The biggest financial sector deals of the year, Asia Pacific – 2016

Deloitte confirms that financial sector based deal flow in 2016 consisted of 174 M&A transactions totaling $44bn. This is 10% decrease in terms of number of transactions and 38% below the $70bn invested in 2015

The biggest financial sector deals of the year, Asia Pacific –

2016Market update

According to Mergermarket, in 2016, we saw 174 deals covering $44bn of deal value brought to market. This equates to 10% fewer deals and a 38% drop in value compared to 2015. Whilst aggregate deal flow was down year on year in the region, there was a greater level of activity in 2016 than the year before for the three most active countries; China, Korea and Thailand.

Deal flow in Japan was significantly quieter in 2016 than 2015 with ten deals compared to 22 in 2015. The disclosed deal value was $249mn compared to $9.84bn. The decline in deal flow in 2016 was, in part, due to exit of foreign banks, absence of regional bank mergers and significant drop in subsidiary merger deals between leasing and guarantee companies, all of which were prevalent in 2015.

The macro-environment did not change significantly in 2016; low GDP growth, cheap debt, available cash on a corporate’s balance sheet and a desire to grow by acquisition as oppose to organically. So, why the significant drop in M&A? In a word, uncertainty. Historically, uncertainty has always resulted in a more cautious approach to M&A and this certainly had an impact on 2016.

2016 was a year of extreme volatility. We have witnessed, inter alia, Brexit, a court case regarding the South China Sea, North Korean aggression, Presidential elections in the US and Philippines, a Presidential impeachment in Korea and Prime Ministerial resignations (UK, New Zealand and Italy), an ongoing crisis between Russia and Ukraine, doubts over the Trans-Pacific Partnership and the continued slowdown in the Chinese economy.

Such volatility negatively impacted the global economic outlook and appears to have eroded some of the confidence in corporate boardrooms which in 2015 had approved more than $4.66trn of M&A deals globally. According to Dealogic, 2016 global M&A totaled $3.84trn, a drop of 18% from the 2015 record high.

2017 has the potential to be an equally volatile year. In Europe, the UK will trigger Article 50 of the Treaty of Lisbon and start to negotiate Brexit, France and Germany will hold elections and we are unlikely to have heard the last of immigration and terrorism from the Middle East. In the US, the policies of Donald Trump will become clearer and could have implications for all trading partners with the US and, by default, potentially those trading with China.

In Asia, volatility is caused by uncertainty, and uncertainty by the unexpected. By definition, events are very difficult to predict. However, North Korea, Hong Kong (and the 20th anniversary of the British handover), the South China Sea issue and, of course, the ongoing slowdown in China could lead to volatility.

All of the above, may loom large on corporate boardroom confidence for the first few months but we, Deloitte AP, are bullish on 2017 as a whole and by year end expect a return much closer to the M&A levels seen in 2015.

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