Emerging Opportunities – Financial Services M&A in Asia 2011

Welcome to the sixth edition of PwC’s Financial Services M&A in Asia report which reflects the results of a survey of 375 senior executives in financial services across 13 territories in Asia. The survey was conducted during May and June 2011 and we would like to thank all the respondents and clients for their time and insights.

1.

Key messages

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Globally, financial services are undergoing unprecedented change. At the same time, the eastward shift of economic power gives Asian financial services markets stronger growth potential than that of any other region. As a result M&A is becoming an ever more important strategic tool for financial institutions in Asia.

Report findings

  • Economic and demographic factors will drive strong growth in Asian financial services
  • Domestic M&A looks set to remain the key driver of Asian financial services transactions
  • Cross-border M&A in Asian financial services is expected to accelerate
  • Capital restrictions are seen as the leading obstacle to M&A in the region
  • Asian financial services M&A is predicted to grow through 2011 and into 2012

Recommended actions

  • Scenario planning: Assess the potential evolution of specific markets and sectors, and develop detailed executable plans under a range of scenarios. Recognise that adversity can present attractive opportunities.
  • Building credibility: Develop individual and institutional credibility with regulators, central banks and investors over time so that the groundwork has been laid before a specific deal comes onto the market.
  • Considering talent: Ensure that human capital considerations are part of the M&A process from the start. Begin planning who will run the business you acquire, and how, long before the deal is closed.
  • Remaining flexible: Consider a full range of approaches to M&A including strategic investments, joint ventures and partnerships, as well as outright acquisitions.

2.

M&A forecasts

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We believe that M&A in Asian financial services is poised to accelerate. Domestic activity will continue to dominate, but there will also be increasing appetite for cross-border transactions. Despite regulatory and governmental activity, the survey predicts stronger levels of M&A for late 2011 and 2012.

M&A predictions

Respondents’ predictions for financial services M&A in Asia over the coming year are strongly positive:

Figure 22: Do you expect M&A activity to increase in your market during the next 12 months?

Source: PwC Financial Services M&A in Asia Survey 2011

M&A appetite

More than half of those surveyed expect their organisation to undertake or seriously consider a material M&A transaction during the coming year:

Figure 6: Likelihood of considering or undertaking material M&A during the next 12 months

Source: PwC Financial Services M&A in Asia Survey 2011

3.

Domestic deal drivers

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Domestic M&A remains the predominant driver of Asian financial services transactions. Strategic drivers include domestic competition, customer acquisition, pressure on operational and capital efficiency, the desire to broaden product offerings and divestments by investors from outside the region.

Highlights

  • Competitive pressures are a spur to domestic consolidation
  • M&A is seen as a way to accelerate customer acquisition
  • Same-sector M&A remains the easiest to sell to investors and regulators
  • Some Asian groups are targeting a financial conglomerate structure
  • Deal activity is being supported by non-core disposals

Enhancing the customer experience

Figure 10: Attractive areas for firms using M&A to expand into new lines of business

Source: PwC Financial Services M&A in Asia Survey 2011

Improving product offerings and the customer experience is a key driver of domestic M&A, along with the desire to acquire new expertise and expand into new business lines. Financial conglomerates are forming in a number of Asian markets.

4.

Growing cross-border appetite

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Financial institutions across Asia see M&A as a crucial tool in the search for higher growth. Bidders from more mature markets such as Australia, Japan, Korea and Singapore are being joined by European and American rivals. Chinese firms could also join the hunt for targets.

Highlights

  • High growth markets are the most attractive to foreign bidders
  • More mature markets can also act as a base for regional expansion
  • Firms from slower growing markets are increasingly active cross-border bidders
  • Asian firms with regional goals are building portfolios of strategic stakes
  • Intra-regional M&A is most common where cultural links are strong

Looking for growth

Figure 13: Most attractive areas for geographic expansion via M&A

Source: PwC Financial Services M&A in Asia Survey 2011

It is no surprise that the huge, fast-growing Chinese market is identified as the most attractive for geographic expansion via M&A. The attractions of China are well known, but at a time when many financial groups are seeking a credible Chinese strategy this also highlights the dangers of herd behaviour.

5.

Obstacles and enablers

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Asian financial institutions identify a range of factors that can act as obstacles – or enablers – to completing transactions and making them successful. Capital restrictions emerge as the greatest obstacle to M&A, while talent management is seen as by far the greatest challenge for post-deal integration.

Highlights

  • Capital restrictions, including Basel III, are the leading obstacle to M&A
  • Public sector intervention is another potential barrier to deals
  • Deregulation can also act as a stimulus for transactions
  • Poor target information and pricing gaps remain significant obstacles
  • Human capital is seen as the leading post-deal challenge

Focusing on capital

Figure 17: Expected effects of Basel III on M&A in Asia

Source: PwC Financial Services M&A in Asia Survey 2011

Capital restrictions are seen as the greatest limitation on deal activity, with respondents’ concerns higher now than when the question was last asked in 2009. Basel III is a particular source of uncertainty. More than half of those surveyed expect the new regime to lead to greater focus on the capital efficiency of transactions.

Explore the data

Examine the full data behind the Survey results.  Take a look at respondents’  views on the M&A Environment,  Planning, and Execution of FS deals.

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Contacts
Matthew Phillips
PwC China
Tel: +86 (21) 2323 2303
Nelson Lou
PwC China
Tel: +86 10 6533 2003
Áine Bryn
PwC UK
Tel: +44 207 212 8839
Maya Bhatti
PwC UK
Tel: +44 207 213 2302
 



 
 
 

Explore the data

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