In a world emerging from the shadow of COVID-19 restrictions, Asia’s M&A and capital raising landscape presents a unique trajectory. While much of the globe has moved past pandemic measures for over a year, Hong Kong and China have only recently shed their masks. This transition, combined with rising interest rates and geopolitical dynamics, has naturally created a gradual resumption in the M&A and capital raising activities of the region. While discussions are ongoing and intentions clear, the pace of execution remains measured. Transactions are unfolding at a more deliberative pace, characterized by cautious funding approaches and heightened financial prudence. The hope resides in the fact that as interest rates plateau, the USA evades a debt crisis, and sectors like AI and specialist technology show promising growth, a more dynamic M&A and fundraising landscape may emerge in the latter part of 2023 and the first quarter of 2024.
The outset of 2023 was marked by caution and prudence.
Where do we anticipate these trends to crystallize?
Fundamental to any promising M&A deal is value creation. The contemporary deals must bring about transformative shifts in businesses. Enterprises seek agreements that can redefine their operational stance, enabling them to seamlessly adopt technological innovations and address environmental imperatives.
This metamorphosis is projected to find its stronghold in sectors such as AI, electric vehicles (EVs), and climate change. Particularly, net-zero initiatives are expected to drive transformative transactions.
In the current context of a stringent financing landscape, smaller to mid-sized deals appear to be more feasible. Anecdotal evidence points towards transactions being meticulously structured to align with the evolving geopolitical landscape of China and the United States. Companies are increasingly recognizing the need for adaptable corporate structures that facilitate business interactions on both sides. Instances of companies acquiring Singaporean firms or relocating to the UAE to bolster their compatibility with Western markets while reducing dependence on China are becoming prevalent. Conversely, European and other international entities are divesting from Chinese-facing entities, opting for Hong Kong or Mainland-based structures.
March 2023 saw the introduction of Chapter 18C in the Hong Kong Stock Exchange’s listing rules, specifically aimed at specialist technology industries. This encompasses sectors like:
- Next-gen Robotics
- Advanced hardware
- EV vehicles
- New energy and food and agriculture technologies
The salient features of this regulation could invigorate the M&A market further. Companies valued at a minimum of USD 1.3 billion can list without revenue requirements. Additionally, entities with at least HKD 250 million in sales in the preceding year before IPO have witnessed the minimum valuation threshold lowered from HKD 8 million to HKD 6 million.
Notably, in June, Black Sesame International Holding, a Chinese chip manufacturer specializing in autonomous-driving systems, emerged as the inaugural company to file for a listing under Hong Kong’s IPO regime, targeted at businesses yet to meet standard revenue criteria.
In the initial six months of 2023, the venture capital (VC) sector witnessed a dip in overall funding in China and Hong Kong. However, certain segments, notably Alternative Energy, stood out. Key instances include Zeekr, an EV vehicle manufacturer, securing USD 750 million; AI firm PhonePe raising USD 445 million; solar energy tech company SolarSpace raising USD 442 million; fossil fuels decarbonization firm EcoCeres securing USD 400 million; and United Aircraft raising USD 290 million.
While the unveiling of a mask-free business landscape is heartening and the concerted efforts to revitalize Hong Kong’s economic scene are commendable, it’s anticipated that the markets will remain challenging for the rest of the year. Although deals are on the horizon, they will be selective and characterized by extended timelines for completion.”