Delivering Deals in Disruption: Value Creation in Asia Pacific

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The case for Value Creation as the priority

Close to half of deals analysed in Asia Pacific have destroyed value and/or underperformed their industry peers, based on Total Shareholder Returns (TSR). Dealmakers are under more pressure than ever before to deliver value in a time of disruption.

Deal volumes in Asia Pacific are growing in significance, with the region’s share of global Mergers and Acquisitions (M&A) continuing to increase over time, buoyed by sizable Private Equity (PE) dry-powder of ~USD$600+ billion.

However, the region is not without its market challenges: high inflation, elongated impacts of the pandemic, unique territory nuances, and increased regulatory scrutiny are driving highly variable returns.

In addition, executing deals in Asia Pacific is becoming more complex - they are often cross-region, with fragmented data quality, differing stakeholder needs, and variable sector maturities.

In Asia Pacific, buyers and divestors underperformed their industry peers over 24 months post-deal close

41% of buyers

63% of divestors

Asia Pacific is a fast growing region where markets have seen less consolidation and companies are typically less mature - there are disproportionately more ways to bring a Value Creation lens because of the degrees of transition and transformation happening across the region.

David Brown Asia Pacific Deals Leader, PwC Hong Kong

Value Creation in Asia Pacific: an evolution

It is clear a new approach is needed - (re)enter Value Creation. Put simply we define Value Creation as:

Taking a strategic approach to deal logic, as opposed to tactical, opportunistic, or risk-focused
Being comprehensive and disciplined through the corporate lifecycle, well before and after the deal
Grounded in underlying drivers of value through a capability lens

When Value Creation is closely linked to strategy, it yields positive outcomes. Buyers remorse is clear:

%

of acquirers in Asia Pacific say Value Creation was a priority on Day One (deal closing), though

%

said it should have been a priority in hindsight.

The Value Bridge: Bringing Value Creation to Life

We know success today depends on structure, discipline and comprehensiveness - and consideration of the full suite of value drivers, not simply traditional elements of financial engineering and tactical synergies focused on cash flow. The better approach considers strategy, operations, tax and stakeholder alignment which together drive premiums and manage risks along the ‘Value Bridge’.

Tactical and operational mechanisms around cash flow and restructuring, which ready the business for strategic Value Creation at a ‘stable starting value’

Case study

A large Tier 1 automotive supplier in Japan was significantly hampered by the perfect storm: COVID-19 lockdowns, Russia/Ukraine conflict, supply chain shortages for critical components, inflation and a highly leveraged capital structure draining operating cash flows. A focused value recovery and preservation effort was needed - immediately. This resulted in a large-scale headcount reduction, planned rationalisation of sites, and then - with a stabilised value - optimisation of the capital structure. A significant injection of cash was also used for mission-critical investments in technology and markets which supported the future turnaround of the business.

Opportunities to reorient the business and connect capabilities in the market through the likes of business model changes, transformational M&A, and product/service portfolio

Case study

A large international buyer was interested in a consumer health business known for its strong brand position and highly unique product suite, with a footprint in only two territories. The target had already identified a strategy to ‘test’ selling its products in other markets. However, a disciplined approach was needed to understand how to leverage the buyer’s established international footprint and network, without disrupting the target’s core differentiators of its product and brand. During a series of discussions and negotiations, a compelling Value Creation plan was developed through the diligence process, closely integrating and reflecting the target’s proven strategy, but scaled and re-positioned with the buyer as a key driver of value.

Traditional transformation and performance improvement initiatives such as commercial excellence and cost optimisation to grow revenues and remove costs

Case study

A business to consumer fresh meat distributor based in Southeast Asia (SEA), which supplies over 100 outlets, wanted to optimise their operations ahead of seeking external investment. We proved our Value Creation thesis to management by combining a traditional performance improvement approach of ‘how can we be more efficient in the deployment of resources’ with the smart use of data analytics, using their proprietary data. We looked at the business holistically from procurement and inventory to logistics and distribution along with the seasonality of purchaser behaviour. The client was able to minimise stockouts, lower their stock holding period, and release significant working capital back. Together, we created value that led to a higher valuation of the business.

Ability to understand how changes to the strategic repositioning and operations of a business can impact its capital/tax structuring and balance sheet efficiencies

Case study

A listed SEA telecommunications operator utilised a debt refinancing transaction as an opportunity to not only restructure existing debt with significant interest cost savings, but also to fund a strategic acquisition which nearly doubled its number of telecom assets. This cemented its top position in its home market, gave access to a new anchor customer, and afforded it financial flexibility for future Value Creation deal opportunities.

Incorporating the changing concept of ‘value’ to ensure business model resilience and alignment with stakeholder needs such as ESG

Case study

Strategic consolidation within the circular economy is another way we’ve seen companies maximise value in the fullest sense from their acquisitions. In one instance, Korean environmental services provider SK Ecoplant Co., Ltd (SKEP) was looking to expand its footprint in the waste management sector. With consideration of traditional deal factors such as synergistic cost savings and economies of scale, SKEP chose to acquire a Singaporean-based e-waste treatment company TES-Envirocorp Pte. Ltd., (TES) majority owned by a Malaysian-based SEA PE firm, Navis. With TES’ facilities in over 20 countries, this brought to SKEP outsized growth from the acceleration of their entry into a highly regulated electric waste recycling and repurposing market which spans IT devices to Electric Vehicle batteries.

What’s next for dealmakers in Asia Pacific?

Asia Pacific remains the ‘sweet spot’ for global growth due to a range of factors - including burgeoning intergenerational wealth transfers, accelerated sector modernisations, growing intra-Asian trade flows and a nascent focus on Environment, Social and Governance (ESG) - which together present compelling Value Creation opportunities.

We are seeing many deal thematics emerge recently including ‘roll-ups’ in fragmented markets to build scale, carve-outs for large family businesses relevant to wealth transfer events, transacting as a catalyst to transform and innovate, and partial trade-sales and stakes to fund strategic expansions - particularly within Southeast Asia to manage regional political and supply chain tensions.

To activate these, we suggest six pragmatic responses for dealmakers to successfully drive Value Creation catering to Asia Pacific’s nuances:

Embed Value Creation early and do so holistically

Focus on capabilities that drive long-term, sustainable premiums

Commit time and effort to understand different cultures, business and market practices to shape people strategy

Continually uncover value from data and do so early

Use ESG to elevate premiums

Invest appropriately in integration to de-risk execution

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Delivering Deals in Disruption: Value Creation in Asia Pacific

Lead authors

Richard Skinner

Partner, Asia Pacific Deals Strategy & Operations Leader, Singapore, PwC Singapore

Delivering Deals in Disruption

In Asia Pacific, buyers and divestors underperformed their industry peers over 24 months post-deal close

When Value Creation is closely linked to strategy, it yields positive outcomes. Buyers remorse is clear:

The Value Bridge: Bringing Value Creation to Life

Case study

Case study

Case study

Case study

Case study

Lead authors

Asia Pacific Leaders

Global Deals Leaders

Deals Leaders in Asia Pacific