M&A deal volumes down in Asia-Pacific

Yet private lenders and advisors say longer-term demand is evident as sponsors look to consolidate businesses and deploy capital in the region.

M&A was not high on the priority list of corporate directors earlier this year as they focused instead on liquidity, business continuity, and day-to-day crisis management. As a result, direct sponsored lenders and private debt providers saw a material impact on their deal pipelines during the first half of the year.

“So, what you are seeing is a relatively empty pipeline,” Spencer Park, a Hong Kong-based counsel at Dechert told Private Debt Investor. According to Park, around March when the pandemic forced lockdowns worldwide, it became harder for deal origination and investment professionals to go out to meet people and find deals. “So, you will see a lack of pipeline from those months,” he added.

PwC’s APAC Financial Services M&A report showed that first quarter M&A deal volume was 114, down from 155 deals in Q4 2019. It also showed total deal value during January to March this year fell to $16.7 billion from the previous quarter’s $35.8 billion, reaching its lowest level since 2010.

However, Park noted that longer-term demand for acquisition financing in Asia is likely to remain due to the amount of private capital dry powder that needs to be deployed.

Private managers’ global dry powder was at a record high of $2.3 trillion last year, McKinsey Global Private Markets Review 2020 showed. The report noted that this was partially because of private equity mega-funds.

Ming Eng, a Singapore-based managing director at Olympus Capital Asia Credit said her team has been seeing a lot of acquisitions and M&A activity has picked up again in the past few months.

“[The activity picked up] both from the sponsor side and non-sponsor side as corporates look into some of the consolidation opportunities with smaller peers in the industry,” she noted, speaking at PDI‘s Japan Korea Week 2020, our virtual forum held between 9 and 12 November.

Eng added her team has seen an improvement in security packages and covenants now compared to pre-covid. However, she said, her team is more cautious on industry and corporate selection when allocating capital.

“For example, a lot of governments put in the moratorium measures during this year … we are watching very closely how these moratoriums slowly get lifted, what other corporates and which sectors we will see as some issues start to surface,” Eng noted.