Malaysian CEOs bullish about financial services M&A prospects

Domestic activity continues to dominate, increasing appetite for cross-border transactions

KUALA LUMPUR, 22 November 2011 – As the focus of global economic growth rapidly shifts to the East, financial services (FS) mergers and acquisitions (M&A) in Asia are expected to accelerate in late 2011 and 2012, according to a new report from PwC, ‘Emerging Opportunities: Financial Services M&A in Asia 2011’. A large majority of the 375 Asia-based senior executives that were interviewed for the report are extremely bullish about the prospects for M&A in their market. Respondents from Malaysia are among the most confident in Asia - over 80% predict higher deal activity for the year ahead, with nearly half (49%) considering an M&A deal. In general, over 50% of the total respondents expect to either be involved in a deal or consider one, over the next 12 months.

“M&A is becoming an increasingly important strategic tool for financial institutions in Asia to grow, whether local, regional or global in outlook,” said Soo Hoo Khoon Yean, Partner, PwC Malaysia. “We expect to see more M&A activity in Asia through 2011 and into 2012 as the focus of global economic growth shifts eastwards. We believe that the findings of this survey, the largest in the six years that this report has been produced, offer particularly valuable insight as the world looks to Asia to continue to lead the global economy,” he said.

Asian financial sector deal values totalled US$27.7 billion for the first half of 2011, 39.6% more than the comparable figure of US$19.8 billion for the first six months of 2010. In addition, the continued growth of economies in most Asian countries will continue to stimulate growth in financial services. In the case of Malaysia, a total of 18 FS M&A deals in 2010 yielded a total value of USD912 million. This was significantly less than 2009’s total figure of US$1.8 billion.

Domestic M&A activity remains the predominant driver of Asian financial services transactions, but there’s also an increasing appetite for cross-border transactions. M&A activity is being stimulated by a range of strategic factors. These include domestic competition, growing pressure on operational and capital efficiency, and ongoing divestments by strategic investors from outside the region.

“Notwithstanding the economic uncertainties on the horizon, many Asian financial institutions are increasingly keen to use M&A within the region to acquire customers, and to create financial conglomerates offering sophisticated product offerings to their corporate and high net worth clients,” continued Soo Hoo.

Obstacles to successful M&A strategies do not end when the deal is signed.  Post-deal barriers are a particular concern in financial services where IT systems are highly complex, reputations are easily damaged and regulators are watching closely.  Respondents to the survey agree that these factors are all potential post-deal challenges, however, 51% identify culture and people issues as the greatest challenge for management.

“However, Malaysian respondents are, on average, less concerned about potential obstacles to financial services M&A, compared to the wider Asian survey sample. Rather, they’re concerned about the potential effect of government or regulatory in deal making, price expectation gaps, and lack of meaningful domestic opportunities,” said Soo Hoo.

Cultural and people challenges can be difficult to manage in any industry, especially when M&A is taking place across borders or language barriers. The challenge is particularly acute in financial services, where the collective expertise of management and staff is often a firm’s most sustainable source of competitive advantage.  A considered approach to human capital management is vital at every stage of the deal process.

One key feature of Asian financial services transactions in 2010 was the increasing importance of Chinese M&A activity. Chinese financial services M&A in 2010 was worth a total of US$16.7 billion, by far the largest figure for any Asian country. This represented a very significant (129%) increase compared to 2009’s figure of US$7.3 billion. Australia was the second most active country in Asia for financial services M&A with deal volume at US$10.4 billion in 2010. Japan was the third most active hunting ground, with US$8.2 billion of deals last year, down from US$30.6 billion in 2009.

Overall, in the medium to longer term, growth in Asian financial services will continue to be driven by a range of supporting economic and demographic factors, including the rapid emergence of middle-income customers.

 

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Notes to Editors:

About the report

The report is based on face-to-face interviews, web and telephonic surveys with 375 senior executives in financial services across 13 Asian territories, conducted during May and June 2011. This was further supplemented by individual client interviews, PwC’s qualitative research and the input of PwC experts in the region. The deal data has been sourced from Thomson Reuters. There were a total of 41 respondents from Malaysia.

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