Kroll : Intra-regional M&A drives competition and integration in the ASEAN

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In 2016, ASEAN saw 534 deals worth US$57.9bn; Q1 2017 kept momentum with 118 deals worth US$14.7bn

JAKARTA (TheInsiderStories) – In Q1 2017, the ASEAN recorded 118 deals worth US$14.7bn, sustaining the momentum of the past year. This was a year-on-year increase of 8% in value and 7% in volume over the same period in 2016.

Rich with investment opportunities and positive demographics—a young and dynamic population with growing disposable income and upward mobility—the Association of Southeast Asian Nations (ASEAN) continues to attract international acquirers.

In 2016, the region recorded 534 M&A transactions valued at US$57.9bn. An in-depth interview with Richard Dailly, Managing Director at Kroll, presents insights on the ways to spot and mitigate risks before entering into cross-border M&A transactions in the ASEAN, while leveraging on the present watershed of nascent opportunity and potential.

According to Dailly, “The hybrid figure of the “businessman politician” is a characteristic of the business environment in ASEAN, which inherently creates corruption and compliance risks for investment and M&A activity. Businessmen have little incentive, when they also have political interests, to improve the regulatory environments in their home countries, when these regulations can create potential barriers to their own business activities.”

Discussing the cyber security risks pertinent to the ASEAN, Dailly identifies a lack of education amongst the business community towards the quick-changing and increasingly complex and sophisticated nature of cyber security threats.

Elaborating on the topic, Dailly says, “[Businesses] often consider themselves to have checked the cybersecurity box by fulfilling the most basic of security needs, such as by setting up firewalls. As such, while challenges in cybersecurity have a lot to do with a lagging regulatory environment, there is also a general myopia within the business community. Of equal concern, then, are not just the risks themselves, but also the prevailing ignorance towards those risks.”

One of the best ways to mitigate risks in cross-border M&A is to engage in a thorough pre-transactional due diligence process. “When conducting due diligence,” according to Dailly, “it is important to unravel and understand the links between a potential business partner and their connected parties, particularly if these parties might be connected politically. These connections may impact how they are able to win contracts and licenses, and may indicate how that business is able to influence other local stakeholders.”

According to Dailly, “Local context also needs to be factored into any due diligence. Language barriers, coupled with the existence of different political structures and opaque regulatory frameworks, often pose challenges to foreign investors, who may also be unfamiliar with how political dynamics play out between different parties in unfamiliar geographies. This might include needing to understand how nonstate stakeholders might wield power and influence. This might also include the media, unions and nongovernmental organizations, which are frequently connected to local politicians and competing tycoons.”

Trends Highlight Cross-border M&A:

 Intra-regional M&A: 2016 closed with 89 intra-regional deals worth US$18.9bn, registering a sizable year-on-year increase of 368% in value and 19% in volume from 2015. Whether 2017 will put on a similar performance remains to be seen, with the year beginning on a slower note with 18 deals worth US$1.5bn in the first quarter.

 Top target countries: Thailand was the top target jurisdiction for intra-ASEAN M&A by value from 2014 to Q1 2017 with US$10.3bn from 38 deals, followed by Indonesia and Vietnam.

 Foreign inbound M&A: In Q1 2017, the ASEAN witnessed 46 foreign inbound deals worth US$10.6bn, a 130% increase in deal value compared to Q1 2016, which posted 52 deals worth US$4.6bn, in spite of a drop in volume. The full newsletter is available for viewing here -ENDAbout Kroll Kroll is the leading global provider of risk solutions.