M&As expected to rise among energy, mining and infrastructure companies

An increase in merger and acquisition (M&A) activity among energy, mining and infrastructure (EMI) companies based in the Asia Pacific region is strongly expected in the sector, where 87% of respondents in the Asia Pacific Business Complexities Survey 2017saw a rise.

The survey was commissioned by global law firm Baker McKenzie and conducted by Mergermarket, the proprietary M&A intelligence provider, to highlight opinions among corporate leaders on the complexities and challenges facing their business operations in Asia Pacific. Between January and February 2017, Mergermarket surveyed 150 CEOs, C-Suite officers, and key senior executives within their organizations to complete this analysis.

The survey focused on regional corporations and multinational firms with operations in Asia Pacific. Respondents work for companies of a variety of sizes, with annual revenues ranging US$500million to US$5billion. Their primary industries included: energy, mining and infrastructure (19%); information technology and communication (19%); healthcare (19%); financial institutions (19%); consumer goods and retail (19%); and manufacturing and industrials (3%).

Of those surveyed, 19% of the 150 Asia Pacific-based business leaders work for companies in the EMI sectors.The survey showed that threats of natural disasters, compliance issues stemming from changing regulations, and poor infrastructure are the leading complexities confronting EMI businesses today.

Changes to existing legal regimes are adding serious costs to energy companies, making extraction of precious resources an increasingly costly endeavor. In fact, 62% of the respondents expect greater pressure on costs in EMI in the next two years.

More than half of the respondents (51%) expect it is likely that the EMI sectors will see major technological disruption in the next two years. Corporate leaders believe that cloud computing (28%) and big data (21%) are among the top innovations that will matter most in the years ahead, as companies look to use technology to help boost growth and cut inefficiencies. Interestingly, 24% of the respondents say that they are already investing in big data, and almost one-third (31%) says that robotics receive the most investments.

Commenting on the research, Baker McKenzie Asia Pacific Chair Gary Seib said, “The world of business is more complex than ever. Identifying where companies and industries see predicted complexities emerging can help both governments and businesses themselves better prepare for this rapidly changing environment.

“That technology is at the top of the list is probably not a surprise to many, but the number of companies that expect disruption by competitive technology in just the next two years should give pause to any corporates that see themselves as immune to these forces.”

For EMI businesses operating in Asia Pacific, the three key areas of focus in terms of solving immediate complexities are: regulatory change, raising capital and optimizing tax structures.

Several other key trends were drawn out of the research, including a strong prediction of increased mergers and acquisitions (M&A) activity in the EMI sectors, where 87% of respondents saw a rise. Dispute resolution/litigation was also seen to be increasing, as observed by two-thirds (i.e. 69%) of EMI businesses.

Looking ahead, there are still plenty of bright spots for EMI businesses. Luke Devine, Asia Pacific head of Baker McKenzie’s Energy, Mining and Infrastructure Practice said, “A large part of Asia Pacific is still in a “new build” phase. Initiatives, such as the ASEAN Economic Community, are introducing a strong competitive dynamic between countries, and as regional trade barriers start to come down, many Southeast Asian nations are actively promoting themselves as a destination for manufacturing to service the Asia Pacific region. Therefore, there are huge opportunities for developers and financiers to get involved in these programs. Climate initiatives are also offering various new opportunities for businesses, particularly around increased investment in renewable energy projects.”