More than half of big firms want to snap up small businesses in 2015: report

The appetite for M&As is now at a 2-year high.

EY’s latest Capital Confidence Barometer today revealed that corporate executives in Southeast Asia are now more than willing to engage in mergers and acquisitions, on back of increased business confidence in the region.

A staggering 68% of the respondents expect the local economies in the region to further improve over the next 12 months – a significant boost in confidence compared to six months ago. The most significant shift is seen in executives based in Singapore and Malaysia.

Meanwhile. 53% of SEA corporates expect to pursue acquisitions in the next 12 months – the highest appetite over the past two years and a sharp increase from just 24% six months ago.

A significant majority (72%) of SEA corporates say that they are working on at least two or more deals in their pipeline. Most of the targets are in the middle market category with a value of US$50m or less – an emerging characteristic in the M&A landscape globally.

According to Harsha Basnayake, Asean Managing Partner for Transaction Advisory Services at EY, “Our respondents say that they are focused on smaller middle-market deals. Fifty-six percent say that their acquisitions are focused on targets that can be bolt on to their core businesses."

"Most of our corporates in the region have relatively lean inhouse M&A teams. So the focus on two deals in the pipeline is keeping these teams busy as there will have to be greater scrutiny on investment opportunities to find the best strategic fit. It’s also no surprise that mid-market deals are driving the M&A volumes in SEA – a trend seen globally as well. SEA businesses that are ripe for picking are those that are constrained for growth due to internal limitations, which often makes theme good targets as bolt-ons,” he added. 

Respondents are also more confident of the likelihood of closing deals, with confidence climbing to 42% from just 25% six months ago.

Over three-quarters (76%) SEA corporates expect the M&A markets to improve locally, compared to 51% of those who held such views six months ago. The most confident executives are from Singapore (84%), Philippines (82%), and Thailand (77%).