Herbert Smith Freehills' eighth annual Asia Pacific M&A Review shows “cause to be optimistic” about the prospects of mergers and acquisitions in Australia and regionally this year, in the wake of “massive levels of dry powder in the region’s private equity funds and the emergence of global and regional special purpose acquisition companies (SPACs) that are actively seeking market and pre-IPO targets”.

Speaking about the firm’s findings, HSF partner Jason Sung said: “The region’s private equity and venture capital dry powder reached a record level of more than US$476 billion as of November 2020, representing 25 per cent of the global total, and new capital is already being raised in the region this year. This represents strong anticipated pent-up demand, which we expect will drive deal activity in 2021.”

“We also expect Asia Pacific exits to increase significantly in 2021, with investors seeking to monetise their investments through multiple channels. A key theme that we see emerging is an increasing number of private equity secondaries. This is a relatively new trend in Southeast Asia, but has been prevalent in North Asia and Australia for some time,” he said.

SPACs, Mr Sung added, are likely to become a “notable feature” of the M&A landscape.

The firm’s review also found “buoyed” confidence in boardrooms, on the back of healthy levels of activity towards the end of 2020.

“The strength of Asian companies and funds’ cash balances allowed them to move more nimbly and to weather the pandemic storm. Companies and fund investors alike took advantage of lower valuations during the second half of the year, with cheaper terms tempting public deals, share buybacks and privatisations,” said HSF partner Tony Damian.

“That deal momentum has carried over into 2021 and there remains a deep pipeline of M&A opportunities across the region.”

VIEW ALL

As we move through 2021, Mr Damian continued, businesses with technology, e-commerce and logistics opportunities, as well as pharmaceuticals, biotech and e-health, will be “prized targets” for acquisition, investment, sector consolidation or public listings.

“I also believe that we’ll see the digital platforms and technologies that have emerged strongly from the pandemic undertake even more M&A activity to achieve new economies of scale and to target new markets,” he posited.

“Conversely, I expect to see restructuring increasing in those sectors affected most by the pandemic, including anything touched by travel, tourism, commercial and retail real estate, and more traditional bricks-and-mortar consumer businesses.”

On the cusp of a “roaring” decade

Gilbert + Tobin has reached similar conclusions.

Having just published its 2021 Takeovers + Schemes Review, the firm said that despite the “chilling” effect of COVID-19 on the M&A sector, the ensuing stock market and asset price falls created opportunities for those with the financial capability to engage in strategic acquisitions.

The firm’s analysis of the sector showed a “significant jump” in the aggregate value of transactions, up from $25 billion in 2019 to $32.8 billion in 2020.

According to G+T partner and head of M&A/corporate Neil Pathak, Australia’s economic recovery is “well underway”, despite uncertainty continuing to shape the landscape, both here and abroad.

“We are three months into 2021 and the market is showing strong signs that we are on the cusp of a Roaring ‘20s of M&A,” he proclaimed.

“We expect that the combination of successful adoption of flexible and remote working, technology advances, cheap debt funding, rallying of financial markets and the rollout of vaccines will result in increased deal activity throughout 2021.”

Costas Condoleon, a partner who serves as co-head of the firm’s M&A/corporate practice, added that opportunity is arising from the adversity of the past year.

“There was a notable increase in the involvement of superannuation and pension funds in Australian public M&A in 2020. Private capital and private equity activity remains high, with confidence of good years to come,” he said.

Remaining challenges

This all said, HSF does still see challenges in the region for practitioners in this space, including but not limited to geopolitics, climate change strategies and regulatory and legislative shifts, which have affected sectoral and country deal profiles and are expected to continue this year.

“While there are opportunities to be had, the complex multitrack deal environment will persist across the region as 2021 progresses,” Mr Sung said.

“Pandemic and vaccination progress will vary recovery across borders, while each country’s individual economic and legislative response to the pandemic will dictate activity and opportunities. The geopolitical uncertainties also remain, with the potential to affect trade and investment without warning.”

“In addition, the lessons of the pandemic along with global shifts in pricing, environmental, social and governance risk will impact due diligence and deal timetables, with buyers looking more closely at the ESG credentials and operational resilience of targets.”

Are you looking to launch your own practice but not sure where to start? Lawyers Weekly’s Boutique Law Summit returns to Sydney this month, designed for individuals who are looking to maximise their competitive edge in a post-pandemic marketplace. The event will be held on Friday, 26 March at the Four Seasons Hotel with a full agenda available to view here. To learn more about the event, click here.