Aug

Industrial Internet of Things (IIoT) M&A Transaction Drivers

Mergers and acquisitions (M&A) transactions within the Industrial Internet of Things (IIoT) carry specific requirements that sellers, buyers, and advisors must carefully consider when going through the M&A process. This report identifies four key valuation and transaction success drivers in IIoT M&A transactions as tangible or intangible assets.

Tangible drivers include income statement and balance sheet adjustments as well as working capital calculations. Intangible drivers include supply chain risks and customer contracts, such as pricing models, contract durations, average order quantities, and other contractual arrangements with the IIoT companies’ end customers. Correctly identifying and measuring these factors materially impacts valuation and the likelihood of closing a transaction.

Defining the Scope of IIoT Businesses

Industrial Internet of Things (IIoT) companies use physical devices, connect them to the internet, and then provide some enhanced functionality to a customer. This functionality includes but is not limited to automation, remote monitoring, and predictive maintenance. IIoT devices include equipment, machines, sensors, monitors, and devices to collect, analyze, and share data in industrial settings. These devices can be used in logistics, manufacturing, healthcare, oil and gas, and transportation industries.

IIoT businesses operate under diverse business models. Some IIoT firms sell a comprehensive solution, referred to as Platform as a Service (PaaS). PaaS providers offer infrastructure and tools for device connectivity, data storage, real-time analytics, and integration with other enterprise systems. They allow businesses to create custom IIoT applications tailored to their specific industrial needs without having to build and manage the underlying infrastructure. In return, customers pay based on usage or the number of devices connected to the platform.

Other IIoT firms engage in hardware sales with software and service contracts included in the pricing to maintain the device. Either the PaaS model or the hardware sales model may monetize the data they collect by selling it to other businesses that benefit from the information. And finally, IIoT firms may operate on a software-only model, where they license their technology directly to other OEMs or customers who own the devices themselves.

The business models of IIoT firms are diverse, but they all rely on hardware to provide their core value to customers.

Tangible Drivers

Tangible drivers for IIoT transactions impact how firms manage the costs of their devices across the value chain. Most IIoT companies do not manufacture their own devices; instead, they resell them with value-added software and ongoing services. As such, the treatment of each IIoT device—from its purchase by the manufacturer to its sale to the end customer— results in various accounting entries affecting both the income statement and balance sheet.

Income Statement and Balance Adjustments

To analyze the impact of account methods on investment transactions, let us consider two options for recording the value of an IIoT device through its lifecycle from OEM acquisition to ultimate sales to the customer. Sometime IIoT firms account for the initial acquisition of an IIoT device from a manufacturer (such as GE or Siemens) as a balance sheet accounting entry. Cash is used to purchase the device, reducing the cash balance on the balance sheet while increasing current assets. Once the device is acquired, software engineers and hardware engineers modify the physical device to enhance its capabilities. This investment of time has associated labor costs and sometimes associated physical product costs. In this example, we will refer to this as Option A. Alternatively, the IIoT firm’s expenditure on enhancing the device may result in these costs being recorded in the income statement as expenses, which we will refer to as Option B.

If a company elects to record these value-added enhancements on their income statement only, they are simply overreporting expenses on the income statement and underreporting the cost of goods sold (COGS) when the device is ultimately sold to the end customer (Option B). If companies account for value-added enhancements by increasing the value of the inventory on the balance sheet, they must also increase the COGS by the same amount when the device is sold and generates revenue on the income statement (Option A). When the device is sold to the end customer, this COGS is deducted from the product’s revenue, thereby reducing net income, which reduces equity by an equivalent amount through retained earnings on the balance sheet.

Consider the following: A device is acquired for $100. A firm invests $20 in value-added enhancements.

Option A

If the firm chooses to add all the value-added enhancements to inventory, the additional $20 of expenses is listed as a current asset on the balance sheet. Cash is reduced by $20 and inventory increases by $20. It does not impact the income statement. When the device is later sold, the COGS is $120, not $100. This allows the ultimate expenses to appear on the income statement at the time of the device sale. Assume each device sells for $180.

Therefore, the income statement records revenue of $180, and COGS of $120, so $60 is the gross profit.

Option B

Compare this example to one in which a company did not account for these improvements on the balance sheet. The device is sold for $180; COGS is $100, therefore $80 is available for the gross profit. This does not include the $20 paid for services and materials. That was already recorded previously as an expense in the income statement.

The impact for business owners is two-fold:

Different accounting treatments for COGS have material impacts on cash flow.
The choice of how to account for value-added enhancements may have a material impact on an IIoT firm’s working capital.

At first glance, this appears to be a mundane accounting example. But a closer look indicates how it can affect an M&A transaction.

Choosing Option B over Option A is more common because it’s simpler and more akin to cash accounting, which is commonly used by small and medium-sized businesses. However, Option B will suppress the cash flow of a business while the device is being modified and improved, which can sometimes take several months. If a firm chooses Option B, it will result in a lower cash flow number, and then make the money back in its reported gross margin when the device is sold to a customer later.

The key element of this analysis is time. In Option B, the firm is showing expenses before the revenue from those expenses appear. And it is showing these expenses in a scale multiplied by the number of devices it sells, which can be in the thousands. At scale, these impacts on the cash flow reporting of the business can become material and directly impact EBITDA, which is the most common metric buyers use to determine valuations for private equity companies. As long as the time to make value added enhancements is longer than one reporting period (usually one month), then this over-reporting of expenses will occur.

In this example ignoring the value-added enhancements allowed the firm to increase its gross margin by 11%, which would seem desirable, but reduced EBITDA by 50%. This in turn reduced the total enterprise value of the company by 50%. This is a highly material change for a firm that is operating identically in both options A and B, but reporting financials differently. Said differently, constantly expensing every single cash item on an income statement will naturally suppress EBITDA, and companies should avoid accounting for expenses that suppress EBITDA when they can. IIoT firms have a unique opportunity to do this.

Working Capital Calculations

In many purchase agreements, it’s specified that 30 to 90 days after closing there’s an “adjustment” of working capital. This means either party may transfer funds to the other to compensate for any excess or deficiency in the working capital present in the business on the closing day.

Working capital is calculated by deducting current liabilities from current assets. A working capital mismatch happens when the difference between assets and liabilities is greater than expected. In Option B above, we indicated how underreporting assets can suppress EBITDA and lower the enterprise value of a transaction. If a seller performs the accounting laid out in Option B, there is a risk they would have to return a portion of their cash on close proceeds to the buyer 90 days after close. This can become material based on the structure of the deal. Learn more about transaction structures.

Continuing with our examples above, there are two options. One is where the company undergoes a change of control transaction for $400 and the other is where the company sells for $200. In Option A, the seller increased their current assets while value-added enhancements were being added to the IIoT device. Option B did not account for this increase in assets. So Option A will result in a higher working capital calculation than Option B.

