Samson Lo, Co-Head of Asia-Pacific M&A at UBS, discusses the state of play in the Asian M&A market, as well as the impact of regulation within the region.
We are definitely seeing more deals with an ESG focus, and the pressure for these deals comes from many different directions.Samson Lo, Co-Head of Asia-Pacific M&A, UBS
How would you describe the current dealmaking climate within Asia?
I think there has been a lot of focus on the negatives when assessing global M&A activity this year in the media, with a focus on how activity is significantly down compared to a record 2021.
There are certainly some headwinds in the global market, such as the Russia/Ukraine conflict, which has caused many dealmakers to rethink their deal positions. Plus there is rising inflation, various currencies rapidly depreciating and increasing regulatory pressures.
Yet what we are actually seeing regionally is an increase in the diversity of deals being announced, which can sometimes get lost in the overall numbers. Chinese activity remains strong, Southeast Asia has become a hotbed for M&A activity, while Australia and Japan are also seeing plenty of activity.
I would say that, despite global macroeconomic uncertainty, there is still plenty of opportunity for dealmakers within individual Asian markets, which is creating a very diverse dealmaking environment across the region as a whole. It’s very different to the picture compared to 2016, which was primarily outbound driven.
Are you expecting to see any sectors being particularly active?
Tech will continue to be very active – with a focus on digital infrastructure as well as data centers and towers. We have seen some big-ticket data center sales and
expect this sector to continue to be busy. Lately, there has been a lot of focus on improving ESG metrics among corporations, and this will remain an important topic for Asian firms. I expect we will see industrial companies increasingly using M&A to add capabilities, such as automation, which will improve their ESG profile in the long-term.
In terms of ESG, we are seeing global regions adopting regulations at different rates. It seems that, in the Asia-Pacific region, there is not much regulation, but companies are actually driving the agenda forward themselves. What do you think is driving this focus on ESG?
We are definitely seeing more deals with an ESG focus, and the pressure for these deals comes from many different directions. This could be from existing institutional shareholders, or it could be through comparison with Western counterparts. Businesses don’t want to feel that they are falling behind. The impact of a good ESG rating on share price is another major consideration, along with the preference of PE firms to invest in companies with a good ESG performance – so there are multiple pressures that dealmakers face.