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Fast track: Automotive sector speeds ahead in 1H23 as Southeast Asian M&A slows

Deal-making in Southeast Asia hit the skids in the first half of this year, reversing 7.5% from the same period last year, as 404 deals worth USD 45.5bn were given the green light in 1H23 compared with USD 49.2bn in 1H22, according to Mergermarket data.

To that end, Asian Development Bank (ADB) has pumped the brakes on the region’s growth prospects for this year, throttling estimates down to 4.6% from 4.7% previously and citing a global decline in demand for manufactured products.

However, while overall M&A activity appears to be stalling, there have been a handful of mega deals getting over the line.

Automotive blockbuster drives deal value

Blazing a trail for Southeast Asian M&A in 1H23 was a USD 23.1bn merger between special purpose acquisition company (SPAC) Black Spade Acquisition Co [NYSE:BSAQ] and VinFast Auto, a Singapore-based, Vietnam-focused electric vehicle (EV) manufacturing division of Vingroup JSC, which will seek a US listing in 3Q23. The tie-up represents 50.8% of the region’s total 1H23 deal value, and catapults the automotive sector ahead of the pack, overtaking computers and electronics, which had held pole position since 2021.

A mega deal of this size should not come as too much of a surprise given growth forecasts for Southeast Asia’s EV sector. Indeed, Indonesia and Vietnam are among those countries rich with the mineral resources required for the manufacture of EV batteries, and in recent years they have been positioning themselves to become prominent players in the EV supply chain.

Singapore out in front

Thanks to VinFast’s de-SPAC transaction, Singapore again landed the lion’s share of deals in the region. M&A activity in the republic powered ahead 35% from the same time last year, reaching USD 29.84bn in 1H23 from USD 22.1bn in 1H22.

Indonesia, which placed second in terms of deal activity, experienced a very different story, as the wheels came off in the first half and total deal value plunged 60.4% to USD 6.1bn from USD 15.4bn in 1H22. Sector advisors told Mergermarket that the slowdown can be attributed to investors adopting a wait-and-see approach ahead of upcoming general elections in the country in February 2024.

The Philippines and Vietnam ranked third and fourth, respectively, during the first half of the year, with both countries recording an uptick in M&A activity. Thailand sealed fifth place, with total deal value of USD 1.9bn from 30 transactions, but this represents a 24% decline compared with USD 2.5bn in 1H22. Malaysia, which held third place last year, tumbled out of the top five altogether, as its total crashed 53% to USD 1.5bn in 1H23.

In the year to date, Southeast Asia has signed 412 deals worth USD 46.1bn. To overtake last year’s total of USD 88.8bn, the region would need to hit the accelerator and motor to a further USD 42.7bn over the second half of the year.

Joining the race?

The auto sector looks set to continue its frenetic pace into the second half of the year, with a number of potential moves on the cards.

  • Vietnamese conglomerate Thaco Group is considering selling a 10% stake in its automobiles arm, Thaco Auto.
  • Malaysia state investment fund Permodalan Nasional is mulling whether to sell its share of automotive and industrial group UMW Holdings [KLSE:4588], according to a local media report in June.
  • Still in Malaysia, automotive firm TSM Global has received non-binding bids for a sale of JK Wire Harness, its automobile wiring harness manufacturing unit, as this news service reported in February.

Aside from automotive deals, activity in the technology, media, and telecommunications sector is also expected to balloon in the region to support growing digitalisation, as we detailed in January.

In addition, infrastructure investment, particularly in renewable energy, is set to continue, as investors and governments’ push environmental, social, and governance (ESG) initiatives.

Analytics by Manu Rajput