Asian outbound M&A is drying up
Global cross-regional M&A deal volume declined for the fifth consecutive year, falling by 20% in 2020, mainly out of Asia-Pacific, driven by increased regulatory scrutiny, the need to localise supply chains and more recently by Covid-19 concerns, according to the newly-released Bain & Company Global M&A Report 2021.
Almost 75% of surveyed M&A practitioners based in Asia-Pacific and Europe, the Middle East and Africa expect an increased focus on domestic or intra-regional deals.
Asian outbound M&A is drying up
As an indication of the localisation, the number of Asian outbound deals into the Americas and Europe fell by 29% year over year in 2020 (see chart). With overall deal value down only 2.5%, Greater China acquirers directed 93% of their deal spending toward domestic companies, with only around 5% going to deals in the Americas and Europe, the Middle East, and Africa. This represents a sharp drop from around 11% in 2019 and roughly 25% in 2016, the peak of Chinese outbound M&A.
Increased regulatory scrutiny
Regulation has steadily expanded well beyond the traditional mandate of assessing the impact of a deal on market power and consumer benefit. Regulatory powers have moved into concerns such as national interest, data privacy, and the impact on future competition.
In 2020, governments around the world continued to expand their scrutiny of M&A. For example, in May 2020, the German government approved new powers to veto hostile foreign takeover bids for healthcare companies, citing the Covid-19 crisis. The new regulation would apply to non-EU bids for German manufacturers of vaccines, protective equipment, ventilators, medicines, or other supplies. Similarly, the UK government initiated a major upgrade of the takeover law that would allow for extensive scrutiny of cross-border deals in 17 sensitive industries.
The extension of government powers and scrutiny is not limited to healthcare, technology, defense, and other sensitive industries. For example, China Mengniu Dairy was forced to withdraw from its plans to buy Lion Dairy, an Australian beverage business, after getting clear indications that the government would oppose the deal. In the US, the Trump administration mandated that TikTok’s US operations be sold to a US buyer on grounds of national interest, with concerns that user data could be compromised.
In France, LVMH attempted to call off its deal with Tiffany when it received a letter from the French foreign ministry requesting LVMH to delay the purchase. The deal is now completed.
Europe favouring domestic deals
At the same time, however, Europe is lending regulatory support for domestic M&A in some sectors. Recent statements from the European Commission support further domestic consolidation among telecom providers, and the growing regulatory support across regions is encouraging further domestic banking consolidation.
The European regulators also are more open to pan-European deals, which led to announcements such as the Nexi and Nets deal in payments, and payments provider Worldline acquiring fellow French payment technology company, Ingenico. Thales acquired fellow French digital security company, Gemalto, in 2019 to create a global leader in digital identity and security.
Localising Supply Chains
The rising scrutiny on cross-border deals and ongoing US-China trade tensions have already been slowing down cross-regional trade for a few years now. This trend is decisively accelerated by supply chain concerns exposed by the Covid-19 crisis. Nearly 60% of our survey respondents report that the need to localize supply chains will be a significant factor in evaluating deals going forward.
This trend is expected to continue, with increased government scrutiny, such as Biden’s announcement last week that his administration would review the supply chain and dependence on foreign companies for the supply of components in computers, electric cars, pharmaceuticals and military hardware.
As the M&A regulatory landscape continues to evolve, M&A practitioners need to keep up with the latest regulations, both locally and in their addressable markets.
