Asia-Pacific financial M&A deals set for strong 2022 amid low rates, reopening

Deal activity in the financial sector in Asia-Pacific is likely to remain strong in 2022, thanks to low borrowing costs and the improving outlook for several economies in the region as they emerge from the pandemic.

M&A in the region's financial sector rose more than 21% year over year to 702 in 2021, hitting a three-year high, according to S&P Global Market Intelligence data. Mainland China and Hong Kong remained the most active market for deals, followed by Australia and India. The 2021 aggregate number compares with 577 and 584 deals announced in 2020 and 2019, respectively.

"Cheap debt remains readily available and, while recent interest rate hikes may mean that it is slightly more expensive than before, it is important to remember that the cost of borrowing remains at historically low levels and this is unlikely to change materially, provided inflation can be kept under control," James Parker, a partner at Norton Rose Fulbright in Hong Kong, said in a recent note.

The Asia-Pacific region entered 2022 with expectations of stable growth following improved vaccination coverage and economic reopening. The IMF expects the region to grow at the fastest pace in the world this year, even with downside risks such as possible new virus variants and the possibility of higher inflation. Several central banks in Asia have started raising rates to normalize monetary policy, though China has stepped up easing to help revive the nation's economy hit by softening growth and debt problems at property developers.

Deal activity was more pronounced in the nonbanking financial space, followed by specialty finance and insurance, the data showed. Buyers from within Asia-Pacific dominated with 460 transactions. Companies from the U.S. and Canada struck 70 deals in Asia-Pacific in 2021, almost double than in the previous year.

"In the early stages of the pandemic, economic uncertainty led many businesses to reduce corporate spending and strengthen balance sheets, giving them the capacity to undertake acquisitions," said James Thomson, senior industry analyst at IBISWorld. "As economic conditions stabilized, companies moved to deploy capital from preserving capital."

The Asia-Pacific financial sector was not alone in witnessing a surge in M&A activity in 2021. Global publicly disclosed deal values hit an all-time high of $5.1 trillion in 2021, 57% higher than in 2020 and beating the previous record of $4.2 trillion set in 2007, according to professional services firm PwC. In the financial sector alone, deals worth $184.2 billion were announced in the third quarter of 2021, almost double the $94.2 billion seen a year ago, according to Market Intelligence data.