Fadhil Haidar Sulaeman, Jakarta – Investment banks are projecting a flurry of merger and acquisition (M&A) activity in Indonesia this year – some driven by sustainable growth prospects, others by distress.
The global firms expect Indonesia's economic growth to outmatch that of developed economies this year due to the latter's risk of slowdown or even recession as a consequence of their entanglement in the war between Russia and Ukraine.
This geopolitical shift has made Southeast Asia's largest economy a lighthouse for global investors seeking solid returns on their portfolios.
"I think Indonesia will continue to see stronger M&A activity over the next few years," Bank of America (BofA) Southeast Asia investment banking head Antonio Puno told The Jakarta Post on Monday.
The lender expects huge dynamics in the fast-growing sector of digital infrastructure in Indonesia and neighboring countries amid rising demand for cloud computing and on-shore digital storage.
Although several massive transactions on towers and data centers have been conducted in the country, appetite reportedly remains among the bank's clients for firms that have regular cash flow or are working on achieving that.
Mobility infrastructure for transportation and logistics would also see heightened M&A activity, the banker forecasts, as per-capita GDP growth created more disposable income.
"Consumer-driven businesses, where you can target significant growth, but also profitable growth, I think those are interesting for a lot of our clients," Puno said on Monday.
Although the mining sector and its supporting industries were the conventional industries targeted for M&A, investors now had more interest in nickel and electric vehicles (EV) components as part of the green transitions, he said.
The huge number of inquiries for these downstream industries was based on "funding across the board," meaning the availability of funds from the various capital markets, as investors vied for nickel resources and EV supply chains in Southeast Asia.
"In the sector that I cover, Southeast Asia, it is topical for a lot of our clients," Puno continued.
"Some of our clients have made net-zero [carbon emission] commitments that they want to transition into, and move towards cleaner, more sustainable ways of operating their businesses."
M&A deals in the financial services, meanwhile, are expected to be concentrated around firms with large contributions to micro, small and medium enterprises (MSMEs), particularly for fintech services.
MSMEs accounts for some 61 percent of Indonesia's GDP.
As long as MSMEs need "sophisticated back-end products" to support their management, financial institutions that provide services for MSMEs, such as banks, fintech [firms], insurance and asset management firms, remain on the radar for M&A deals, according to the economist.
Data from the Cooperatives and Small and Medium Enterprises Ministry shows that only around 20 percent of MSMEs took out bank loans.
BofA's M&A activity was focused on growth-aspiring firms rather than on rescue deals for indebted companies looking to sell assets, BofA Indonesia country manager Mira Arifin told the Post.
Having firms striving to become Fortune-100-level companies through M&As showed that Indonesia's capital market had received great trust from international investors, she said, adding that she expected increased deal activity in EV supply chains and tech industries with a strong ecosystem.
BofA was involved in the acquisition of a 29-percent stake in publicly-listed food producer PT Garudafood Putri Jaya by US-based Hormel Foods Corporation last December.
"Not for rescue, but it's really because of the aspiration to become bigger," Mira said on Friday. "The purpose is not just to monetize, but to make the companies bigger."
The plunge in asset prices in 2022 provided "interesting opportunities" for companies with sufficient cash on hand, HSBC Southeast Asia chief investment officer James Cheo told the Post.
The rising interest rates, according to Cheo, have given rise to "lots of bargains" for green transition plays in industries around mining, mineral processing, EV battery makers and automakers.
Some consolidation in the tech sector, meanwhile, might be in the offing in Indonesia as acquisitions were needed for firms to become more efficient, he added.
In navigating this environment, banks would be keen to enter M&A activities with expected returns beyond 5 percent, in line with the expected United States Federal Reserve benchmark interest rate.
"The return of interest rates at this level also means that, now, capital or money has a price," Cheo said on Jan. 17.
Deal volumes in Asia-Pacific are growing in significance, with the region's share of global M&As continuing to increase over time, according to a report published in September last year by consulting firm PricewaterhouseCoopers (PwC), but economic, legal and political constraints often hindered smooth execution.
"Asia Pacific is a fast-growing region where markets have seen less consolidation and companies are typically less mature," PwC Asia Pacific deals leader David Brown said in the report.