Despite global M&A volatility that began with the pandemic, dealmakers continue to find growth opportunities across Asia–Pacific (APAC). The region contributed more than 45 percent of global GDP and roughly two-thirds of global economic growth in 2023, even though China’s uptick after its postpandemic reopening is fading sooner than many observers expected.1
Research suggests that in the year ahead, Asia will be home to more than 80 percent of the world’s “new consumers”—tens of millions of people who can afford to spend $12 or more per day for the first time—and that the consuming class will outnumber the vulnerable and poor in the region for the first time in history.2
That growth helps explain why large companies and investors around the world are considering acquisitions in the region despite continued economic volatility and geopolitical uncertainty. While APAC deal value fell by about 19 percent in 2023—reaching its lowest level since 2013—it still accounted for about a quarter of global activity, in line with the five-year average (Exhibit 1).
Domestic in-country activity within the region still accounts for more than 70 percent of M&A value, but the share of activity originating from the Americas and Europe, the Middle East, and Africa (EMEA) rose in 2023 (Exhibit 2).
Many acquirers in slower-growth regions, especially the United States and the European Union, found promising targets in APAC in the fastest-growing countries and in those with less geopolitical risk, such as India—which many economists expect to lead the region with annual growth of about 6 percent in the years ahead—as well as Indonesia, Malaysia, and Vietnam.3
In contrast, GDP growth in 2023 was just 0.6 percent in the European Union and about 2.6 percent in the United States.4 Foreign direct investment in China declined in 2023, partly because of geopolitical tensions and tougher regulatory scrutiny.5
The region overall had net-positive deal inflow for the first time in five years. Most net inbound activity was in Australia and India, offset by Japan, which saw more outbound than inbound deals in 2023. Cross-border in-region deal value rose from 7 percent of total inbound activity to about 12 percent, due mainly to a few large deals between companies in Singapore and Greater China. Investors in the Middle East are showing more interest in the region.
About 65 percent of deal value in 2023 occurred in four sectors: energy and materials; advanced industries; tech, media, and telecom (TMT); and financial services.
Deal value varies widely by country and sector, of course. Energy and materials—disproportionately large industries in Australia—led the way, followed by advanced industries and tech, where many acquirers seek to gain scale to become more competitive, set the stage for larger investments, and capture opportunities in growing countries.
Multinational companies (MNCs) headquartered in countries where growth is slower will continue to look for opportunities in APAC as they enter new businesses, diversify, advance decarbonization and sustainability initiatives, and consolidate operations. And as disruptions accelerate in nearly every industry, many companies will see M&A as a key to reorienting their strategies and business models. Some will manage the risks of entering complex new marketplaces through partnerships and smaller acquisitions. Deals worth less than $1 billion represent about half of M&A deal value in Asia today compared with the Americas, where only a fourth of value is represented by transactions under that threshold.
Explore the full collection of articles from our Top M&A trends in 2024 report >
Powerful trends are now driving inbound dealmaking
Sophisticated investors and strategic acquirers know that finding and vetting suitable targets can require exceptional insights and skill, including strong local deal teams and relationships with local stakeholders, including business leaders and government officials.
They also understand the potential challenges of due diligence in the region. Many countries in APAC impose fewer regulations on companies than do the United States or European Union; for example, target companies may disclose less about their accounting and risks, and governance may be less strict. And once a deal is closed, cultural, legal, and political differences can make integrating an acquisition more difficult.
Despite these and other complexities in the marketplace, four main trends emerged in 2023 that we expect to drive inbound deal activity by MNCs in Asia in the year ahead:
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The energy transition is driving more transactions. As the world continues to shift toward renewable and cleaner energy sources, traditional global energy giants, asset management companies, private equity firms, and commodity companies are diversifying their portfolios and investing in renewable energy businesses, sustainable technologies, and mining and materials in APAC.
This shift is being driven by government policies and regulations aimed at reducing carbon emissions, rising consumer demand for sustainable products and services, and advances in the cost-competitiveness of renewable energy sources.
Energy-related transactions in 2023 included Brookfield Asset Management’s commitment to invest up to $1 billion in Avaada Ventures in India to support the company’s production of green hydrogen, methanol, and ammonia, as well as its solar manufacturing and renewable power-generation ventures.6 In May, Japanese petroleum company ENEOS said it was considering the IPO of its subsidiary JX Nippon Mining & Metals, aiming to refocus on sustainable development.7
We expect sustainability-related dealmaking—among manufacturers of electric vehicles and powertrains, for example—to keep accelerating. Many European original equipment manufacturers (OEMs) and suppliers seek access to Chinese OEMs and tier-one vendors of e-drive technology. Stellantis, for example, announced in October 2023 that it would invest $1.65 billion in Leapmotor, a Chinese leader in electric vehicle (EV) technology.8 The continued decoupling of the EV technology ecosystem will spur many other automotive players—especially those who wish to do business in China—to partner with other Chinese technology firms.
- Consumer-facing sectors are becoming more attractive for cross-border transactions. Each year, tens of millions of people in APAC join the consuming classes—those able to spend $12 or more per day, measured in 2017 purchasing power parity. Brookings reports that India and China each added about 30 million people to this group in 2023.9 These new shoppers represent some of the largest growth opportunities for consumer-facing companies around the world, from cosmetics to car companies. For example, Japanese insurance company Dai-ichi Life Holdings invested $40 million in RenewBuy, a leading insurtech company in India, to grow in the underpenetrated and ever-larger Indian market.10
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Performance pressures will continue to provide deal opportunities. Carve-outs and divestitures should continue as companies streamline subsidiaries, affiliates, and business units to align their portfolios with overall strategies and shed low-growth, low-margin businesses.