It’s already indicated in this report that Option B can lead to a 50% reduction in TEV to the seller. In addition, Option B also underreports working capital. If a company sells for $200 and 50% of that TEV is provided in cash at closing, the selling shareholders receive $100. If the seller has inadvertently underreported working capital by $20, the buyer will request that $20 as a “adjustment” 30 to 90 days after closing. This means the seller will be at risk of losing 20% of their cash on close due to inaccurate balance sheet accounting.

There are unique complexities to balance sheet accounting for IIoT devices. This same level of complexity does not exist in IT services, professional services, e-commerce, and many other business models. This is mostly due to the assembly line-type process where IIoT devices act as manufacturers of intangible assets on top of physical goods.

In many private companies, especially smaller ones, the working capital figures may not be updated regularly or accurately. This can lead to differences between reported and actual figures, impacting the perceived financial health of the business during acquisition negotiations.

Intangible Drivers

Supply Chain Risks

During an IIoT M&A transaction, changes in ownership or strategic direction can disrupt existing supplier relationships. Onboarding new suppliers could lead to delays in procurement, increased costs, or quality issues. Integrating two companies’ supply chains involves aligning procurement processes, inventory management systems, and logistics networks.

Cybersecurity vulnerabilities are also a threat, as IIoT systems are susceptible to data breaches and ransomware attacks during integration if security measures are not robustly implemented. Buyers seek to understand the volatility in a seller’s supply chain. The more steps a seller can take to reduce its supply chain volatility, the less of a negative impact it will have on an M&A transaction.

Customer Contract Terms and Relationships

Contractual customer relationships are unique in the IIoT business. The basic IIoT firm and customer transaction involves customers paying for hardware, software, services, and support, resulting in complex dynamics that might include multiple purchases. Due to this intricate relationship, there are clear indicators that highlight which contractual relationships create the most value in an M&A transaction.

IIoT Firm – Revenue Models

The initial transaction between an IIoT firm and its customer is the identification and procurement of the hardware device. Whether this device is manufactured in house by the IIoT firm or sourced from another provider, the baseline of costs between the IIoT firm and the customer is defined in this purchase. IIoT devices are complex, and any standard scope of work typically requires numerous IIoT devices. IIoT firm and customer payment models for the hardware devices fall into one of two categories: the complete sale or acquisition of the IIoT device and the leasing or renting of the device.

In the complete sale of an IIoT device, the IIoT firm sells the device to its customer at the cost to make or acquire, plus a profit margin. The customer bears the entire cost of the device. This results in firms receiving an immediate return on investment (ROI) upon selling the device, but does not generate recurring revenue.

In the leasing, renting, or lending device model, the IIoT firm maintains ownership of the device on its balance sheet, and charges the customer regular payments, often with interest or a markup. The greatest challenge for the IIoT firm in this example is the delayed recovery of initial device costs. It often takes years for the IIoT firm to fully recoup the costs of the asset, and even longer to make a profit from leasing, renting, or lending the device. As a result, this creates a much higher financial liability for the IIoT firm in the near term, but better unit economics overall, once it reaches a critical mass of devices generating sufficient recurring revenue to fund its growth.

Leasing, renting, or lending devices is more valuable than selling them. Multiples on recurring revenue consistently drive greater returns for firms in M&A transactions. However, leasing, renting, or lending the devices alone is insufficient to command greater value. Attention should also be given to the minimum order quantities and contract durations associated with either model.

Selling devices can still create value. Many firms lack the necessary credit or equity capital needed to lease a significant amount of devices to customers. Selling devices also generate revenue from implementation, maintenance, support, and services. These ancillary services are sometimes included in the leasing price and sometimes sold separately.

Average Order Quantities and Contract Length

Valuations of recurring revenue are measured over years in IIoT M&A transactions. Therefore, if a contract with a customer is leased and annual, it does not carry a premium compared to selling the device outright. Contracts must exceed one year to carry a premium in valuation. The value of a contract increases significantly from two to 10 years, as indicated in the graph below. IIoT firms benefit from structuring contracts with customers as long as possible but should avoid negotiating terms exceeding 10 years, as they diminish in value compared to two to 10 years.

A second component of the contract value is the minimum order quantities (MOQs) for the devices themselves. As already established, IIoT firms’ revenue models revolve around selling or leasing devices and charging recurring fees. IIoT firms are well served to negotiate high minimums with their customers to increase contractual value. This approach allows IIoT firms to offer improved services, software upgrades, and other benefits when customers commit to higher MOQs.

Combining high MOQs with longer contract commitments creates the greatest customer relationship value for an M&A transaction.

Additional Material Contractual Terms

Bundled Contracts

When a company orders a significant number of IIoT devices from a vendor, they pay an initial fee per device and commit to an annual fee per device for several years. In addition to shipping the devices, the vendor provides installation services at an extra cost per device. These bundled contracts consolidate the costs of hardware licenses, software licenses, and essential services into a single agreement.

During the due diligence phase of IIoT M&A transactions, acquiring companies evaluate the existing contracts and commitments of the target companies. Bundled contracts for IIoT devices represent ongoing financial obligations and commitments such as annual fees per device over several years. These commitments can impact the financial projections and cash flow of the acquirer post-acquisition. Bundled contracts often come with specific terms and conditions, including SLAs that guarantee performance metrics such as uptime, response times for support issues, and the reliability of data transmission. These contracts may also include penalties or liabilities in the case of non-performance or breaches. Understanding these contractual obligations helps in assessing the overall financial health and sustainability of the target company’s IIoT investments.

Ownership of Intellectual Property

In M&A transactions, an IIoT company’s intellectual property (IP) constitutes a substantial portion of a company’s overall value. Buyers’ assessments focus on evaluating the strength, scope, and uniqueness of the IIoT company’s IP portfolio to understand how it contributes to market differentiation, potential revenue generation, competitive advantage within the IIoT sector, and financial stability post-acquisition.

Buyers look for synergies between their existing IP portfolio and the IIoT company’s portfolio to assess how they would enhance their product offerings and expand their market reach. They analyze the revenue potential of IP assets, where licensing agreements, royalties, and joint ventures maximize their return on investment through strategic IP commercialization strategies.

The assets of IIoT companies may include patents covering technologies like sensors, data analytics algorithms, and cybersecurity measures; design patents for the unique physical designs of their hardware products; and trademarks to safeguard their brand identities. While copyrights protect software, documentation, and user interfaces. Trade secrets play a crucial role in protecting confidential information such as proprietary algorithms, customer lists, and manufacturing processes.

One notable M&A example of this is General Electric’s (GE) acquisition of Grid Solutions, a subsidiary of Alstom, in 2015. Through this acquisition, GE gained access to Alstom’s extensive IP portfolio related to electrical grid technologies, including patents, trademarks, and proprietary technologies. The acquired IP enabled GE to enhance its product offerings as it included innovations in smart grid solutions, digital monitoring systems, grid automation technologies, and advanced analytics for power networks.

