Deal activity in the Asia-Pacific finance sector experienced a significant downturn in 2023, reaching its lowest level in a decade due to various factors such as elevated interest rates and a challenging fundraising environment. However, according to S&P Global Market Intelligence, a resurgence in M&A is anticipated, with a gradual uptick on the horizon.
In 2023, M&A in the Asia-Pacific finance sector witnessed a decline of 19.1%, falling from 679 deals to 549. This marked the lowest yearly deal count since at least 2014, encompassing a wide array of financial institutions including banks, nonbanking financial institutions (NBFIs), insurance companies, financial technology firms, payments companies, and specialty finance sectors.
Dustin Ball, Partner and Asia-Pacific Financial Services Strategy Leader at EY Parthenon, has indicated that the M&A market is expected to become more dynamic in 2024, particularly after observing an increase in deal volumes during the fourth quarter of 2023.
Several factors contributed to the slowdown in deal activity, such as the heightened interest rates imposed by central banks globally, geopolitical uncertainties, and a banking crisis in 2023 that resulted in an escalation in fundraising costs and subsequently dampened M&A and issuance volumes worldwide. Despite the potential reduction in rates by the US Federal Reserve, analysts do not foresee a swift rebound in M&A activity due to the high cost of capital and ongoing geopolitical challenges.
However, analysts predict that the impending reduction in US rates and a backlog of deals will stimulate a robust revival of M&A activity in the Asia-Pacific finance sector in 2024. Investors will be closely monitoring the potential rate reduction in the US as a pivotal factor driving the resurgence of the M&A market.
India and Japan are forecasted to be the bright spots for M&A activity in the Asia-Pacific finance sector in 2024, with India demonstrating strong economic growth prospects and Japan benefiting from supportive government policies and monetary incentives. India experienced an increase in finance-sector deals in 2023, while Japan saw a decrease but remained in line with 2021 totals.
Other countries in the region, such as China and Australia, saw a reduction in finance-sector deal count in 2023. Nevertheless, Australia is expected to sustain robust M&A deals in 2024, despite anticipated volatility and execution challenges.
In summary, the conditions are conducive for a resurgence in M&A activity in the Asia-Pacific finance sector, with India and Japan leading the charge in 2024. While challenges persist, the potential reduction in US rates and a backlog of deals are anticipated to breathe new life into the region’s finance M&A landscape.
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