Rising shareholder activism in Japan, Korea, and a few other countries in the region will spur some companies to restructure, make portfolio changes, or even agree to be acquired by private equity firms or merge with competitors. Toshiba, for example, responded to activist investor pressure by continuing its divestitures and eventually agreeing to an approximately $15 billion acquisition by a consortium of strategic investors and a local private equity fund.11
The number of companies subjected to activist demands across the region has risen markedly in recent years, increasing Asia’s share of the global total from 10 to 23 percent in 2023, overtaking Europe.12 The Tokyo Stock Exchange has asked companies with low price-to-book ratios to publicly announce their initiatives to address performance, for example. This has prompted some conglomerates to reconsider their portfolios and divest underperforming and noncore assets, in many cases to private equity buyers.
- Companies will continue to consolidate and restructure to increase scale, boost efficiencies, and grow. In an uncertain macroeconomic environment, we expect to see continued consolidation to scale up, strengthen business platforms, improve cost competitiveness, and enter new markets. For example, InVivo, a French agribusiness leader, acquired United Malt Group in Australia for $1 billion, part of a plan to become the world’s top malt producer and double the size of its malt business.13
Four capabilities will distinguish the most successful acquirers in APAC in 2024
Although the APAC region faced multiple market and macroeconomic challenges in 2023, many clients tell us they have a stronger appetite for deals in 2024, pointing to expectations for more macroeconomic stability due to factors such as robust GDP growth in most parts of Asia, softening inflation and interest rates, and more supportive policies and regulations in many Asian countries.
Learning from the best programmatic players and our experience in working with leading companies across industries and around the world, we have identified four main capabilities that distinguish the most successful acquirers in the region:14
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They have a deeper understanding of individual markets in APAC and build relationships to create a pipeline of deals. Investing in outreach to potential targets and partners and building trusted relationships with local business and government leaders can help advance discussions, reveal challenges, and improve the chances of success, especially in smaller markets where few high-quality targets may be available.
Several M&A teams at a manufacturing firm headquartered in Asia keep constant tabs on more than 60 potential acquisition targets, reviewing progress each week. Team members maintain dialogues with targets’ senior leaders for three to five years, building trust and understanding until deals can be reached.
McKinsey’s DealScan offering uses target-finding algorithms and visualization software to explore its detailed data on 40 million companies around the world, helping clients understand potential targets in core and adjacent markets and in niche markets.
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They build and empower local M&A teams. Many MNCs set up regional headquarters in Asia to pursue investments there without adequately staffing local M&A teams or giving them decision making rights to pursue deals up to a certain size. An expanded and empowered deal team can help build an extensive pipeline of high-quality targets and move faster to close deals in the face of competition.
For example, a multinational services company in Asia maintains an M&A team in Singapore with a mixture of professionals such as former bankers, consultants, and executives of firms it has already acquired. The team is quick to assess the quality of potential targets—and highly credible when it presents proposals in person to those targets, thereby enriching its strong deal pipeline across the region.
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They explore a wider variety of deal mechanics. An outright 100 percent acquisition can be risky and costly—and may not be feasible due to restrictions on foreign investments in some sectors. Multinationals may therefore need to consider a variety of deal structures—such as joint ventures, strategic alliances, and minority investments—to test the waters and build working relationships with targets, understand local business and regulatory nuances, and manage cultural differences. Using these structures can also help manage the gaps in valuation and risk expectations of both parties, while tapping into local partners’ competitive advantages and market access.
Companies in Asia can have diverse objectives in M&A. Some seek access to global markets through acquisitions by multinationals, for example, and others need technology support to upgrade product quality. A founder family may be looking for an exit but want to keep a stake or maintain some influence over decision making. Some may aim to enter a new business while maintaining the overall “brand” of the conglomerate, and many seek to manage regulatory requirements and governmental restrictions. Balancing these and other diverse objectives can complicate dealmaking—and warrant novel deal structures. For example, a leading US investment firm entered India’s asset management industry by investing about $150 million to form a joint venture with a local financial services firm.
- They adapt to new ways of working and cultural nuances during integration. As noted in “The culture compass: Using early insights to guide integration planning,” 44 percent of the 1,100 M&A leaders we surveyed in 2023 pointed to lack of cultural fit and friction between the acquiring and the target companies as the top reason that integrations fail. Cultural challenges can be especially pronounced in deals between western and Asian companies.
We urge acquirers to pay close attention to cultural differences at every stage of integration, especially “the way things are done”—such as working norms, governance practices, and decision-making processes—at acquired or partner companies.
For example, when a US-based electrical equipment manufacturer acquired part of a Japanese conglomerate, it spent a couple of months carefully evaluating both companies’ cultures. Based on gaps and unique strengths it identified in workshops, the manufacturer developed a holistic action plan to align both organizations with a new shared culture. (For more on this topic, please see “The culture compass: Using early insights to guide integration planning” and “M&A and Asia: Learning from the best.”
Conclusion
The APAC region will continue to offer extraordinary growth opportunities in some of the world’s largest industries. But each country in APAC is unique and presents potential acquirers with a wide array of shifting opportunities and risks. We expect the most successful dealmakers to invest heavily to maintain deep, up-to-date insights into those marketplaces and into the stakeholders who can determine the ultimate outcome of any deal—from local communities and employees to shareholders, legislators, regulators, and consumers.
Equipped with this knowledge and a commitment to careful, culturally astute integration, the most sophisticated investors and strategic acquirers will create enormous value in APAC in the years ahead—not just for their own shareholders but for the entire region.
