Corporates see Southeast Asia as epicenter for growth

12 April 2021 Consultancy.asia 4 min. read
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Executives in Southeast Asia are optimistic, hungry to invest, and looking at their regional market for growth prospects – according to a new survey by EY.

More than 2,400 senior executives from 52 countries participated in the EY study, which sought an overview of global capital flows as the world looks towards economic recovery. 185 of these executives were in Southeast Asia, where a rebound is expected with speed. 

Over 70% of Southeast Asian executives expect their company to resume pre-pandemic levels of profitability by 2022 at the latest – compared to around two-thirds globally. 2023 will be the turning point for the rest, while only 1% expect a longer recovery timeline. The question is: how are executives preparing for this rebound? 

Timeline to recover profitability, Southeast Asia vs global

The answer lies in M&A – with renewed vigour. Nearly 60% of Southeast Asian executives have M&A activity on their agenda for the next 12 months, the highest share since 2012. In fact, the average number of executives planning M&A for the last decade and more stands at 44% – signaling the eager search for investment opportunities at the moment. 

Several factors are at play here. Businesses are looking to rebuild and restructure, while also positioning themselves to compete in the new normal. M&A presents a strong and speedy avenue to this end – as evidenced by the top strategic priorities for executives. 

Most are keen to invest in talent and pick out underperforming assets in their business for divestiture – gearing up for the future and shedding dead weight. A notable share are also exploring M&A as an avenue for inorganic growth. High on the list – and a key area of focus according to EY – is digital transformation. 

Strategic considerations among Southeast Asian executives

“We know from history that companies that transformed and transacted after a crisis came out stronger relative to their competitors.” explained Vikram Chakravarty, EY global strategy lead and head of transactions for ASEAN. 

“Hence, companies in Southeast Asia must act boldly and embrace digital transformation and M&A as a way to win in the post-pandemic world.” Indeed, technology forms the bedrock of most post-pandemic activity – be it a shift to online consumption, a transition to virtual working, or the use of data and other advanced technologies to build a customer-centric proposition.

Managing the long-term impact of the pandemic on business is a key strategic consideration for executives, as is adapting to the shifting risk profile and making fundamental changes to operating models. 

High-growth market

As executives look to organic means for these objectives, the next question is: where can they find the best deal? For most, the target markets are close to home, in Southeast Asia. “Southeast Asia is an attractive region from a medium- to long-term growth perspective. It is no surprise that corporates are favouring the region,” said Luke Pais, EY ASEAN lead for M&A and private equity. 

Geographical focus of M&A activity

“Conditions for M&A, including low interest rates, accommodative capital markets and abundant private capital, remain highly supportive. Companies that are bold coming out of a crisis tend to generate far greater value over the long term.” Nearly half of all regional respondents to the survey picked Southeast Asia as their preferred investment destination in the next three years.

Economic fundamentals in the region have long been geared for growth. A Bain & Company report from 2019 revealed how Asia Pacific now accounts for a quarter of all global private equity investments – amounting to over $830 billion in assets under management.

With many regional economies set to recover at a fair clip, Southeast Asia’s appeal is only growing. Indeed, even global respondents to EY’s survey picked the region as the top destination for M&A in the next three years – at part with the interest in North America.