2023 Predictions

Jacqueline Chan

Jacqueline Chan, a partner at Milbank’s Singapore office, discusses the challenges facing dealmaking in 2022 and how the energy transition is fueling M&A in Asia.

Jacqueline Chan, Milbank logo
The focus is on trying to figure out where those opportunities are, where the technology is going and identifying who is likely to be participating.
Jacqueline Chan, Partner, Milbank


There has been a downswing of activity in 2022 compared to the historic highs of the previous year. Do you expect deal activity to continue to trend down in 2023? What about in APAC specifically?

It has been interesting. I think 2021 was a bit of a standout year for everyone in terms of M&A. Anecdotally, in 2022 many are talking about a slowdown due to various pressures. The war in Ukraine has affected European M&A a little more than some other regions, but has led to geopolitical risks for all. Another factor has been inflationary pressure and the need for central banks to start raising rates to counter inflation – this started during the COVID period but was exacerbated by the war in Ukraine. All of this has essentially put a halt to capital markets, which has knock-on effects on acquisition finance as rates tend to go up. And, because IPOs are not a viable exit route at the moment, this has led to a slowdown in the decision-making around buyouts and investment.

Most markets have witnessed a slowdown in deals being announced. As an M&A practitioner, I recognize that there are still many deals in the pipeline. It remains to be seen how many deals come to fruition this year.


Have you noticed any change in the type of acquirers this year?

We have noticed a change in the participants in M&A, particularly in Asia. Private equity folks are slightly less active at this moment. Due to the softening on valuations and the increase in the cost of debt, they are being more cautious. Meanwhile, strategic buyers can access longer-term capital, have more synergies and face less competition. Strategic buyers are getting more active in the marketplace. That’s everyone from SK in Korea to Mitsui in Japan, as well as conglomerates all across the spectrum, like Ratch Group or PTT Group in Thailand and Adaro in Indonesia.


Are there any sectors that you think will be especially active in terms of M&A in 2023?

There has been a shift towards energy transition and renewables for sure. Infrastructure also has been much more active. We’re observing PE firms, strategic buyers and infrastructure funds all focusing much more on the energy transition. Three or four years ago, there were significantly fewer deals of that type; we now see joint ventures, as well as M&A and investments into existing platforms.

Infrastructure is very active, whether it’s logistics, water, transport, and especially digital. But there are only so many data centers and tower companies left to buy in Asia. It seems that the idea is to acquire what you can to execute platform deals and capture the aggregator multiple.

On the other hand, tech has taken a bit of a downturn this year. There is a lot of discussion as to whether this is affecting early-stage tech as much as it is affecting late-stage companies. I think this may be true – pre-IPO rounds are definitely down – but we also are seeing less early-stage activity in the market. And there are no exits at the moment for tech. Many appear to be waiting to see how that goes, I think.

Other sectors that have been attractive for investors thus far, like health and education, continue to be so, however Asia has a limited range of targets available in those sectors.


Is the shift to industrials and renewables a result of long-term shifts towards the energy transition, or is it fueled by a shorter-term turn towards stable, reliable returns due to slowing growth?

I think that it’s twofold. Firstly, Asia used to be active for traditional PE sectors like consumer, healthcare, education and digital. I think many still hold as attractive platforms, but they’re harder to do in Asia, especially because of COVID.

The consumer sector is more volatile, education is kind of tapped out right now, as is healthcare – there aren’t many of these assets up for grabs. Industrials are more of a challenge for private equity than for strategic buyers; they need to determine if they really want to do that and what their exit opportunities will be.

Secondly, I think that looking at a 10- to 15-year timeframe, the energy transition is the way to go. That means metals and mining, nickel or precious metals integral to the energy transition story. It can be the production space, involving specific materials for the energy foundation, as well as battery manufacturers. It’s a variety of different sectors, but all of the stories for growth lead toward decarbonization and energy transition. This seems to be the longer-term play for almost everybody. The focus is on trying to figure out where those opportunities are, where the technology is going and identifying who is likely to be participating.


Europe and the US seem to be leading on ESG standards. What effect is this having on Asia-Pacific?

Much of what is happening is being led by policies crafted in the United States and in Europe and being fed through to Asia through two channels. One is investments. Funds that are themselves subject to ESG reporting will impose the same level of ESG reporting on their portfolio companies. As a result, many companies that have taken PE funding will incorporate the same policies and standards. The second is financing. There is a lot of financing available for sustainability and green bonds. That in itself is likely to encourage many companies to voluntarily start complying and raising their standards.

To the extent that legislation in Asia -Pacific has not yet caught up to the same requirements as the US and Europe, the flow of money will actually precipitate change and adoption, which in many ways is more powerful.


Continuing on the theme of regulation, we have seen increased protectionism around the world, as well as more interventionist merger control actions. What is the situation in Asia?

While there is evidence that the United States and Europe are stepping up protectionism and merger control, we see Asia trying to make itself more open to investment. During COVID, some countries, the Philippines for example, suspended their merger control regime. Indonesia reduced its negative investment list, meaning fewer industries are now subject to foreign investment rules. Vietnam also has been exploring ways to make foreign investment rules a little less restrictive, particularly in the renewables sector, even though there is a requirement for merger control review. Still, it may be too early to say. However, we do note that governments in Asia, such as Vietnam and Indonesia, are actively looking to encourage foreign investment, particularly in the areas of decarbonization and energy transition.



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