Harsha Basnayake, Deputy Managing Partner at EY Asia-Pacific established in 2020 that COVID-19 has impacted the deal sentiment in M&A markets. In October 2019, 55% of Asia-Pacific executives expected the global M&A market to improve in the next 12 months, while 45% anticipated similar improvements in the local M&A market. In our current survey, only 45% expect the M&A market to improve globally, but interestingly, 57% expect the M&A market to improve locally. Dealogic data shows Asia-Pacific deal volumes have dropped to their lowest levels since 2005 in the first quarter of 2020.
He asserted that even with a sharp decline in market sentiment, 52% of the Asia-Pacific respondents say that they intend to pursue M&A transactions in the next 12 months, and that this is above the 10-year Global Capital Confidence Barometer average of 43% and equal to the percentage of Asia-Pacific respondents who intended to pursue M&A six months ago. Basnayake underscored the fact that COVID-19 has altered and continues to reset M&A markets from a valuation perspective, and that there is an expectation that underperforming companies or companies with underperforming assets will sell under stressed or distressed conditions.
Basnayake established that M&A markets will also see good adjacent acquisition targets for companies looking to build resilience through technology, automation or supply chain alternatives. Companies that are well capitalized and have been fast to shift their business models in response to a disrupted market and changed consumer behavior, will look to acquire to protect, reposition and grow beyond the crisis. Some Asia-Pacific companies are looking to make bolder moves, with nearly one quarter of respondents expecting to do bigger deals that significantly transform their business.
VIHK and its network of global investment partners are ready and poised to assist Asian businesses in planning, funding, and implementing their transformation through M&A.