merger and acquisition

(Source – Shutterstock)

Increased tech merger and acquisition in APAC may come with complexities

As businesses bounce back from the COVID-19 pandemic, merger and acquisition (M&A) activities have been headlining industry news all over the world. While there are regulatory concerns, most M&A activities have been going through smoothly.

In fact, some of the biggest merger and acquisition deals in 2022 so far include Microsoft’s acquisition of Activation Blizzard for US$67.8 million and the controversial planned Twitter acquisition by Elon Musk.

According to M&A data by EY teams, Asia-Pacific (APAC) merger and acquisition activity in the first half (H1) of 2022 has been robust with 648 deals with a total value of US$403 billion. Despite M&A in H1 2022 seeing a drop compared to this time last year, activity is significantly up compared to H1 and remains in line with the average of the last M&A cycle (up 6% and 3% respectively).

Elevated deal volumes and values and an increased focus within the APAC region suggest that APAC companies are leveraging M&A as a vehicle to transform their businesses.

For Yew-Poh Mak, EY Asia-Pacific Strategy and Transactions Leader, Asia-Pacific companies across sectors are experiencing increasing pressure to transform their businesses to keep pace with rapidly evolving consumer preferences; digital disruption; and environment, social, and governance (ESG) issues. He added that despite economic headwinds, CEOs across Asia-Pacific are focused on the long term and are pursuing transactions that set up their organizations for future growth.

Technology sector reigns supreme

While China tops the table for the most active merger and acquisition market in APAC with a value of US$114 billion, Australia has had an extremely active start to the year with the combined value of its outbound, inbound and domestic deals jumping to US$48 billion, an increase of 123% compared to the average of the last deal cycle (2015–19).

Interestingly, the technology sector reigned supreme comprising deals accounting for 21% of cross-sector deals. H1 2022 also saw an increase in technology companies investing in the mobility sector.

“Asia-Pacific companies, regardless of sector, are ramping up their technology-centric evolution to keep pace with escalating consumer demand and growth in digital capabilities across the region.

The importance of technology in the APAC M&A market cannot be understated. The convergence of rising internet penetration rates, access to mobile devices, and a pandemic-induced shift to online are supporting rapid digital growth. Asia-Pacific companies are increasingly turning to M&A to acquire the digital capabilities and scale needed to succeed,” added Mak.

Meanwhile, Ben Kwan, EY-Parthenon Greater China Leader explained that software was the most sought-after subsector within the technology sector, accounting for a major portion of APAC technology targeted deals by both deal volume and value.

“Software investment has primarily focused on enterprise services, fintech, mobile Internet, AI, digital healthcare, carbon & new energy, and the future of mobility-related software. Semiconductors have also been a key focus of activity, accounting for a significant portion of the overall transaction value,” said Kwan.

Increased tech merger and acquisition to solve tech crisis? 

Kwan also pointed out that the acceleration in digital transformation due to COVID-19 has exacerbated the tech talent shortage. He believes that companies are increasingly turning to merger and acquisition, partnerships, and corporate venture capital to bridge the tech and digital skills gap, and accelerate business transformation.

Moreover, Kwan highlighted findings of the EY-Parthenon 2022 Digital Investment Index whereby 55% of companies are choosing inorganic investments over building capabilities in-house.

At the same time, Joongshik Wang, EY-Parthenon Asean Leader mentioned that business leaders must take deliberate steps to drive changes to the size, shape, and skillsets of the future workforce.

“New approaches to people analytics are generating deeper insights and enabling strategic workforce planning based on capabilities rather than roles. New approaches need new skills. Just as HR is focused on recruiting talent with digital skills, the function itself must also evolve and acquire its own digital and analytical talent base. We are seeing global leading companies build independent digital/tech arms to better attract top talent at scale, and more flexibly form alliances with ecosystem partners. A corporate venture creation is also another way to retain top talent,” stated Wang.

Complexities of tech M&A

While any merger and acquisition are still subject to regulatory approvals, there are also concerns about the complexities that could arise from these, especially when it comes to merging data from different companies.

Kwan agrees that data and IT integration are becoming one of the key challenges for tech M&A, especially for cross-border transactions. For most organizations, they are facing challenges regarding the deployment of globally consistent IT platforms and data integration frameworks, especially as the increasing scale of data and data applications drives the complexity of data and IT integration.

“Additionally, data privacy and cyber security frameworks remain highly fragmented and complex across the Asia-Pacific region. Compliance with local regulations is one of the top concerns for data integration in tech M&A,” mentioned Kwan.

As such, Kwan stated that business leaders must formulate a comprehensive data integration and management strategy from pre-deal due diligence all the way through to post-deal integration. This will help mitigate the risks and ensure successful data and IT integration, and compliance with local regulations.