a sobering reality: finance sector M&A dipped nearly 14 per cent year over year, with mainland China and Australia notably affected.

Raghu Narain, Natixis CIB's Managing Director and Asia-Pacific Investment Banking Head, attributes this slump to wavering confidence among dealmakers, leading to persistent valuation gaps and tepid agreement.

Navigating macroeconomic headwinds, the finance domain grapples with mounting regulatory scrutiny and capital stringencies, as Andre Gan, Partner at Wong & Partners in Malaysia, underscores.

Justin Tan, Partner at Mayer Brown, holds cautious optimism for Australia's M&A landscape, contingent upon improving interest rate clarity. However, mainland China's outlook remains clouded by growth uncertainties.

In mainland China, where a 5 per cent GDP growth target looms for 2024, finance sector M&A witnessed a stark downturn in Q1, echoed by Australia's notable decline in deals.

Asialink Business CEO Leigh Howard stresses the linchpin role of investor sentiment, urging a turnaround for substantive dealmaking to materialize.

Amidst the gloom, India emerges as a potential beacon, buoyed by robust growth forecasts and resilience to global upheavals, evident in its modest year-over-year deal uptick in Q1.

Despite the current ebb, hopes are pinned on a resurgence fueled by a backlog of deals and pent-up demand. Oluchi Ikechi-D'Amico, EY-Parthenon's Asia-Pacific Capital Markets Community Leader, echoes this cautiously optimistic sentiment, albeit contingent on stabilizing macroeconomic conditions and geopolitical tranquillity."