5 things to note in APAC Mergers & Acquisitions for September & October 2022

Here are five short summaries of interesting M&A topics or deal hotspots that have come to our attention in the past couple of months. Get in touch if you would like to be added to the distribution list for more of such quarterly updates.

1. D is for downturn

Much of the recent business news has focused on the potential recession forecast towards the end of the year. Commentary has also been made on the effect that increased interest rates, used to combat inflation, will have on investors using debt to purchase assets. Valuations for highly leveraged transactions will definitely have increased IC scrutiny. The Economist made a pretty hard assessment on the difficulties it saw for PE firms. We attended the Mergermarket Southeast Asia forum in July and heard from a range of investors, advisors and experts. Despite the acceptance of certain headwinds the mood was upbeat with attendees looking at both exits and investments in the next six months. Investors are searching, companies are looking for partners and large levels of “dry-powder” is, as ever, waiting to be deployed. 

2. Towers in the spotlight

With high levels of enquiries across our network, we have a good vantage point of sectors that are currently generating interest or have fallen out of favour in M&A deals and amongst insurers. Student housing, data-centres, logistics portfolios, renewable energy portfolios all grew in prominence and were insured in large numbers. Telecommunication towers should be added to this list. A number of assets have been sold or are considering a sale in the near future. The Philippines, Myanmar and Malaysia have all had significant M&A activity in this space in the past 12 months. With large, well connected populations, looking to move money, interact in lockdowns or access social media, Southeast Asia telco. companies make for attractive assets. New Zealand and Australia have also reported large transactions showing wider interest across the region. Insurers like these deals as well. In such transactions, we would caution dealmakers to consider land title rights in the jurisdiction. Teams should also think about what kind of sample size is being used to look at the assets and if the O&M contractor is part of the deal or a separate entity. We can explain insurers thoughts on prior transactions to help shape diligence scoping to maximise coverage. 

3. Claims, claims, claims

Anna Robinson, our Head of Claims at Howden M&A, was recently in the region giving her findings on all things related to M&A insurance claims. We talked through repeat notification areas in policies, how long the typical insurance notification to payment takes and tips for a smooth claim process. An interesting recent repeat insurance policy claim area is for amendments or addendums to key contacts that do not make their way into data-rooms or are forgotten when key supplier/customer discussions are had. A key tip is to notify early and, importantly, not to wait until an issue is seen as material enough to submit a claim. Insurers want to see parties looking to mitigate and prevent further loss. We have been told on a recent business trip that some policyholder’s legal counsel have felt unsupported in the claims process and would value a dedicated claims team’s advice. Involve Anna’s team early and they can help guide you through the process to a successful and timely resolution. 

4. End of year rush

Deal teams in 2021 will have inevitably experienced an insurance market that struggled to keep up, and in certain cases shutdown, towards the end of the year. Insurers have told us that they are not in quite the same position now as they were last year but it is likely that their teams capacity will be constrained as activity heats up. Pricing has a habit of creeping up towards the end of the year as more transactions push for a pre-Christmas signing. Our strong recommendation is to speak to us early and map out a timeline with a preferred insurer ahead of the rush. Insurers will allocate team members to projects that they know that they will win. Getting the initial stages of underwriting completed earlier (tranche I questions are called “general” for a reason) could save late nights and compressed timelines as we get to November. 

5. Minority investments and insurance

Nw minority investors are unlikely to be willing to claim for a breach of warranty from members of their management portfolio company. A business is unlikely to proceed on an amicable footing if one party is suing the other for a mistake in disclosure. Insurance can be used to bridge this risk gap. An investor can claim against an insurer for its new business partner’s error without the risk of derailing the very investment that they made. There are considerations to be made when insuring minority investments. Some insurers want a greater level of seller involvement in the underwriting process. Others want to prevent the seller from being perceived as benefiting from their own breach of warranty, but, these positions are not uniform and can be negotiated. Investors thinking about minority acquisitions should consider using insurance, others dealmakers are finding benefit.

Authored by: 

James Kay
Director, Mergers & Acquisitions
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