In the first half of 2024, financial advisory fees from mergers and acquisitions (M&A) in Asia plummeted to their lowest levels in over a decade, according to data from LSEG. This decline underscores a challenging environment for investment banks and advisory firms operating in the region. Total M&A advisory fees in Asia amounted to just $1.5 billion, the lowest since 2013, with Japan alone contributing significantly, accounting for about 40% of this total.
The fee squeeze experienced by financial advisory firms in Asia adds further pressure on investment banks that have already been grappling with downsizing and restructuring efforts amid subdued capital markets and declining revenue streams over the past couple of years. The total value of announced transactions in Asia dropped by 25% year-on-year to $317.5 billion, marking an 11-year low. Completed deals, totaling $253 billion, were also at their lowest since the aftermath of the 2008 global financial crisis, reflecting a subdued appetite for large-scale M&A transactions.
Tom Barsha, who heads Asia Pacific M&A at Bank of America, pointed out that much of the decrease in M&A deal volume is driven by a reduction in the average deal size. Investors are increasingly favoring mid-sized opportunities over large transformative M&A transactions, reshaping the dynamics of deal-making in the region.
Japan, which had shown resilience in M&A activity in 2023, witnessed a notable decline of 23% in announced deals during the first half of 2024, amounting to $61 billion. This decline was influenced by a weakening yen and broader economic uncertainties. Similarly, China, facing its own economic slowdown and heightened geopolitical tensions, saw total deal values decline by 25% to $108 billion, marking the lowest level since 2012.
In contrast to the regional downturn, global M&A activity experienced a 16% uptick, reaching a total value of $1.5 trillion. This disparity highlights the divergent trends between Asia and the rest of the world in terms of M&A market dynamics.
Looking ahead, there is cautious optimism among bankers in Asia regarding the potential for a rebound in M&A activity. They anticipate that private equity investments, take-privates, and digital infrastructure deals will drive future transactions. Despite current challenges, there are expectations that more sales processes could be launched towards the end of the year, supported by more reasonable valuations and improved financial market conditions.
Nevertheless, investor confidence remains subdued and closely linked to the performance of capital markets and asset valuations. Recent increases in capital markets activity, particularly in the second quarter of 2024, have sparked early-stage M&A discussions, suggesting a potential improvement in sentiment and deal-making prospects moving forward.
Moreover, there has been a resurgence in China’s outbound M&A activities, with both private sector enterprises and state-owned companies actively seeking assets, particularly in Europe. This renewed interest underscores China’s strategic efforts to diversify its global investments despite domestic economic challenges.
In conclusion, while the first half of 2024 has presented significant challenges for M&A advisory firms in Asia, there are indications of resilience and potential recovery in the second half of the year. The trajectory of M&A activity will depend largely on broader economic conditions, investor sentiment, and the evolving geopolitical landscape in the region and globally.