When Merck & Co agreed to pay Japanese healthcare firm Daiichi Sankyo up to USD 22bn last month for three drug candidates it was North America’s latest big bet on Asia Pacific.

It came after Australia’s Newcrest Mining agreed to sell to Denver-based gold miner Newmont [NYSE:NEM] for USD 17bn in February and Canada Pension Plan Investment Board (CPPIB) acquired a stake in India’s ReNew Energy Global [NASDAQ:RNW] in a USD 5.8bn deal, including debt, in March.

Dealmaking volume into Australia, India and Japan from US and Canadian acquirors is up in the year to date compared with all of 2022. Australia’s inbound volume from North America rose 17% to USD 23.9bn, Japan’s more than quadrupled to USD 23.6bn, and India’s jumped 36% to USD 14.3bn.

Meanwhile, China’s inbound activity from US and Canada sank 34% to USD 8.9bn, dragged down by geopolitical tensions between Washington and Beijing. The Red Dragon’s largest inbound deal came in August when US-based blank check firm AlphaVest Acquisition merged with ride-hailing business Wanshun Technology in a USD 4.3bn transaction.

To be sure, the number of Asia Pacific’s inbound deals from US and Canada is down everywhere in 2023 compared with 2022 – by 42% to 89 in Australia, by 30% to 81 in India, and by 8% to 24 in Japan. But nowhere has it dropped more precipitously than in China – from 123 deals in 2021 to 25 this year.

India’s rewiring

India opened up its economy to outside investors in 1991, after which there have been many false dawns about it becoming the next China. But fracturing Sino-American relations and adoption of a government-sponsored digital infrastructure scheme called ‘India Stack’ – which gives ordinary citizens an electronic identity, links them to tax authorities, and enables digital payments – have been key to the latest surge in outside interest. India’s business climate has also improved over recent years, according to a World Bank ranking.

Consequently, inbound M&A into India from US and Canadian acquirors has been rising in each of the last three years, even as overall dealmaking in India has sunk by 49% to USD 91.5bn in the year to date.

This year’s total of USD 14.3bn is the third highest volume of inbound deals from North America on Mergermarket record. It is bested only by 2018’s USD 20bn, when Walmart paid USD 16bn for a 77% stake in ecommerce startup Flipkart, India’s largest ever inbound deal, and 2020’s USD 15.6bn, driven by Facebook and Alphabet’s multi-billion-dollar investments into telecom group Jio Platforms.

The country is now focusing on its manufacturing sector, as it looks to emulate China’s success, with the launch of the government’s Production Linked Incentive (PLI) scheme in March 2020. A total of 27 computer hardware companies will now start manufacturing in India under the scheme. Meanwhile, Tata Electronics will soon manufacture iPhones in India and US electric car company Tesla is in talks to set up a factory there in 2024. That could lay the groundwork for more manufacturing-focused deals.

APAC power play

Opportunities in Asia Pacific that could interest US or Canadian buyers include TPG’s 35% stake in insurer Singapore Life Holdings and LVMH’s [EPA:MC] stake in Hong Kong-based duty-free shop DFS Group, both of which could be sold.

In addition, India’s ACME Group has hired EY to assist with the sale of a 51% stake in Acme Solar InvIT, UniSuper has appointed Barrenjoey to sell its stake in Australia’s  Victoria Desalination Plant, Malaysian carrier SKS Airways is in talks over selling a piece, and India’s Radiance Renewables has hired Rothschild & Co for a sale.

The intercountry power play may shift again in China’s favor. For now, neighboring countries are making the most of geopolitical tensions in their race to become the region’s next big M&A hotbed.

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