Stanley Yang, Executive Vice President, Group Corporate Development at investment management firm First Pacific, discusses his dealmaking predictions for the APAC region over the coming year.
The influence of ESG is also set to drive activity across our group.Stanley Yang, Executive Vice President, First Pacific
Ansarada: What do you see as the primary drivers of M&A activity over the near and medium-term?
Stanley Yang: I think there are a few points to mention here. In terms of drivers, there is an expectation that the markets will return to growth post-pandemic. Now, of course, this is subject to volatility, as we have seen recently with the spread of variants and the impact this has had on the market. This return to growth will be supported by low borrowing costs. We’ve been in a very low-interest rate environment for a long time, which has in turn increased the availability of funding and the willingness to deploy cash.
At First Pacific, our largest markets are Indonesia and the Philippines. Whilst we have certainly seen an increase in economic growth and performance compared to last year, when the initial shutdowns took place, there have been subsequent waves of COVID in these markets due to the spread of new variants. Yet, once we get past the pandemic, the region will remain attractive to multinationals and financial investors.
Private equity funds have raised record levels of capital that they are looking to deploy, with infrastructure an increasingly attractive investment opportunity. The food industry has also been active. We own a business called Indofood – the largest vertically integrated food producer in Indonesia. Last year they acquired businesses in the Middle East, Africa, and Eastern Europe, largely in very similar business lines. While there were no significant growth opportunities for Indofood in their own region, the opportunities to scale up in countries within the Middle East and Africa were significant. For this reason, geographical expansion will be another significant driver of cross-border deal activity going forward.
The influence of ESG is also set to drive activity across our group. On the power side, strategic planning and decisions at the board level are being influenced by challenges posed by traditional fossil fuel sources, and steering business initiatives towards renewable energy – in particular solar. There’s been a lot of interest in these areas in our own portfolio and across the broader region.
Ansarada: To what extent do you expect digital transformation to be a driver of deal activity in 2022?
Stanley Yang: On the digital side, businesses that are driven by enablers such as payment platforms have seen a lot of interest. Aside from these technologies, the infrastructure that supports the growth in data, such as data centers, has also generated significant interest. In our own portfolio, that’s been an area in which we’re seeing investor interest looking to participate in the ASEAN market.
Another area that is particularly active is the healthcare space. E-health has become a priority post-pandemic, with an increased focus on telemedicine and the ongoing digitalization of health services. That’s one of the areas that we have been investing in as a group, and we believe it’s an area that will generate further growth.
Ansarada: Dealmakers have to stay abreast of risks and challenges that may come our way. From your perspective, what do you see as the biggest risks on the horizon?
Stanley Yang: As a diversified company, the risks we are seeing are very sector specific. Some of our roads have been impacted quite heavily, for instance toll roads, due to reduced traffic volumes amidst COVID. On the flip side, telco businesses such as mobile and broadband and data centers have performed very well due to an increase in data usage.
I think the risks are several-fold. There are inflationary pressures that central banks, including the Fed, are monitoring, which may impact the availability of capital further down the line. The persistence of the pandemic also poses a threat. As I said earlier, new variants, the pace of vaccine rollouts, and subsequent closures of societies, will continue to impact activity going forward. We’re still waiting to see how it will all play out.
On the geopolitical front, the revival of protectionism and trade wars, along with the regulatory tightening in certain industries that are deemed sensitive or disruptive, pose a risk to deals. Given the fact that the majority of dealmaking is taking place remotely, cybersecurity has become an increased threat. We’ve seen numerous breaches across the globe in various forms, and the risk of sharing confidential information needs to be carefully considered by dealmakers.
Ansarada: We’ve already alluded to protectionism and cross-border M&A, but I’d be fascinated to get your perspective given that your work concerns Indonesia and the Philippines a great deal. Could you speak to how a dealmaker should go about their cross-border transaction strategy, the sort of markets that they should be looking into, and how they should be approaching these markets?
Stanley Yang: To your point around protectionism and the interest of foreign groups – for the last decade and a half there’s been a lot of interest in investing in Asia, particularly its two largest markets – India and China. As some foreign investors have looked to diversify their exposure, they have started to recognize other opportunities elsewhere in the ASEAN market – our principal area of focus. We have seen very significant
interest from companies all across the globe who are increasingly setting up offices in Southeast Asia.
I think the main challenge surrounding the entry into new markets is local market expertise. To do it alone is quite different than to find partners who know the market
inside and out and have built relationships with other business groups, with regulators, and other key constituents that would help mitigate the risk and ensure that a business’s growth initiatives can be executed successfully.