Despite challenges from the COVID-19 pandemic, 62% of Asia-Pacific respondents are confident they have outperformed competitors in terms of operational stability and an overwhelming 90% anticipate growth opportunities within Asia-Pacific in the next three years, according to the 23rd edition of the EY Global Capital Confidence Barometer (CCB23).

The EY research shows a majority of Asia-Pacific respondents are interested in mergers and acquisitions (M&A), with 53% of respondents actively planning to pursue deals in the next 12 months, the highest since 2017, and significantly higher than the Asia-Pacific CCB average of 45%. Key drivers of M&A in the region include acquiring technology and innovative solutions, as well as responding to regulatory changes to secure supply chains.

Cross-border acquisitions lined up

As to where Asia-Pacific respondents intend to look for deals, 89% of respondents say they will seek cross-border acquisitions in the next 12 months. The enthusiasm for cross-border M&A is particularly strong for destinations including Japan and countries in Southeast Asia. Over seven in every 10 (71%) of all Asia-Pacific respondents say they are planning to invest within the region, with India, Singapore, Japan, China and Thailand representing the top five M&A investment destinations.

Large private equity (PE) funds are also looking to increase their investment in the region. More than 80% of Asia-Pacific respondents indicate they expect increasing competition for assets in the coming year, with 57% saying they’ll be competing against PE firms for assets.

Concerns about competition or antitrust reviews and valuation were key reasons for deal termination in 2020, with 53% of Asia-Pacific respondents indicating that their businesses failed to complete or cancelled a planned acquisition in the last 12 months. Notably, this percentage is lower than the response of 64% to the same question one year ago.

"As companies redefine success in a post-pandemic landscape, Asia-Pacific executives see M&A as a key lever of business transformation and acquiring technology," said Yew-Poh Mak, EY Asia-Pacific Strategy and Transactions Leader. "Executives recognise that being at the forefront of technology and digital adoption has been the key differentiator in success during the past year."

Achieving fast-track transformation through M&A

According to CCB23, 85% of respondents say their organisations are undergoing a significant business and technology transformation programme. Despite headwinds as a result of the COVID-19 pandemic, nearly half (49%) of respondents believe their digital transformation programmes have overperformed, relative to their competitors.

At the same time, 89% of Asia-Pacific respondents say they have conducted a comprehensive strategic and portfolio review, and 82% say their reviews were accelerated in direct response to changing events.

Impact of geopolitical and regulatory issues 

While only 9% of senior executive respondents regard geopolitical tensions between markets to be the greatest external risk for their businesses, 85% of Asia-Pacific respondents believe that geopolitical challenges, such as trade tensions and protectionist measures, are forcing executives to alter their investment strategy. Asia-Pacific respondents also cited climate change as the second greatest external risk that could impact the growth of their business, after the continuing COVID-19 pandemic.

"Asia-Pacific business leaders have demonstrated throughout the COVID-19 pandemic the agility to navigate the storm," added Mak. "The pandemic has also sped up megatrends that were already underway, for example the regulatory policies attributed to climate change have become an important factor which C-suites are incorporating into strategies. Following the initial economic shock from the pandemic, executives conducted comprehensive strategic portfolio reviews to reimagine their competitive position. Now, they are seeking to accelerate their M&A and transformation programs as they look to reshape their future in the post-pandemic world."