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(SINGAPORE) Mid-market merger and acquisition (M&A) activity should pick up in the second half of this year and next year, according to Deloitte & Touche.
Peter Baldock, the company's global chief operating officer, corporate finance advisory, believes the acquisition cycle has bottomed.
'We see an uptick in the second half going into 2010,' he told BT.
The difference between past cycles is the emergence of greater China as a buying power in its own right, Mr Baldock said.
There have been 1,095 deals in the mid-market segment - broadly, those valued between US$50 million and US$500 million - across the region since 2004, with annual valuations and volumes growing 64 per cent a year.
The focus is likely to remain on manufacturing companies and energy and resources, but big-value deals of more than US$1 billion may remain scarce for some time, Mr Baldock said.
'The mid-market space has continued to be much more robust than large transactions,' he said.
Large acquisitions are more risky and harder to get right, and most fail because different company cultures cannot be integrated. The lack of debt finance has also hindered activity, but is starting to ease.
Jeff Pirie, head of corporate finance for Deloitte in Singapore and South-east Asia, said in-bound merger and acquisition activity in Singapore is likely to pick up ahead of out-bound activity.
'Singapore is attractive in its own right, but also as a gateway to Asia,' he said.
'Companies here have been building up a second wing (in the region) and that makes them very attractive' to companies that want to tap the wider region or consolidate and strengthen their position.
Technology companies are considered prime targets, Mr Pirie said. 'The whole of the Asia-Pacific has a cost advantage on the manufacturing side.'
Singapore companies have partitioned their businesses, locating lower value-added processes elsewhere in Asia while focusing on high value-add activities at home, he said.
The tech sector is likely to experience further consolidation as it matures, and second and third tier contract manufacturers will be looking for partners to boost economies of scale, he reckons.
Like Mr Baldock, Mr Pirie believes smaller deals will come to market in greater numbers.
'Now is not the time for big transformational deals, but for incremental bolt-on in strategic areas,' he said.
Deal cycles - the time taken from start to finish - are typically six to nine months and the pick-up today is 'quite strong', Mr Pirie said. This means 'deals should start to close by end-2009, early 2010.'
While energy and resources companies have accounted for most of Asia-Pacific M&A activity, Deloitte believes the bulk of deal flow this year is expected to be in manufacturing, telecoms and consumer businesses.
These sectors provide exposure to the burgeoning buying power of Asia's middle class, Mr Baldock said. And as the principal financing centre in the region, Singapore can only benefit from a pick-up in activity.
While sovereign wealth funds (SWFs) have been slow in the M&A game - many suffered big losses on purchases in the past year - Mr Baldock says there is now less resistance to them.
The funds were seen as proxies of foreign governments but 'that debate (about political influence) is probably over', he said. This is a result of the need for funds and because SWFs are seen as stable rather than fickle investors.
The growth industry of the future could be clean technology, Mr Baldock said.
'Buying into alternative energy is very politically driven', and political will is likely to grow as countries count the environmental cost of unbridled growth, he said.
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