Indonesia: M&A Outlook In 2015

Last Updated: 17 February 2016
Article by Arief Darmawan

M & A Activity in 2015 is projected to continue with the strong momentum from 2014 with the US hosting 44 % of the value. Asian companies are expected to be the most active in European and US market.

The general consensus amongst M&A professionals, Private Equity Managers and Investment Bankers in the U.S on Merger & Acquisition activity projection for 2015 is: The market is active and growing. M & A Data shows the market continues to improve with forecasts indicating M & A deal making becoming healthier in 2015. With the US economy posting growth expectations exceeding other OECD economies, supported by low rates on interest, inflation and unemployment, KPMG claims M& A activity in 2015 will become buoyant, citing US activity has already reached pre-recession levels. Deal value in the first quarters of 2014 reached almost USD 1 trillion.

The current deal environment has been characterized by a larger number of mega deals including the USD 71 billion consolidation by Kinder Morgan Inc. and the USD 43 billion acquisition of Covidien PLC. by Medtronic Inc. Thus in spite of the global economy not being completely rosy with EU's GDP growth remaining sluggish while the Japan economy fell into a recession in third quarter of 2014 and further uncertainty await in the landing of China's economy, US deal makers remained encouraged by domestic economic growth fueled by low domestic interest rates, record stock prices, improving employment numbers and abundances of cash. U.S companies are very comfortable using their balance sheet cash and private equity leverage to achieve growth through acquisitions. On a regional basis, North America is especially strong with M&A activity up by 14 percent year over year, according to a Wall Street and Technology report.

In the US, KPMG forecast health care/pharmaceutical industry to be the most active in 2015 followed closely by the Technology, Media, and Telecommunication industry. The Energy/Oil & gas industry, Consumer Market Industry, Financial Services and Industrial Manufacturing are expected to be equally active in 2015. To date, the US received 44 % of global deal value. Investors are attracted to the US relatively healthy growth rate, improving economy and open credit markets. Investors' confidence on the US economy contributes to the strengthening of the US Dollar against other major currencies.

Europe also continues to perform strongly and consistently with deal volume forecast to be up 8 percent year over year. Not surprisingly, Germany is the major driver of M&A activity in the region. The strongest rebounds are occurring in France, Italy and Spain as their economic recoveries gather pace, albeit lagging the US's recovery pace. Dealmakers in Europe expect inbound deals to drive M&A in 2015.

Whilst Latin America is still showing sluggishness with Brazil remaining in stagnation, Asia is showing growth across most of the region with South Korea, Singapore, India and Japan leading the way. Australia also records growing M&A activity in 2015 according to Thomson Reuters data.

Deloitte reports M&A activity in Asia continue to be the source of growth for the insurance sector. In 2014, several Asian firms bought into US companies, including the USD 5.8 billion purchase by Japanese firm Dai-ichi Life Insurance of Protective Life Corporation. Large Chinese and Korean organization are also looking to acquire both life and property and casualty insurance companies in the US and elsewhere. Overall cross-border mergers and acquisition were up 45 % at the start of December 2014 compared to the previous years, the highest year to date level since 2008 during the global financial crisis.

Inbound mergers and acquisitions by Asian insurers are expected to continue for 2015 as an improving US economy leads to more growth opportunities. Foreign buyers seek take M&A activity to expand geographic reach, expand customer base, enter new lines of business and defend against the competition, before Janet Yellen (Chairman of the US Federal Reserve) decides to raise the prime interest rates. Euromoney projects outbound deals will remain strong for Asian companies albeit market uncertainty, particularly for privately owned Chinese companies investing outside, looking for strategic positioning outside Asia.

Malaysian and Singaporean companies are expected to be most aggressive amongst the ASEAN members to initiate outbound investment in other member areas, although according to AT Kearney marketing consultancy firms, few companies in ASEAN have the experience to execute M&A. More than half of the M&A deals in the ASEAN market have been cross border transactions. With the ASEAN Economic Community (AEC) to kick in at the end of 2015 where the playing field becomes more level, companies need to increase scale through M&A. Most analysts believe the impact of the AEC and its free trade initiative will only be felt by 2018. Albeit, integration is inevitable and it will happen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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