IIoT companies should maintain ownership of their intellectual property and clearly define their portfolio.

Data Ownership

IIoT firms generate vast amounts of data that can be analyzed to gain actionable insights. This data enables real-time monitoring and control of machinery, predicting when maintenance is needed before a breakdown occurs, therefore cutting costs and minimizing downtime. IIoT data also enhances workplace safety by monitoring environmental conditions and employee health, enabling timely interventions to prevent accidents.

Data is a strategic asset in IIoT. Companies with ownership of valuable data can explore various monetization strategies, such as selling data insights, licensing data access, or using data-driven services to generate additional revenue streams. For M&A transactions, acquiring ownership of valuable data assets can strengthen a company’s market position and expand its capabilities. Owning data facilitates smoother integration of systems and technologies post-acquisition. It enables the combining of data sets, integration of analytics platforms, and development of new data-driven innovations that capitalize on synergies between the acquiring and acquired companies.

A relevant M&A example involves Siemens acquiring Mendix in 2018. Siemens not only acquired Mendix’s technology but also gained access to valuable data generated by IIoT applications built on the Mendix platform. Siemens utilized this data to enhance its digitalization offerings, improve operational efficiency for its industrial customers, and accelerate innovation in IIoT solutions.

IIoT firms should own or have the ability to use their customer’s data, even if it is obfuscated.

The Material Impact of Unique Industrial Internet of Things M&A Drivers

It is crucial for business owners considering the sale of their Industrial Internet of Things (IIoT) business to understand the four M&A drivers identified in this report: income statement and balance sheet adjustments, working capital calculations, supply chain risks, and customer relationship measures. Each driver plays a pivotal role in shaping the strategy of an M&A transaction for IIoT firms.

By strategically addressing these drivers, owners can position their company to attract higher valuations and unlock greater value for shareholders in the sale process.

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SOURCES

DIGI – Discusses IIoT basics, use cases, and applications ↗

Jahani and Associates – Discusses transaction structures and its impact on seller liquidity in M&A ↗

Acquisition of Grid Solutions by General Electric ↗

Acquisition of Mendix by Siemens ↗

Defining the Battlegrounds of the Internet of Things ↗

DELOITTE – Intelligent IoT ↗

Aug

Mobile Robotics

Over $200 billion was deployed by investors in the mobile robotics sector between Q1 2020 and Q2 2024. Mobile robotics include advanced robotics and drones used in logistics, military and defense, agriculture, manufacturing, and various other industries. The sector has become critical as businesses seek advanced technologies to improve efficiencies and reduce costs while remaining at the forefront of innovation.

The majority of capital deployment in the sector was conducted by US-based investors. Chinese investors also contributed a significant amount of capital. This could be due to the military applications of the technology and the need for the world’s two largest economies to remain globally competitive. Venture capital transactions accounted for significant deal count and capital invested in mobile robotics, highlighting the growth potential in the sector, demand for early stage transactions, and the investments made in innovation.

An increase in government funding and zero-interest-rate policy caused by the pandemic resulted in an increase in deal count and capital invested in the sector in 2020 and 2021. In 2023 and the first half of 2024, lower capital deployment and deal count were observed, as markets adjusted to increasing interest rates. Since Q3 2023, capital deployment has increased, indicating a strengthening of the mobile robotics capital market. Shareholders in the sector should be aware of the upward trend in capital market activity and the investment opportunities this presents.

Between Q1 2020 and Q2 2024, $218 billion was deployed across 17,723 transactions in the mobile robotics sector. The average transaction value was $12 million, highlighting the volume of transactions conducted in the lower and lower-middle markets.
The most significant deployment of capital, $23 billion, occurred in Q1 and Q3 of 2021 with the largest deal count occurring in Q1 of 2022—1,288 announced transactions. This period coincided with low interest rates and loose monetary policies to combat the economic effects of the pandemic.
There is a negative trend in the number of transactions conducted per quarter. However, capital investment has increased steadily since Q3 2023 with significant capital deployed in Q1 and Q2 of 2024.
While the deal count shows variability, it generally remains above 600 transactions per quarter. This consistency indicates a stable interest in deal-making, even as the investment amounts fluctuate.

Venture capital investors accounted for 63% of the deal count in the mobile robotics sector and contributed $46 billion of investments, with an average deal size of $3 million. The deal count and average deal size indicated the appetite to invest in early stage transactions and the growth potential of the sector. Additionally, they demonstrate high demand for innovation and development within the mobile robotics sector.
Private equity firms and other financial acquirers conducted 40% of mobile robotics transactions and contributed 25% of capital deployed in the sector. This could indicate high demand for roll-ups and acquisitions of key technologies in the sector as well as the abundance of established companies.
Mergers and acquisitions conducted by strategic acquirers account for $45 billion of the capital invested in the sector but just 5% of the total deal count. The average deal size of $70 million could indicate the desire for larger mobile robotics M&A transactions with established technologies and customer relationships.

US-based mobile robotics investors led the deployment of capital into the sector, with over $87 billion, and 40% of the capital development. This could be due to a variety of factors, including a large number of early stage companies in the US and demand for onshoring technology with military and defense potential.
China, while significantly less than the US, holds a notable portion of the capital deployment of approximately $59 billion. The deal count for China is also relatively high, suggesting a healthy level of capital market activity.
Other countries such as the United Kingdom, Germany, and Israel made significant investments in the mobile robotics sector, all contributing 4% of capital deployed over the period.
The rest of the world exhibits a noticeable spike in deal count, but a small share of the capital invested of under 20%. This implies a wide distribution of smaller deals across various countries not individually listed. These smaller markets collectively engage in a significant number of mobile robotics transactions, but each deal tends to be small, reflecting diverse capital market activities.

Deal Spotlight:

NIMBLE

The Company

Nimble is a US-based designer and creator of robotic systems. The technology automates piece-picking, sorting, and packing systems for the e-commerce industry. The company’s system integrates warehouse infrastructure and uses AI, computer vision, and remote human-in-the-loop supervision to create smart robots. Nimble enables clients to reduce costs and staffing churn while boosting efficiency in fulfillment workflows.

Nimble raised $65 million of Series B venture funding in a deal led by Cedar Pine on March 1, 2022. The pre-money valuation for the round was $730 million. GSR Ventures China, DNS Capital, Breyer Capital, and other undisclosed investors also participated in the round.

Investors based in the US and China have deployed significant capital into the mobile robotics sector, particularly in early stage companies. This may be due to the military applications of robotics and drones and the range of applications in logistics, manufacturing, agriculture, and a variety of other sectors. The sector will continue to grow in prominence as well-funded early stage companies mature and conduct further capital market activity.

Founders and shareholders in the mobile robotics sector should be mindful of the rising trends in deal count and capital invested in the sector and the opportunities to raise capital and conduct M&A transactions.

