Friday, 2 December 2022

Mergers and acquisitions more than tripled in Asia Pacific as China opens up

5 min read

By Wendy Weng

The Asia Pacific will likely remain an active place for mergers and acquisitions in the financial sector in 2021 due to stronger post-pandemic recovery, opening up of markets, and a growing pool of fintech startups seeking funding, according to S and P Global Market Intelligence report.

  • Mainland China and Hong Kong remained top destinations for financial services M&A deals in the Asia Pacific region, followed by India and Australia
  • More foreign firms participated in M&A deals in China due to the opening up of  its financial sector
  • Growing fintech demand is a key driver of financial services M&A activity

Merger and acquisition activity in Asia Pacific (APAC) has been active, fuelled by the growth prospects and promising returns. Despite the COVID-19 pandemic, APAC saw a considerable growth in the number of M&A deals in the financial services industry. It is recovering faster from the pandemic compared to other regions and will remain a hot market for financial services M&As.

M&A deals in financial services industry accelerated in APAC

Overall, the M&A market saw some rebound in activity in the second half of 2020. In APAC, the financial services industry’s M&A tripled to 255 deals in 2020, from 76 in 2019, according to S&P Global Market Intelligence data. This includes four sectors, namely, banks, nonbanking financial institutions (NBFIs), specialty finance, and insurance. In the NBFI sector, the number of deals increased from 41 a year earlier to 145, accounting for 57% of total deals. In the banking sector, the number of deals was up from 5 to 21.

Mainland China and Hong Kong accounted for 38% of the total deal count and remained the top destinations of M&A deals. India and Australia are the next favourite M&A targets. The number of announced deals in mainland China and Hong Kong went up by 148% in 2020, while some other markets such as India, Australia and Japan experienced more significant growth. Among the buyers in financial services M&A deals in the region, 90.5% were based in APAC.

China’s financial sector opened up

China made further moves to open up its financial sector to foreign investment and participation in 2020. All foreign ownership caps in securities, fund management, futures and life insurance companies were also removed. This presents new business opportunities for foreign firms and makes it easier for them to integrate their operations in mainland China with their global businesses.

The US and European firms participated in 12 financial M&A deals in China during 2018-2020, compared with 11 deals in the rest of the region, S&P Global Market Intelligence data showed. In 2020, some foreign financial institutions gained majority ownership of their businesses in mainland China, while some took full ownership. In August 2020, BlackRock received approval to set up a wholly foreign-owned mutual fund unit in China. In December 2020, Goldman Sachs signed an agreement with its partner in China to acquire all outstanding shares of Goldman Sachs Gao Hua, making it the first bank to take full ownership of its securities business in mainland China.

China has a large and growing middle class and the consumer demand for differentiated financial products and services remains strong. Despite geopolitical tensions, foreign companies are still eager to grab a larger share of the fast-growing market.

Technology-driven acquisitions and industry consolidation

The pandemic has accelerated digitalisation and fintech adoption which will continue to drive M&A activity in the region. The banks and other financial institutions that invested heavily in digital were more prepared to respond to the crisis. More financial institutions are expected to invest in fintechs in the coming years.

“The unprecedented online traffic driven by social distancing measures is forcing banks of all sizes to scout for technology and realign their business models which would lead to technology-driven acquisitions. In addition, banks may seek bolt-on acquisitions or joint ventures with fintech companies to bolster their digital capabilities,” said Yash Chanana, director, investment banking at Acuity Knowledge Partners. He is also expecting strong interest in blockchain, regulatory technology, and wealth management services in China and Southeast Asia.

Meanwhile, the pandemic will accelerate industry consolidation. The players that struggle to weather the pandemic will likely become acquisition targets, while others will divest noncore businesses. Some financial institutions will expand the business and achieve growth through M&As. The emerging economies in South and Southeast Asia will be hot destinations for investments because of its attractive markets, growth opportunities, and opening up policies.

Keywords: Mergers And Acquisitions, Fintech, Investments, Technology
Institution: S&P, Acuity Knowledge Partners, Goldman Sachs, Blackrock
Region: Asia Pacific
Guest: Yash Chanana
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