Asia Access Quarterly: 2021 Highlights & H1 2022 Outlook - Regional commentary – Insights – News, Deals & Insights

Japan

Q4 2021:

Last year’s most active sector was Technology & Software[1]. This sector has been described as ‘Covid-resilient’ – its remote capabilities have allowed it to evolve with the transformation in work and consumer habits. In fact, these changes in underlying deal drivers triggered a step-change in technology evolution
- In 2021, Technology & Software made up 32% of all Japan outbound deals, having slowly taken the lead from Industrials, which accounted for nearly half of these outbound deals pre-pandemic[2]
As illustrated below, Europe was the most popular investment destination in Q4 2021, driven by its swift return to M&A activities. 37% of Japanese outbound deals landed in the region, gaining shares from both Asian and US-based buyers[3]
Private equity (PE) activity in Japan has continued to grow. The level of PE activity in Japan, is still at 1/40th of US and 1/25th of European levels[4] when measured as a fraction of GDP. There were 17 PE deals completed in December 2021 alone according to Mergermarket[5]. In addition, a significant number of Western PEs active in the Japanese buyout market have raised Asia / Japan-specific funds in 2021, with some also opening Tokyo-based offices – such activity demonstrates a growing inbound PE appetite across the region[6]
There have been several key deals completed throughout 2021:
Softbank continues to be the most active overseas investor, announcing involvement in over ten transactions in Q4 alone, but not in a manner previously associated with the firm. Instead, they have invested by ‘betting the firm’ on a small number of transformational acquisitions[7]
Kubota’s energetic activities in both Europe and Asia have been most noticeable during the period, particularly across the IT and food sectors[8]
JERA has continued to pursue clean energy focus with their US acquisition last quarter[9]

Outlook for 2022:

Japanese activity across outbound, inbound, domestic and PE deals all saw a significant uptick in 2021 - reaching a historical all-time high since data compilation started in 1985[10]. This deal pipeline growth is expected to continue along this trajectory in 2022
Growth drivers for these transactions are expected to continue from last year:
- Technology deals are expected to remain strong
- Renewable and decarbonisation investment trends are likely to gain further momentum (with huge resources already allocated by both corporate and financial investors)
- The manufacturing sector’s outbound activities are, in our view, only witnessing a temporary dip, and will likely rebound once foreign site visits are reinstated as normal
The Asian PE market is the fastest growing global market, with the growth of investment into Asia focused PE expected to reach 28.2% CAGR in 2025[11]. Japanese PE deal volumes are still at 2.5% of the US level which indicates the potential for significant market expansion. In comparison, the gap between Japan and Europe is approximately 25x [12]

Key M&A transactions – Q4 2021

Company to watch	Representative transaction	Date announced	Transaction type	Region	Sectors & keywords	Value (USD m)	Source
Sony	Zee Entertainment Enterprises	22/12/2021	Acquisition	India	Media (TV broadcasting)	4,454	[13]
Softbank	Robotic Research	09/12/2021	Series-A fundraising	USA	Tech (Autonomous mobility & Robotics)	228	[14]
Kubota	The Escorts Group	18/11/2021	Acquisition	India	Industrials (tractors)	1,265	[15]
JERA	Freeport LNG Development	15/11/2021	25% stake	USA	Infrastructure (LNG)	2,500	[16]
Hitachi	Bombardier Transportation GmbH	02/12/2021	Acquisition	Germany	Industrials (rail equipment)	N/A	[17]

To view sources for this section, click here >

China

Q4 2021:

China’s GDP grew by 8.1% in 2021 although the momentum slowed down in the fourth quarter a result of the renewed Covid-19 measures and power shortages[18]. The country’s overall industrial output has increased by 9.6%, including an 18.2% expansion of the high-tech manufacturing industries[19]
Geopolitical headwinds, regulatory changes (particularly in tech and private education[20]), and a zero-Covid policy all impacted China’s outbound M&A activity in Q4 2021. The number of total outbound M&A transactions in this quarter fell to 93, its lowest for the year [21]
As demonstrated below, Industrials (equipment and electronics), Infrastructure, and Technology & Software remained the most favoured sectors for Chinese buyers. Industrials continued to lead the way in deal volume in Q4 - representing 24% of all announced M&A activity, followed by Infrastructure (21%) and Technology & Software (13%)[22]
The regional distribution of Q4 transactions remained the same as previous quarters, with Asia and Europe accounting for one third of outbound transactions respectively, followed by the US[23]

Outlook for 2022:

China's reliance on dividends from production factors, eg capital and labour, to sustain economic growth is no longer enough. Instead, the country is now looking at innovation to drive productivity - our experts explore the impact of this on M&A and share an outlook for deal activity 2022...