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Sources: Pitchbook Data, Mordor Intelligence, McKinsey & Company, Future Marketing Insights.

Aug

Minerals and Mining Transactions and Valuations

Between Q1 2020 and Q2 2024, over $380 billion was deployed across 3,799 M&A transactions in the minerals and mining sector, with an average deal size of $103 million. Companies in the mineral and mining sector typically trade at an enterprise value to revenue multiple range between 1x and 4x and an enterprise value to EBITDA multiple between 4x and 10x.

The majority of investments in minerals and mining were made by western economies like the US, Canada, and Australia to secure resources for technology, renewable energy, and security. These investments aim to ensure supply chain stability, economic growth, job creation, and innovation, and reduce foreign dependence.

The minerals and mining industry encompasses the exploration, extraction, processing, and distribution of mineral resources.

This industry is critical for providing raw materials used in a wide range of products including electronics, machinery, construction materials, and energy solutions. Key minerals include precious metals like gold and silver, base metals such as copper and aluminum, and industrial minerals like coal and phosphate. The sector is heavily regulated to ensure environmental sustainability and worker safety.

The valuation multiples are based on a sample set of private M&A transactions and publicly listed minerals and mining companies in the sector. The data was collected on July 19, 2024.
The sample set typically trades at an enterprise value to revenue multiple range between 1x and 4x, staying consistent in this range as the enterprise value of the business increases.
Enterprise value to EBITDA multiples varied substantially, typically ranging between 4x and 10x. The average enterprise value to EBITDA multiple increased significantly as the enterprise value of the company surpassed $100 million.
Achieving positive EBITDA in the minerals and mining industry is challenging due to its capital-intensive nature, requiring significant capital expenditure and long-term investment. The sector faces high operational costs, fluctuating commodity prices, regulatory compliance, geopolitical risks, and ongoing exploration and development needs, all of which impact profitability and operational efficiency. Consequently, significantly higher multiples are often placed on larger companies, having shown resilience and growth.

Between Q1 2020 and Q2 2024, over $380 billion was deployed across 3,799 M&A transactions in the minerals and mining sector by global firms, with an average deal size of $103 million.
Q2 2024 reflects the period with the most significant deployment of capital, $56 billion, while Q4 2021 experienced the highest deal count, 236.
The average deal count has remained at approximately 200 transactions per quarter. Notable exceptions were seen in Q2 2020 and Q3 2020 in the early phases of the pandemic.
The largest completed transaction was the full acquisition of Newcrest Mining by Newmont, for $26.6 billion, which was completed on November 6, 2023.

Australia, the United States, and Canada were the top three countries for capital investment in minerals and mining M&A transactions, receiving 22% ($86 billion), 21% ($84 billion), and 20% ($78 billion) of the total capital invested, respectively.
Canada, the United States, and Australia lead in the number of deals conducted, with Canada having the highest percentage at 22% (852 deals), followed by the United States at 21% (777 deals), and Australia at 15% (574 deals).
Western markets such as Australia, the United States, and Canada have significantly invested in the minerals and mining sector, highlighting the strategic importance of securing natural resources. This trend shows their efforts to reduce dependence on other regions amid geopolitical instability, trade conflicts, and global resource competition. By investing heavily, they aim to ensure a stable supply chain for critical materials, essential for economic stability and technological advancement.
The United Kingdom ranks fourth in both capital invested and deal count, with 13% ($50 billion) of capital investment and 8% (190 deals) of the total deal count.

M&A transactions were the most significant type of transaction, leading in both capital invested ($341 billion) and deal count (2949 deals). M&A transactions were also the largest on average, with an average transaction size of $115 million.
In the minerals and mining industry, M&A is favored likely for rapid resource acquisition, achieving economies of scale, and geographical diversification. These benefits enable quick access to valuable deposits, cost reduction through efficiency, and risk mitigation by operating across multiple regions, ensuring long-term sustainability and profitability.
Buyout and leveraged buyout transactions recorded the second-highest capital invested at $48 billion across 616 deals with an average deal size of $77 million. This was followed by corporate divestiture at $39.48 billion capital invested across 587 deals with an average transaction size of $67 million.
Secondary buyouts had a relatively low amount of capital invested at $7 billion but carried the second-largest average transaction size at $111 million.

Deal Spotlight:

BLACKROCK METALS

The Company

BlackRock Metals engages in mining iron, titanium, vanadium, and other commodities in North America. The firm was founded in 2008 and is based in Montreal, Canada.

Strategic Resources completed a reverse takeover of BlackRock Metals on March 31, 2023. As part of the deal, Strategic Resources acquired all of BlackRock Metals’ issued and outstanding shares. Consequently, BlackRock Metals has become a wholly owned subsidiary of Strategic Resources.

At the time of the deal, BlackRock Metals had an implied enterprise value of $102 million. The revenue of BlackRock Metals at the time of the acquisition was undisclosed but the EBITDA of the business was $29 million, resulting in an enterprise value to EBITDA multiple of around 3.5x.

M&A activity in the minerals and mining sector is increasing, with strong market fundamentals and strategic opportunities driving growth. High demand for critical minerals essential for green technologies and infrastructure projects has created significant investment interest.

Companies are leveraging acquisitions to enhance their resource base, optimize operations, and achieve scale efficiencies. Additionally, favorable commodity prices and a focus on sustainability are incentivizing deals.

Western countries like the US, Canada, and Australia are significantly investing in the minerals and mining sector to secure essential resources for technological advancements, renewable energy, and national security. These investments ensure the stability of supply chains, promote economic growth, and support the transition to sustainable and green energy solutions. By securing reserves, these nations aim to reduce dependence on foreign imports, create jobs, and foster innovation in emerging technologies. Additionally, these investments align with strategic goals to combat climate change and enhance resilience against global market fluctuations.

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SOURCES

Strategic Resources Financial Information ↗

PR Newswire – Strategic Resources Closes Reverse Takeover of BlackRock Metals ↗

MINING.COM ↗

Deloitte – Mining M&A in an altered world ↗

EY – Top 10 business risks and opportunities for mining and metals in 2024 ↗

PITCHBOOK DATA ↗

Jul

Freight Forwarding M&A Transactions

Over $40 billion was deployed between Q1 2020 and Q1 2024 by freight forwarding acquirers. Freight forwarding is a specialized service that manages the transportation of goods and the pricing of the logistics sector. Acting as intermediaries, freight forwarders coordinate the movement of cargo across various transportation modes over land, sea, and air. Disruptions in global supply chains and escalating geopolitical tension have increased the demand for onshoring logistics services, which has spurred capital market activity.

The majority of capital deployed was by US-based acquirers. They contributed 25% of the deal count and over 60% of the capital deployed. Additionally, strategic acquirers deployed over 77% of the capital invested. Freight forwarding companies should be aware of exit opportunities presented by US-based strategic acquirers.

