Japan

  • Japanese outbound M&A in Q3 2022 remained flat, increasing by 2% in volume and 3% by total value, compared to Q2[10]. Whilst the ongoing global uncertainty and weak Yen (at a 24 year low) continue to have a negative impact on dealmaking, the downward trend appears to be close to its end
  • Accounting for 68% of outbound M&A deals collectively, Industrials, Business & Tech-Enabled Services and Technology & Software kept their lead with 29%, 23% and 16% of total deals, respectively,[11] in line with large manufacturers’ strategy to find a way to expand overseas
  • For outbound M&A destinations, Asia grew significantly from 13% to 28% QoQ[12], displacing Europe as the highest growth region in Q2 2022, continuing the release of pent-up demand since Covid-19 regulations have relaxed across Europe[13]
  • On the other hand, the inbound acquisition of Japanese companies by foreign nationals has hit a new high of 258 deals (Q1-3 2022) - an increase of 6.6% from the same period last year[14], which we expect to continue given, among other things, the weak Yen encouraging western private equity firms’ investment[15]
  • This increasing activity of western private equity firms in Japan, fuelled by corporate disposals and carve-outs, alongside a weak Yen, have contributed positively to this inbound trend (KKR to take Hitachi Transport private, Bain Capital to buy Olympus Science-Optics Unit)[16]

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China

  • China’s overall outbound M&A activity increased by 8% in deal count in Q3 2022, reaching 57 deals, whereas deal value decreased by 36% compared to Q2, with a disclosed total value reached EUR 8.9BN[17]
  • As demonstrated below, Industrials led the way in deal volume in Q3 – representing 30% of all announced M&A deals, followed by Healthcare (19%) and Technology & Software (18%), continuing the focus from Chinese investors as they transition to high value-add manufacturing now and going forward[18]
  • Europe, Asia and North America (despite the constant US-China tensions), are the most favoured outbound destinations for Chinese investors, each representing c.25% of total outbound activity[19]
  • Looking forward, Beijing’s persistence with zero-Covid policies, travel restrictions and geopolitical tensions will probably slow M&A activity in China in Q4, in some sectors. However, Industrial sectors remain active, proven by the strengthened steel demand and production in the first three weeks of September compared with August[20]
  • Investor sentiment and M&A activity remain strong across certain sub sectors including renewable energy, with particular focus on electric vehicle related transactions, which are expected to pick up as automakers aim to accelerate the development of advanced driver assistance systems, particularly for the Chinese market, eg Volkswagen Group plans to invest EUR 2.4BN in a Chinese joint venture between its software subsidiary CARIAD and Horizon Robotics[21]
  • Record levels of dry powder for Chinese private equity firms could continue to boost M&A activity in China – with a willingness to deploy capital in with long-term returns in Q4, as high-quality assets with stable growth and profitability are still attracting strong private equity interest[22]

 

India

  • Although the Indian public markets activity stayed constant through Q3, the geopolitical backdrop and rising interest rates have resulted in subdued deal activity[23]
  • Despite this slowdown and many countries face slowing growth, India’s GDP is likely to grow at 7% in FY23[24]
  • Although the volume of deals is highest in the Technology & Software sector, activity in this sector has reduced in the last quarter, which we believe is a result of increasing interest rates and regulatory changes
  • Indian buyers continue to favour Europe as the outbound destination with a 62% share of total outbound deals in Q3[25],[26], due to the access that the European market provides to international customers and new technologies
  • We expect that many Indian companies will continue to look outbound for inorganic growth, customer acquisition and market expansion, this is demonstrated by one of the largest deals in Q3 was the acquisition of Israel’s Port of Haifa by Adani Ports (USD 1.1BN)[27]
  • M&A in India continues to be dominated by conglomerates such as Reliance, Tata and Adani. Deal activity from start-ups has slowed down considerably, as focus shifts towards maintaining resilient balance sheets and acquisition of economically strong businesses

 

Southeast Asia

  • Southeast Asian outbound M&A increased by 24% in Q3 2022 – reaching 66 deals - despite global macro-economic headwind, indicative of a continued positive outlook[28]
  • Deal activity was strongest in Technology & Software, Tech-Enabled & Other Services and Industrials, accounting for 52% of M&A collectively[29], which we believe is driven by regional digitalization and development trends
  • In terms of outbound investment, Asia continued to cement its position as the most popular region of investment, as compared to North America and Europe, accounting for 74% of total number of deals[30]. Several factors play a part in this trend, including the uncertain macro-economic situation in Europe, as well as continued structural growth tailwinds in SE Asia eg pro-growth government policies, softening inflation and health demographics[31] [32]
  • Beyond Q3, investors are adopting a cautious approach, balancing optimism from the lifting of Covid-19 restrictions in SE Asia economies and the uncertainty in the global macro environment

 

South Korea

  • Due to worsening market conditions sectors with high valuations (eg, Technology & Software and Healthcare) experienced a drastic slowdown, with their share of outbound deals decreasing to 13% and 6% from 24% and 14% QoQ, respectively[33]
  • Consumer, Leisure & Retail saw the largest increase in deal volume vs last quarter, with a 32% jump in its share of total outbound transactions[34]. This is because, unlike other popular sectors in Korea where valuation and market activity shot up during low-rate environments, valuation multiple ranges in the Consumer, Leisure & Retail sector stayed relatively stable, meaning deal flow was impacted much less than other sectors
  • North America’s share of outbound deals bounced back to 69%, similar to the beginning of the year, which was at 67%[35]. This shows that the decrease in outbound activity in North America was a temporary phenomenon in Q2, which we believe was caused by reluctant investors who were deterred by higher foreign currency risks
  • As the macroeconomic environment continues to tighten, investors shifted towards the more known geographies in North America, Asia, and Europe