Asia M&A trends: Future outlook

Whilst global M&A rose in deal value terms in 2024, both deal values and volumes fell in most parts of Asia. This continued 2023’s trend which saw Asia faced with persistent core inflation, rising interest rates, and greater geopolitical tensions than those seen over the past two decades. Each of these factors naturally inhibited deal-making – inflation generally weakens buying power, rising interest rates reduce the likelihood of borrowing money to finance deals, and an increase in geopolitical tensions runs the risk of countries and companies turning inward and away from cross-border deal-making. 

However, there is room for optimism in Asia in 2025, and we expect to see the significant growth in deal-making activity we saw in the final few months of 2024 continue into 2025. 

Why the optimism? 

Whilst geopolitical tensions continue, easing of inflation and cheaper financing coupled with pent-up demand and the need for investment in key sectors are expected to lead to increases in deal-making activity. 

Last year generally saw inflation ease in Asia, and central banks the world over, including in Asia, cut interest rates. As noted above, inflation and rising interest rates have negative effects on deal-making. Correspondingly, easing of inflation and falling interest rates are expected to have positive effects on deal-making, with buyers more likely to transact where their borrowing costs are lower. This acts as a lowering of the barrier to entry on deals, and with such lowering we expect to see greater deal-making in Asia. 

There are also a number of sectors in Asia which continue to grow rapidly regardless of wider trends, and this is expected to continue in the near and far future, and this is particularly anticipated in the energy and technology industries. In these sectors, it is expected that investment will increase substantially, likely at first with smaller, more agile groups making the first moves whilst sector-specific regulations remain unclear, followed by larger multinational groups acquiring stakes in, or acquiring in whole, those smaller more agile groups once the markets, regulations, and sectors more generally become clear. Set out below is further background as to why we believe we will see an increase in deals in these two key sectors in Asia over the next 12 months.

Energy

One reason we expect to see an increase in deal-making in the energy sector in 2025 is the significant focus of Southeast Asian nations on renewable energy in developing and expanding their electricity grids as the region develops and energy demands increase. 

Nations are turning their attention to cleaner forms of energy, potentially driven in part by China’s 2021 policy of ceasing support of coal projects abroad, and by the fact that, over the past decade, the price of electricity of new wind and solar plants has fallen below other sources. 

Such nations are therefore encouraging the development of renewable energy projects. For example, the Cambodian government is targeting 70 percent. dependence on renewables by 2030, the Philippines has amended its foreign direct investment rules to allow 100 percent. foreign ownership of renewable energy projects (although some restrictions remain with respect to projects operating on certain plots of land), and Vietnam has plans to effectively balance renewable energy and fossil fuel energy and is planning significant offshore wind developments. Taiwan, whilst not in Southeast Asia, is also seeing significant inbound investment in its offshore windfarm projects and we anticipate similar trends continuing to develop in countries in Southeast Asia as legal frameworks are put in place. 

The general global push towards decarbonisation is being seen in Asia as well, including in the form of nickel deposit related investments in Indonesia with such deposits being used in the electric vehicle supply chain. This push towards renewables and decarbonisation generally will require, and lead to, significant amounts of investment and deal-making activity as joint ventures are established between those with local knowledge and those with technological knowledge and subsequent sales and acquisitions take place once projects have been established and have become profitable. 

Technology

In June 2024, we at Norton Rose Fulbright noted in an IFLR article that one of the top drivers of M&A in Asia is expected to be the pursuit of digital transformation and new products and services in the technology space. This remains true, as does the continued trend we are seeing in Southeast Asia of governments fostering a positive environment for the development of artificial intelligence (AI) over the next few years with strategies such as Singapore’s National AI Strategy 2.0, ASEAN’s work on developing AI regulation at a regional level with its ASEAN Guide to AI ethics and governance, and China’s recently released new draft regulations for generative AI. 

We also expect dealmakers to increase investments into health- and insurance-related technology companies that are entering the market in many Asian countries, in particular in light of Asia’s burgeoning young middle class that will look to spend more on insurance and healthcare in the coming years. 

Finally, a number of countries in Asia are focusing on ensuring that their economies have well-developed digital infrastructure in place, and significant growth in investments in this area can be expected as nations seek to future-proof their infrastructure and economies. 

Foreign direct investment in Asia consistently high despite negative perception of related regulations

One note to end on is that we often hear of the perception that foreign direct investment regulations inhibiting deal-making in Asia. 

In fact, in a report on M&A released by Norton Rose Fulbright and Mergermarket in 2023, the majority of respondents stated that they expected foreign direct investment regulations to be a key suppressant of deal-making activity in Asia, more than in any other region. 

In practice, these regulations have been in place for a number of decades and we have, during that time, seen significant growth in, and advised on many, cross-border investments in Asia notwithstanding such regulations. 

We have also seen a general trend towards easing of regulations with a number of Asian countries adopting various policy measures that are favourable to foreign direct investment in recent years, and in the ASEAN Investment Report 2024 it was noted that for three consecutive years that ASEAN was in fact the highest recipient of foreign direct investment among developing regions suggesting that the impact of foreign direct investment regulations in supressing deal-making appears to be less pronounced in Asia than in other regions. 

Additionally, as we noted in 2023, many investors based overseas enter joint-venture arrangements in Asia to leverage the expertise of their local partners in Asia and therefore may be less concerned with such regulations than would appear at first sight. 

In short, foreign direct investment regulations in Asia should not be seen as having a significant inhibiting effect on deal-making in Asia in 2025.