The disruptions in international supply chains and zero-interest-rate policy caused by the pandemic resulted in an increase in deal count and capital invested in the sector in 2021 and 2022.

Capital deployment in the sector since Q1 2023 has decreased significantly. Increased interest rates have reduced the affordability of large M&A transactions, and the average deal size has dropped to approximately $7 million. The deal count has remained high showcasing exit opportunities available for smaller freight forwarding businesses.

Between Q1 2022 and Q1 2024, $37 billion was deployed across 352 logistics. The average transaction value was approximately $104 million, and the median value was $58 million, highlighting the volume of transactions conducted in the middle market.
Q1 2023 saw a substantial increase in deal count to 27, with capital investment peaking at $10 billion, the highest in the period.
Deal counts fluctuated between 17 and 20, with capital investment dropping significantly post-Q1 2023, reaching only $496 million in Q4 2023 and about $234 million in Q1 2024. Deal counts rose again to 26 in Q1 2024.
The largest transaction in the sector was Apollo Global Management’s $5.2 billion acquisition of Atlas Air Worldwide Holdings. The acquisition was completed in March 2023.
Between Q2 2023 and Q1 2024, capital investments dropped significantly, but over 80 transactions occurred with an average deal size of $7 million. The increase in interest rates has meant that larger M&A transactions and heavy investments in research and development have become unaffordable. As a result, smaller acquisitions have become more attractive to strategic and financial acquirers.

The number of transactions conducted was equally distributed between strategic and financial acquirers. Financial investors deployed approximately $8 billion across 162 transactions. This indicated the appetite for smaller transactions by private equity firms and other financial acquirers.
Large strategic acquirers in the freight forwarding sector include A.P. Moller- Maersk, DHL Group, and Kuehne+Nagel.
Strategic investors within the logistics industry dominated capital deployment with $29 billion and 54% of M&A transactions in the sector. The large average transaction size indicates demand for middle-market acquisitions.
The most active financial acquirers in the sector include AEA Investors (eight transactions), the Jordan Company (six transactions), and ATL Partners (five transactions).

US-based acquirers dominated the capital invested into freight forwarding acquisitions, with over $23 billion, and 62% of the capital deployment in the category. The pandemic and heightened geopolitical tension have increased pressure on supply chains. The demand for onshoring supply chain capabilities and specific solutions to meet the unique needs of the US logistics market drove the increase in M&A activity by US-based acquirers.
European acquirers contributed significantly with 45% of the deal count and 17% of the capital invested in the sector. The lower transaction size average of over $40 million signals an appetite for lower middle market transactions. The M&A activity highlights a demand to grow domestic supply chain capabilities.
East Asian investors deployed $7.5 billion across 53 transactions in the freight forwarding sector. This suggests that while the total transaction amount is small, there are a relatively larger number of deals, indicating frequent but smaller acquisitions. This could be due to a thriving startup scene where smaller, earlier-stage transactions are more common.
The rest of the work exhibits a noticeable spike in deal count, approximately 15%, but a very small share of the capital invested. This implies a wide distribution of smaller deals across various countries not individually listed. These smaller markets collectively engage in a significant number of freight forwarding transactions, but each deal tends to be small, reflecting diverse capital market activities.

Deal Spotlight: 7LFREIGHT

The Company

7LFreight is a logistics technology company with rate management software for ocean and air freight forwarding businesses. The company’s software automates tasks on one central platform as well as maintaining air and surface rates, allowing freight forwarders to provide clients with instant quotes. The booking platform connects more than 30 airlines and upwards of 10,000 freight forwarding offices internationally. The acquisition bolsters Freightos’s presence in North America and technology capabilities.

For more information on how transaction structures impact seller liquidity, see Jahani and Associates’ article here.

Source: Investing.com

Global supply chains are rapidly evolving as geopolitical tensions increase in a post-pandemic world. The need to expand domestic capabilities has driven freight forwarding M&A activity in the US and Europe.

The average transaction size in freight forward transactions in Q1 2023 was $7 million across 80 transactions. This shows the level of lower-middle capital activity in mergers and acquisitions and the opportunities available for smaller companies. Freight forwarding, the management of goods and pricing of the logistics sector, will continue to develop in importance as the US and Europe look to onshore more supply chain services.

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May

Medical Devices and Digital Health in Southeast Asia

Over $1.9 billion has been invested in the medical devices and digital health sectors in Southeast Asia since 2020. The medical devices and digital health sectors are driven by continuous technological advancements and innovations, which play a crucial role in shaping the future of the healthcare industry.

This report provides a comprehensive analysis of investment activity in these two sectors. The data set analyzed focuses on capital deployment, transaction types, geographical distribution, and the largest deals within the industry over the period. By analyzing the data and trends from Q1 2020 to Q1 2023, this report explores the emerging trends and technologies shaping the current landscape of medical devices and digital health and what it means for the capital markets.

The medical device and digital health industry has received over $1.9 billion from investors with over 337 transactions at an average deal size of $141 million since Q1 2020.
The second quarter of 2021 saw the largest capital deployment of $426 million in the sector, driven by Sunway Healthcare Holdings, which saw the biggest investment raise of $181 million from Singaporean investor GIC.
Since the third quarter of 2021, investment numbers have remained relatively steady until Q1 of 2023, when we see a dip in investment. This could be due to the Silicon Valley Bank collapse in early 2023, which decreased venture capital funding and overall investment in technology-driven healthcare solutions.

Vinmec International Hospital is an operator of clinics and hospitals across Vietnam. Vingroup, its parent company, raised capital from Singaporean GIC for $203 million in December 2020. The company is using the proceeds to expand its medical footprint, focusing on healthcare infrastructure, research, and technology.
GIC was also behind the second largest deal, investing $181 million in Malaysian company Sunway Healthcare Holdings. They are accountable for 43% of the largest 10 deals in the last three years.
Indonesian healthtech company Halodoc raised significant funding in multiple rounds in recent years. In 2020, they raised $65 million in a Series B funding round, followed by another $80 million in a Series C funding round in 2021. Halodoc offers a telemedicine platform and a range of healthcare services, including appointment booking and medicine delivery.

Singapore is the leading recipient of funds in the sectors, having received $710 million in investment in the last three years. It accounts for 39% of the total funding in the region. Their modern and ever-growing healthcare ecosystem and infrastructure have attracted investment and fostered innovation in the medical devices sector.
Malaysia was the second largest recipient of funding with $419 million of inward investment, composing 23% of the total. An important fact in its success is the progress made by the Malaysian government in working towards streamlining regulations and improving the regulatory environment for medical devices and digital health. This helps facilitate the commercialization and adoption of new technologies, making Malaysia an attractive destination for investment in these sectors.
Vietnam surprisingly surpasses Indonesia with $286 million in inward investment. Vietnam has been investing in healthcare infrastructure development, including the establishment of medical centers and hospitals, enhancing the capacity for adopting and utilizing medical devices and digital health technologies, making it an attractive market for investors.

