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25 Oct 2019, Stella Zlatareva, EMIS M&A Team

Deal flow in Southeast Asia stretches beyond Singapore, shows signs of appetite for finance M&A

The appetite for M&A in Southeast Asian economies has kept gaining momentum throughout 2019. Investments are continuously extending beyond the traditional financial hub Singapore (which still accounted for more than 35% of the deals this year) and into other ASEAN nations, including Vietnam, Indonesia, Thailand, Malaysia, and the Philippines.

We have seen a significant increase in both deal volume and value between January and September 2019, namely 653 deals versus 506 in the comparable period of 2018 as well as a 12.3% boost in transaction value to USD 45.6bn. 

Demand for targets active in the IT, Internet, and Media sectors is just as strong as anywhere around the globe and in fact comes on top of the list of deals by industry. The trend also shows that investor perception about the region is shifting and we do not rule out a scenario in which some of the next tech unicorns emerge from this particular geography.
Another coveted area, however, appears to be more traditional and that is Finance & Insurance. We believe that we are yet to see a massive focus on this industry in SE Asia as the region experiences a stable economic growth of some 5% per year, albeit the expected global economic downturn might decelerate the process. There is rationale for both domestic and cross-border consolidation due to a number of factors.

These include the large – and predominantly unbanked – population, the macroeconomic similarities across nations, and the industry fragmentation in some of them. Southeast Asian banks are also attractive to foreign investors thanks to their rather stable profits, good capital levels, and the opportunity to create new revenue sources in response to their saturated home markets and the challenges that fintech disruptors pose.

In fact, one example of a potential bidder for banking assets is South Korea, according to a recent interview with Bain & Co’s Asia-Pacific head for The Korea Times. In Satish Shankar’s view, Korean financial companies should proactively pursue M&A opportunities in a drive to secure new income sources and withstand competition from their North Asian peers.

Indeed, one such deal is already happening and it involves South Korea’s Hana Bank, which in July agreed to acquire 15% of Vietnamese state-owned lender Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) for USD 870mn. The buy is the largest investment made by a South Korean bank in Vietnam. 

M&A could also assist investors in bridging the cultural gap between markets as opposed to the uncertainly of establishing branches from scratch in an unfamiliar country, Shankar noted. In his words, consolidation in countries with fragmented financial services sectors, such as Indonesia, is inevitable. Indonesia is where a couple of sector players have reportedly put themselves on the block. So be on the lookout.

Original source: EMIS - DealWatch

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