Half of deals analysed in Asia Pacific have destroyed value and underperformed their industry peers
Amid growing headwinds, doing deals in Asia Pacific has become more complex. Inherent challenges in Asia Pacific increase risk around the execution of deals, and the ability to deliver strong growth post-deal.
PWC's latest report: “Delivering Deals in Disruption: Value Creation in Asia Pacific” has revealed 41% of buyers and 63% of divestors underperformed their peers over the 24 months post-deal close, based on total annual shareholder returns.
At the same time, Asia Pacific remains the ‘sweet spot’ for global growth due to a range of factors - including burgeoning intergenerational wealth transfers, accelerated sector modernisations, growing intra-Asian trade flows and a nascent focus on Environment, Social and Governance (ESG) - which together present compelling Value Creation opportunities.
It’s not surprising that M&A activity in Asia Pacific has been riding a wave of optimism, increasing over 3.5 times in the past 16 years. This significant growth is buoyed by sizable Private Equity (PE) dry-powder of ~USD$600+ billion in 2021.
Raymund Chao, PwC Asia Pacific and China Chairman, commented: “Dealmakers are under more pressure than ever before to deliver value in a time of disruption. With plenty of opportunities to generate sustainable premiums across Asia Pacific, taking a new perspective on deals can unleash unexpected transformation across the region”.
The current landscape is a clear call for a new approach to deals - a comprehensive and disciplined value-creation lens that is embedded across the entire corporate lifecycle and linked to strategy. Dealmakers we surveyed support this view:
- Only 29% of acquirers in Asia Pacific say Value Creation was a priority on Day One (deal closing), though 66% said it should have been a priority in hindsight.
- 94% of Asia Pacific deals that did not leverage a formalised Value Creation methodology or blueprint through acquisitions lost significant value relative to the purchase price.
David Brown, Asia Pacific Deals Leader, added: “Asia Pacific is a fast growing region where markets have seen less consolidation and companies are typically less mature - there are disproportionately more ways to bring a Value Creation lens because of the degrees of transition and transformation happening across the region.”
So, what’s next for dealmakers in Asia Pacific? We are seeing many deal thematics emerge recently including ‘roll-ups’ to build scale, carve-outs in the private and public spaces, transacting as a catalyst to transform and innovate, and partial trade-sales to fund strategic expansions and better manage regional political and supply chain tensions.
In order to activate these, we suggest six pragmatic responses for dealmakers to successfully drive Value Creation catering to Asia Pacific’s nuances:
- Prioritise Value Creation, link it to strategy and embed a disciplined blueprint that promotes actionable planning
- Play to strengths and focus on differentiating capabilities
- Commit time and effort to understand different cultures, business and market practices to shape people strategy
- Continually uncover value from data and do so early
- Use ESG to elevate premiums
- Invest appropriately in integration to de-risk execution
Chantanuch Chotikapanich, Deals Leader, PwC Thailand, added: “Businesses in Thailand are increasingly taking a more strategic approach to create value through a capability lens post-deal, as opposed to opportunistic or risk-focused. Business development and strategy teams are working closer than ever to achieve greater synergy while getting involved in the deals process from start to end to ensure both acquirers and sellers are confident that their expectations are met.
“What’s more, we’ve seen an increase in investors and financial institutions checking the ESG credentials of businesses as part of their deal decision-making process. However, talent loss–especially after the deal is closed–is still a persistent challenge that Thailand faces, like the rest of the region.”
Also, buyers and sellers must ready themselves for post-merger integration before closing the deal. This means having a clear communication plan for both parties to understand the impact and future directions of the newly merged business, Chantanuch said.