From 2020 to Q1 2023, 29% of medical devices and digital health investments were made by private equity firms with $546 million, accentuating the region’s growing strategic value.
Secondary transactions take up 25% of the total investment pool. As companies achieve successful exits or liquidity events through secondary transactions, it can signal positive prospects for future investors and attract more capital to the industry. Investors deployed $320 million through mergers and acquisitions within these sectors. Established companies enhance their market position, expand their product offerings, or gain a competitive advantage through domestic and international acquisitions.

The convergence of healthcare and technology has paved the way for digital health solutions and medical devices. The cross-border capital markets in the medical devices and digital health sectors in Southeast Asia have witnessed significant growth and investment in recent years. The region’s expanding healthcare market, favorable regulatory environment, and technological advancements have attracted the attention of investors and spurred a flurry of deals and partnerships.

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Dec

Semiconductor Transactions by ASEAN-Based Investors

Investors based in ASEAN—Association of Southeast Asian Nations, an economic union of 10 nations in Southeast Asia—have invested $18.3 billion in the semiconductor industry between 2020 and Q2 2023. This report provides a comprehensive analysis of the investment activity trend, which decreased between 2020 and 2021, then increased in 2022.

The data set analyzed focuses on capital deployment, transaction types, and geographical distribution. By analyzing the data and trends from 2020 to Q2 2023, this report reviews the dynamic landscape of the sector.

Semiconductor Transactions by ASEAN-Based Investors

Semiconductors are specialized devices that provide the main architecture for electronic products. Some of the most important semiconductor applications include:

Consumer and industrial electronics: consumer electronics include televisions and mobile phones, whereas industrial devices span the length of manufacturing plants.
Wireless infrastructure: a collection of various communication devices, connectivity standards, and connectivity solutions that work together to provide wireless networks to users.
Servers, data centers, and storage: integrated systems that provide resources, data services, and telecommunication and storage systems.
Automotive: includes industries associated with the production, wholesaling, retailing, and maintenance of motor vehicles.

ASEAN-based investors invested $18.3 billion over 148 deals, with an average deal size of $124 million.
Capital deployment peaked in Q1 2021, with the highest average deal size of $550 million.
The most active year for deal flow was 2021, with approximately 51 deals with $8.61 billion accounting for the highest investments made, 24 of which were in Q3. This accounts for 35% of the deals between Q1 2020 and Q2 2023.

Mergers and acquisitions were the driver of the deal count, attributing 67% of the transactions recorded amounting to $12.2 billion of the total deal value. This may indicate that the highly competitive landscape is driving the large semiconductor players to enhance their capabilities, grow market share, and gain access to new technologies. It could also be a direct result of the decrease in technology stock valuations leading to a search for value through acquisition.
Approximately 15% of the transactions conducted were by private equity firms with $2.7 billion deployed.
A significant amount of capital, $1.5 billion, was deployed into venture capital investment by Southeast Asian investors. Despite the smaller ticket sizes, these transactions contributed to 8% of the capital deployed in the sector.

ASEAN-based investors made 76% of the investments in foreign companies such as Germany ($5.3 billion), China ($4.4 billion), and Malaysia ($4.2 billion).
Investments in the USA ($3.1 billion) represent 17% of total investments.
The remaining 7% were into Mexico, Singapore, and others.

In conclusion, M&A consolidation and appetite for foreign investments by ASEAN-based investors in the semiconductor industry is evident. Although there has been a decrease in investments in the first half of 2023, as confidence in the market grows, scale and consolidation are essential for companies to compete effectively. The industry, market growth, and high returns will attract more investments in the space.

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Jun

Cross Border Investments: The Middle East and China

The Middle East and China

This report investigates cross-border investments made between the Middle East and China since 2020. The Middle East serves as a strategic economic hub due to the strength of the energy sector and geographic positioning. Countries like the United Arab Emirates and the Kingdom of Saudi Arabia have held strong historic ties to the West, but are experiencing increased levels of economic relations with China. With current oil and gas shortages and rapidly increasing prices, the Middle East will continue to be a valuable economic battleground.

Capital deployed by Chinese-based investors in the Middle East focused on early-stage companies, with 81% of deals in the sector occurring in venture capital transactions. This highlights the desire to invest in the future growth of the region.
Many deals in the sector are unannounced, so this data may under-represent actual deal volume and size. This report outlines the type, deal count, dollar volume, and industries of Chinese investments in Middle Eastern companies.

Chinese Investors Capital Market Activity: Middle Eastern Companies

Since 2020, 132 cross-border deals were announced between Chinese investors and Middle Eastern-based companies, in which a total of $9.7 billion was deployed. The chart below shows the deal count and capital raised in this cross-border category.

Deal count within the sector remained consistently ranged between 10 and 20 deals per quarter, with a mean value of $7.35 million. Chinese investors’ mean value of deals with Middle Eastern companies has increased over time, showing an increased appetite to invest in the Middle East.
The graph excludes the $4.31 billion secondary investment into Saudi Aramco (pipeline business) conducted by China Merchant Capital and Silk Round Fund, as well as a syndicate of other institutional investors including BlackRock, which skews the data.
Capital deployment peaked in Q1 2021 with a total of $4.74 billion, including the secondary transaction into Saudi Aramco (pipeline business), and over 14 investments. In 2020, Q1, which largely occurred before the pandemic, was the next most active period.

Information technology was a leading sector for deal counts conducted by Chinese investors in Middle Eastern companies. Over 45% of transactions in the categories were in the information technology sector, though it received less than 13% of capital deployment.
The energy sector received the most significant capital deployment of over 44%, mostly due to the Saudi Aramco transaction.
The health care sector received significant capital, 27%, through 27% of deals conducted by Chinese investors. This shows the high level of interest that Chinese investors have in the Middle Eastern health care sector.

Chinese investors deployed $3.37 billion into venture capital deals in the Middle East since 2020 in over 107 transactions. Of the total deal flow, 36% went into later-stage venture capital deals while early-stage venture capital and seed investments received 34% and 11% of the deal count, respectively.
The secondary deals sector received the most significant capital deployment of over 45%, mostly due to the Saudi Aramco transaction, but contributed to less than 5% of the total deal count.

Investor Spotlight: MSA Capital

The Company

MSA Capital, formally known as Magic Stone Alternative Investments, was founded in 2014 and has made 127 investments. MSA Capital is headquartered in Beijing, China, and invests in global companies from seed to early growth phases.

MSA Capital completed 10 deals since 2020 with Middle Eastern companies.
MSA Capital has an industry focus on apparel and accessories, commercial services, healthcare technology, pharmaceutical and biotechnology, retail, and software.
The firm’s median capital invested is $15.6 million and has deployed capital into 53 companies in the last 12 months.

