As private equity deal flow in Southeast Asia started to pick up steam in the first half of 2024, it lent some credence to the belief that a long-awaited rebound in M&A activity may well be just around the corner.

PE buyout volumes sustained their momentum through the start of the year, surging 611% year-on-year to USD 3.6bn across 16 deals in the first six months, the highest since 1H22, according to Mergermarket data. It was also 7% higher than the USD 3.4bn logged in the prior quarter.

Exits by sponsors also improved some 43% to USD 848.7m across 10 transactions in 1H24 compared to USD 592m over six deals in the preceding year.

Propping up volumes was Global Infrastructure’s USD 3.1bn acquisition of a 67.01% stake in Malaysia Airport Holdings, the biggest PE-backed deal in the first half. Other notable deals include I Squared Capital Advisors’ purchase of Singapore-based gas distributor AG&P LNG Marketing Pte. Ltd, and Apis Partners and Tobikiri Capital’s exit from Malaysia-based payment service provider GHL.

Healthcare continues to be a go-to sector for PE dealmakers with five deals, dominating the transaction count for the fourth consecutive half. The growth of the aging population across the region, rising levels of disposable income and urbanization trends continue to whet the appetite for M&A in the sector.

Dealmaking will continue to gather steam in the second half of the year. While PE firms in Asia have record levels of dry powder, their penetration rate remains low as a percentage of gross domestic product compared to other parts of the region given the size of the target opportunity pool, Bain Capital said in a report released in May.

Further bolstering dealmaking is an anticipated uptick in control deals in Southeast Asia based on succession scenarios, carve-outs, and sponsor-to-sponsor sales driven by the maturation of regional economies, according to a Mergermarket/AVCJ report in July.

Some of the ongoing PE-related situations include KKR’s sale of Goodpack, ShawKwei & Partners’ departure from Beyonics Technology, Proterra Investment Partners’ exit from FKS Food & Agri, Northstar Group’s sale of the auto parts business of Innovalues, and Beijing Capital Group’s sale of ECO Special Waste Management, which has attracted Actis and I Squared Capital.

More healthcare deals are in the pipeline with Affinity Equity Partners’ sale of Island Hospital and KKR’s exit from Metro Pacific Health Corp. In addition, rapid technology adoption and demand for greater connectivity are also driving M&A in digital infrastructure, with Link Net’s sale of its fiber optic unit, along with PLDT [PSE:TEL] and Telkom Indonesia’s stake sales in their data center businesses.

M&A activity in the region has nevertheless remained subdued in the first half, as volumes dropped 38% year-on-year to USD 29.7bn, the lowest since 1H17. Transaction count also fell 15% year-on-year to 382 from 448.

The slump in overall M&A activity was accompanied by weak cross-border dealmaking, with inbound M&A plummeting 71% to USD 9.7bn from USD 32.9bn. Outbound volumes, on the other hand, declined 60% to USD 9.1bn from USD 22.7bn in 1H23.

A bright spot however was found in domestic M&A volumes, which increased 27% to USD 20.3bn across 248 deals, compared to USD 14.8bn over 280 deals a year ago. The 1H24 figure also marked a 14% increase from volumes seen in the prior quarter.

M&A activity may pick up in the second half. A sustained downtrend in inflation rates and the anticipated reduction in interest rates may uplift sentiment and contribute to an acceleration of deals. In addition, a boost in consumption, coupled with the recovery of tourism, should also support economic growth in Southeast Asia, with the Asian Development Bank forecasting the regional economy will grow by 4.6% in 2024 and 4.7% in 2025.

Signs of improving macroeconomic conditions are providing a stable dealmaking backdrop for bidders and sellers, bolstering the belief that the M&A floodgates will finally swing open.