For our outlook on Chinese M&A activity in 2022, click here >

Key M&A transactions – Q4 2021

Company to watch	Representative transaction	Date announced	Transaction type	Region	Sectors & keywords	Value (USD m)	Source
XJ Capital	SCHMID Technology Guangdong	17/08/2021	Minority investment	Germany	Industrials (electronics)	N/A	[24]
Xi'an Shaangu Power	Ekol, spol. s r.o	15/12/2021	25% stake	Czech Republic	Industrials (steam and gas turbine)	12	[25]
Tencent	Ultraleap Limited	17/11/2021	Series-D fundraising	UK	Computer software	81	[26]
Zhejiang Huayou Cobalt	PVW Resources Ltd (Exploration Licence E27/570)	22/12/2021	Acquisition	Zimbabwe	Infrastructure (mining)	422	[27]
MicroPort Scientific Corporation	Hemovent GmbH	04/10/2021	Acquisition	Germany	Medical equipment & services	143	[28]

To view sources for this section, click here >

India

Q4 2021:

India’s start-up ecosystem saw 43 new unicorns[29] emerge last year, with new age sectors such as e-commerce, social commerce, ed-tech, food-tech, D2C brands and digital mobility attracting multiple investors and causing valuations to soar[30]
Foreign based PE funds have maintained strong deal momentum, driven by the lure of the high growth and digital savvy Indian start-ups. Examples of this trend include TPG’s investment in Dream 11[31] and Softbank’s investment in Juspay[32]
India has also seen the rise of a business model echoing that of US-based unicorn, Thras.io - a model where private brands are acquired and scaled by leveraging shared technology, channel expansion, data-driven marketing, and digital brand building[33]. For example, Indian unicorn Mensa Brands has acquired multiple brands under its platform using this concept, and is therefore amongst the fastest growing in the country[34]
In addition, homegrown PE funds have demonstrated great appetite for buyout opportunities. Two recent examples announced in Q4 last year include Kedaara Capital’s acquisitions of GS Lab[35] and then GAVS Technologies[36]
Indian conglomerates were seen to be further strengthening their products and offerings through inorganic expansions. For example, Reliance Industries acquired Norwegian solar panel manufacturer REC Solar Holdings[37], and TVS Supply Chain acquired a majority stake in Fit 3PL Warehousing[38]. We anticipate this trend will continue, creating new opportunities for M&A driven by a need for improved efficiencies and synergies
Overall deal momentum is expected to be healthy in 2022, driven by; the renewed buyout appetite, adoption of varied business models creating new areas of opportunity for M&A, and India’s continued digital transformation

Outlook for 2022:

We believe that domestic M&A deals will be driven by more established Indian companies and freshly minted unicorns looking to buyout competition for inorganic growth - especially within the Business & Tech-Enabled Services and digital offerings. This would drive consolidation especially in sectors such as ed-tech, insurance, retail, logistics and e-commerce
As seen below, outbound deals have largely been in the Technology & Software sector, with Indian companies acquiring the likes of Western IT services businesses to leverage their capabilities and customer base. For example, Byju’s - India’s largest ed-tech company – heavily demonstrated its appetite to conquer the West through recent acquisitions of US-based companies, such as Great Learning and Epic[39]. We expect deal momentum by buyout firms in the IT Services sector to continue, driven by the potential of strong returns expected
PE transactions fuelled by the ongoing interest in the start-up ecosystem will continue as the digital adoption in India grows from strength to strength. We expect more unicorns in D2C, e-commerce, logistics and technology to emerge in 2022

Key M&A transactions – Q4 2021

Company to watch	Representative transaction	Date announced	Transaction type	Regions	Sectors & keywords	Value (USD m)	Source
Reliance Industries Limited	REC Solar Holdings AS	10-Oct-2021	Outbound Acquisition	Norway	Energy	770	^[40]
Rossari Biotech Limited	Unitop Chemicals	30-Oct-2021	Domestic Acquisition	India	Industrials	58	^[41]
Mahindra Logistics Limited	Meru Travel Solutions	9-Nov-2021	Domestic Acquisition	India	Transportation	176	^[42]
Tech Mahindra Limited	Allyis Inc	31-Dec-2021	Outbound Acquisition	US	Software	125	^[43]
Wipro Limited	Edgile Inc.	31-Dec-2021	Outbound Acquisition	US	Software	230	^[44]

To view sources for this section, click here >

South Korea

Q4 2021:

Although inbound activity from foreign investors dipped in Q4 2021, domestic PE activity took a stronghold. Some notable M&A transactions include IMM Private Equity’s 37.8% stake acquisition in Hanssem, a Korean furniture and interior design company, for EUR 1.1bn[45]. Also, MBK Partner’s 100% stake acquisition of DongjinTex Co. Ltd. and Kyungjin Textile, two Korean textile manufacturers, for EUR 591.5m [46]
As seen below, the Infrastructure sector accounted for 30% of all outbound deals in Korea in Q4 2021 with six deals[47]. Infrastructure has attracted attention from investors in recent times, driven by Korean conglomerates’ work to limit carbon-intensive businesses and ‘go green’ by focusing on renewable energy. A notable outbound M&A transaction in the sector was SK E&S’s investment in REV Renewables, a U.S. renewable energy company, for EUR 258.7m[48]
The largest outbound investment destination in Q4 2021 was the US, with eight deals worth EUR 2.2bn, accounting for 40% of all outbound deals. The US’ appeal as an investment destination is increasing based on its high economic growth rate and favourable business conditions, such as a low corporate tax rate

Outlook for 2022:

The Korean M&A market is expected to remain favourable during 2022 where conglomerates will enhance ESG requirements and commit to carbon neutrality
PE funds are also expected to cash out from acquisitions made five years ago or longer. This in turn is expected to drive M&A opportunity and investment appetite as these assets come to market again. A recent example of this trend is MBK Partners’ partial exit from Modern House, following on from prior successful exits from stakes in Apex International Corporation and Doosan Machine Tools in 2021[49]

Key M&A transactions – Q4 2021

Company to watch	Representative transaction	Date announced	Transaction type	Sectors & keywords	Value (EUR m)	Source
MBK Partners	Haichang Ocean Park Holdings Co., Ltd. (100% stake)	2021-10-18	Overseas acquisition	Consumer, Leisure & Retail	810.0	[50]
CJ ENM Co., Ltd.	Endeavor Content LLC (80% Stake)	2021-11-18	Overseas acquisition	Business & Tech-Enabled Services	683.2	[51]
POSCO International Corp.	Senex Energy Limited (100% stake)	2021-10-18	Overseas acquisition	Infrastructure	660.0	[52]
Krafton Inc.	Unknown Worlds Entertainment Inc. (100% stake)	2021-10-29	Overseas acquisition	Technology & Software	645.4	[53]
SK Holdings Co., Ltd.	The CrownX Corp. (4.97% stake)	2021-11-11	Overseas acquisition	Consumer, Leisure & Retail	300.9	[54]

To view sources for this section, click here >

Southeast Asia

Singapore, Thailand, Vietnam

Deal activity saw a boost in Q4 2021 across Southeast Asia driven by the pent-up demand from last year. Cross-border M&A with Singapore and Thailand has been at the epicentre of this momentum. Singapore reported a total of 23 M&A transactions in Q4 2021, followed by Thailand with a total of 12[55]
Among the Southeast Asian countries, Singapore saw the largest M&A transaction and accounted for c.69% of the M&A transaction size in Q4 2021[56]
Thailand saw the 2^nd largest transaction in this quarter with the c.USD 8.4bn acquisition of retailer Lotus (owned by Charoen Pokphand Group) by Siam Makro[57]
As demonstrated below, Technology & Software saw the most activity in Q4, with many of these deals focused on the SaaS or digital infrastructure space. A rise in FinTech firms across the region was also a key driver of activity in the Financial Services space, a trend we anticipate will continue
ESG factors have been gaining more traction this past year, and we believe it is likely to be an important driver of M&A activity in 2022
With the rise of SPAC related transactions last year, we also expect there to be an uptick in M&A as companies look to de-SPAC transactions[58]

Note: Others include Education, Utilities, Media, Industrial, Manufacturing and Business Services which accounted for less than 0.5% of total transaction size individually

Key M&A transactions – Q4 2021

Target	Acquirer	Sector	Stake acquired	Deal value (USD m)	Source
Grab Holdings	Altimeter Growth Corporation	Technology	100.0%	37,720.3	[59]
CP Retail Development	Siam Makro Public Co. Ltd.	Consumer	100.0%	8,404.3	[60]
PT Global Jet Express	Sequoia Capital; Susquehanna International Group, Tencent Holdings, Hillhouse Capital, Boyu Capital Advisory	Transportation	12.5%	2,500.0	[61]
PT Solusi Tunas Pratama Tbk	PT Profesional Telekomunikasi Indonesia (Protelindo)	Telecom	94.0%	1,654.9	[62]
VPBank SMBC Finance Company Limited	SMBC Consumer Finance Co., Ltd.	Financial Services	49.0%	1,372.0	[63]