The expansion of capital market activity between the Middle East and China is something that firms in both regions will help drive growth in global markets. Large energy deals dominated total capital deployment by Chinese investors into Middle Eastern companies since 2020. However, over 80% of deals in the sector were in venture capital deals, demonstrating the demand to invest in the future of the region. J&A expects the capital market activity between China and the Middle East to increase over time as these emerging markets continue to develop.

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Jan

Fintech Capital Market Activity in the Middle East and Southeast Asia

The fintech industry in the Middle East and Southeast Asia is poised for strong growth. Innovative payment processors, financial services companies, and digital transaction management platforms are already disrupting the traditional finance sector and are gaining traction in domestic and international financial markets.

Blockchain companies and investments dominated Southeast Asian fintech capital market activity while Middle Eastern investors preferred later-stage investments within the sector. Jahani and Associates (J&A) forecast the continued expansion of Middle Eastern and Southeast Asian fintech companies and capital market activity.
J&A is an international investment bank headquartered in New York City with offices and operations across the Middle East, Southeast Asia, and Central America. J&A specialized in cross-border capital market activity between the regions in which we operate.

USA-based fintech companies conducted significantly more capital market activity than their Middle Eastern and Southeast Asian counterparts in 2021. The abundance of capital has accelerated the growth of USA-based fintech companies, but a burgeoning set of growth companies in these emerging markets will drive global fintech capital market activity in 2022 and beyond.
USA-based fintech companies conducted 2,978 deals in 2021 with a total of $178 billion and a median deal size of $60 million. Middle Eastern and Southeast Asian fintech companies conducted 244 and 411 deals respectively and raised a combined total of $21 billion in 2021.
USA-based investors have been more active in the fintech sector than Middle Eastern and Southeast Asian investors in 2021 in absolute terms. However, Middle Eastern and Southeast Asian investors conducted significantly higher deal counts in proportion to the number of fintech company deal counts in their domestic markets, demonstrating an appetite for investments.
Average check size deployed by Middle Eastern and Southeast Asian investors in fintech deals in 2021 was significantly lower than USA-based investors. Early-stage companies in the emerging markets are receiving significant deal flow showing the growth potential of these regions.

Community management platforms, which include several key blockchain companies, experienced the largest capital deployment in the Middle Eastern and Southeast Asian fintech markets in 2021. Grab dominated deal size with a $5 billion PIPE conducted in December 2021.
Payment processing services and financial services are growing sectors in both emerging markets and received approximately $5 billion and $2.6 billion respectively. Vietnam Payment Solution conducted a $250 million round in July 2021, the largest transaction in the payment processing sector.

2021 ASEAN Fintech Deals by Month

Fintech companies headquartered in Southeast Asia conducted significant capital market activity in Q4 of 2021. The sector has produced consistent deal flow despite strict economic lockdowns and travel restrictions. Blockchain transaction dominated deal count among the Southeast Asian fintech market. The growth of early-stage venture capital deals in the sector highlights the emergence of new companies in the market and the growth potential of the Southeast Asian fintech sector.

$17.28 billion was deployed into Southeast Asian fintech companies across 411 deals in 2021 with a median deal size of $5.3 million. December 2021 saw the largest capital deployment of over $5 billion representing approximately 29% of capital deployed over the period.
The largest deal in the sector was the $750 million acquisition of OVO, a developer and operator of payment and financial services platforms Grab, which was announced on October 4, 2021.
Cryptocurrency dominated deal count among the Southeast Asian fintech market with 351 deals, or approximately 80%, in the sector where cryptocurrency-related deals focused on seed and early-stage venture capital funding.

Approximately 34% of capital raised by Southeast Asian fintech companies was deployed into early-stage companies. This showcases the emergence of new companies, an increase in competition, and the growth potential of the sector.
Mergers and acquisitions, including the acquisition of OVO, raised 21% of capital invested into Southeast Asia despite only seven deals being conducted.
Sixteen Southeast Asia fintech companies raised late-stage venture capital funding, demonstrating the emergence of mature companies and a well-balanced funding ecosystem.

2021 ASEAN Deal Spotlight: Alami – Sharia Compliant Financing for SMEs

The Company

Alami is an Indonesia-based fintech platform designed to serve small to mid-sized businesses with access to sharia-compliant financing organizations. Alami’s platform provides in-depth data analytics to businesses regarding financing from various institutions allowing them to make informed and up-to-date transactions.

Recent Fundraising

Alami completed a Series A round of $17.5 million on August 13, 2021, at an undisclosed valuation.
Quona Capital and EV Growth led the round with Dubai International Financial Center and other undisclosed investors participating.
Alami had previously raised $24.7 million through three rounds of seed funding.

2021 Middle East Fintech Deals by Month

Fintech companies headquartered in the Middle East have conducted notable capital market activity over 2021 with peaks in April and December. The sector has produced consistent deal flow despite strict economic lockdowns and travel restrictions that have eased and resurged over the year. J&A forecasts continued growth in 2021 Q4 activity into 2022 and beyond.

In 2021, $4.66 billion was deployed into Middle Eastern companies across 251 deals, with a median deal size of $3.1 million.
November 2021 saw the largest deal count with 25, but low capital deployment of $400 million representing approximately 8% of capital deployed over the period.
Notable deals in the sector include the PIPE, private investment into a public company, and subsequent reverse merger of Pagaya, an online lending platform provider, on September 15, 2021.

Approximately 30% of capital raised by Middle Eastern fintech companies was deployed into early-stage companies.
Middle Eastern Fintech companies conducted notable IPOs in 2021. The largest IPO was that of the Saudi Stock Exchange (SAU: 1111), on December 8, 2021, in which over $1 billion was raised.
Mergers and acquisitions, as well as reverse mergers, accounted for 18% of capital market activity in the space. The acquisition of Simplex, the Israeli bitcoin payment processing company, by Nuvei, was one of the largest Middle Eastern fintech acquisitions in 2021.

2021 Middle East Deal Spotlight: Tarabut Gateway Dubai Banking Regtech

The Company

Tarabut Gateway is a Dubai-based financial technology and software development company that has created a platform to regulate the banking sector. The platform is designed to connect a regional network of banks and other fintech companies through a universal applications programming interface (API). Tarabut’s platform utilizes the API to assist in the transfer of data and to create a greater level of integration within the finance sector in the region.

Recent Fundraising

Tarabut Gateway completed a pre-Series A round of $12 million on November 2, 2021, at an undisclosed valuation.
Tiger Global Management led the round with Dubai International Financial Centre and other undisclosed investors participating.
Tarabut Gateway had previously raised $13 million through seed funding in February 2021, which was also led by Tiger Global Management.

2022: What to expect this year

Southeast Asia and the Middle East are two of the world’s best-performing emerging markets. Financial markets are becoming increasingly sophisticated in these regions and the disruption of the traditional financial sector is a trend that will continue and accelerate in 2022.
The cryptocurrency sector experienced a high level of deal flow in Southeast Asia in 2021. Later-stage Middle Eastern fintech companies saw significantly larger capital deployment than early-stage competitors.
Fintech companies should be mindful of the commercial and financial opportunities available in these regions and the appetite that investors in the markets possess for early-stage deals. Companies operating within these markets will continue to grow and become attractive acquisition targets for strategic acquirers looking to enter the market.
J&A forecasts the continued expansion of capital market activity within the Southeast Asian and Middle Eastern fintech markets.

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Dec

Logistic Technology in Southeast Asia

Southeast Asia is one of the world’s best-performing emerging markets. The combined GDP of the region has grown from $29 billion in 1970 to $2.97 trillion in 2020, a remarkable 10,116% increase. International trade has been a driving force behind the region’s development. Several Southeast Asian countries rank among the most open to trade with the highest GDPs per capita of any nation.

Southeast Asia is strategically poised to link the manufacturing centers of the East to the consumer base in the West. This article outlines trade in Southeast Asia, the key role of technology within the sectors, and capital market activity in Southeast Asian logistic technology

Market Overview

In 2020, $2.8 trillion of international trade occurred in Southeast Asia. The region has increased the quantity of internal trade through the Association of Southeast Asian Nations (ASEAN) and strengthened external trade.

Southeast Asia’s largest trading partner is the Asia Pacific region, which compromises over $1 trillion in trade annually.
The United States and the European Union are significant partners. Over $300 billion of trade was conducted between each of these regions and Southeast Asia.
Internal trade between members of ASEAN (which includes Singapore, Indonesia, Malaysia, Thailand, the Philippines, Vietnam, Laos, Brunei, Myanmar, and Cambodia) accounted for $600 billion, or 22% of total international trade.

The logistics market in Southeast Asia is being driven by technological innovation. Logistics technology companies increase the speed, ease of use, and transparency of the supply chain process for customers, businesses, and logistics companies. The continued development of the region’s logistic technology will be a key factor in the market’s future growth.

Capital Market Activity in Southeast Asia – Logistic Technology

Capital deployed in the freight technology sector increased 17-fold between 2014 and 2021 and was largely insignificant before 2014 in Southeast Asia.
More than $27 billion was deployed in the sector across 302 deals, with an average deal size of $9 million. Deal count and capital deployment have increased steadily over time, and the first three quarters of 2021 have seen the most significant market activity over the period.
Ninja Van is a last-mile logistics technology platform that has conducted several investment rounds over the period. The most recent raise was a $578 million Series E round, in which B Capital Group, Brunei Investment Agency, Burda Principal Investments, Carmenta Management, and five other groups invested.

Late-stage venture capital deals represented 71% of capital deployed in the sector. This shows the abundance of growth-stage companies in the market.
Mergers and acquisitions represented only 5% of capital deployed since 2010 in the sector. Most acquisitions have been conducted by large logistics corporations, but the limited activity shows a lack of consolidation in the market.
Just 6% of capital deployment went to early-stage venture capital deals. This statistic shows that early-stage companies are present in the sector, but funding is difficult to acquire.

Southeast Asia is one of the world’s best-performing emerging markets, and trade has provided the basis for the region’s growth. Logistic technology will play a critical role in improving the efficiency and transparency of supply chains and the delivery process. Southeast Asia logistics firms will need to remain globally competitive and logistics technology will allow them to do so. J&A forecasts an increase in capital market activity in the Southeast Asia logistics technology market in 2022 and beyond.

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Nov

ASEAN Overview & Highlights

ASEAN: Size, Growth, and Relevance (1 of 4)

This is the first part of J&A’s ASEAN series. In it, we will investigate the ASEAN market and economy, its importance, its capital markets, its position in global trade, and finally its integration with other major players like the USA and China.

ASEAN Background

The Southeast Asian region has grown to global prominence over the last 20 years. Economies in Southeast Asia have been growing rapidly due to trade openness and their position in the global economic trade balances. The region is strategically positioned close to the emerging superpowers of China and India. Businesses should be aware of the growth potential and opportunities present in the region. The Association of Southeast Asian Nations (ASEAN), an economic and political union, has empowered the region and facilitated the conditions necessary for rapid development. The ASEAN union includes Singapore, Malaysia, the Philippines, Indonesia, Thailand, and Vietnam, Cambodia, Brunei, Laos, and Myanmar.

The Importance of Southeast Asia

Southeast Asia has demonstrated a remarkable model for economic growth and development that sets the region apart from other developing markets. The region is strategically positioned as a gateway to both China and India and boosts openness to trade and business that is no longer guaranteed in Hong Kong. J&A forecasts a continued expansion of the region’s economic and strategic importance as a link between the rising superpowers of India and China and the companies and consumers of the United States of America.

ASEAN was formed in 1967 to prevent a power vacuum caused by rapid decolonization and foster cooperation in the region. The official ASEAN declaration states that the objectives of the organization are to accelerate economic growth and social progress, and preserve cultural traditions in the region through cooperation and partnership. Regional peace, the rule of law, increased education, and cooperation in agriculture and industry are additional goals.

ASEAN has been successful in promoting peace in the region throughout the transition from colonialism and communism towards free-market economies.
Trade within the region has grown remarkably from $790 billion in 2000 to $2.8 trillion in 2019.
GDP growth in ASEAN has regularly exceeded the global average, resulting in a regional economic growth of 10,116% between 1970 and 2020.

GDP Growth in ASEAN

The combined economy of ASEAN economies has grown at an average rate of 9.3% annually between 1970 and 2020.
In 1970 combined ASEAN gross domestic product (GDP) stood at approximately $29 billion, making the region one of the poorest in the world. In comparison, the GDP of South Africa and Brazil in 1970 were $48 billion and $42 billion respectively.
The member states of Indonesia, Malaysia, Singapore, and Thailand’s economies are among a handful of emerging markets whose GDP per capita has grown at a rate of at least 3.5% annually over the last 50 years.
Additionally Cambodia, Laos, Myanmar, and Vietnam have experienced at least 5% GDP per capita growth over the last 20 years, making the region home to eight of the top-performing emerging economies globally.

ASEAN Forecast Economic Performance in 2021

ASEAN markets are expected to rebound strongly in the second half of 2021 as the region and the world emerges from the economic impact of the COVID-19 pandemic.
Malaysia, Vietnam, and the Philippines are forecasted to experience GDP growth in excess of 6% for 2021.
The economies of Singapore and Indonesia are expected to expand at a rate of between 4% and 5%, which remains significant given the size of these markets.
Countries that rely heavily on tourism, such as Brunei and Thailand, are expected to recover more slowly than their other regional counterparts.
Myanmar is the regional outlier, with political turmoil resulting in negative growth forecasts.

ASEAN Countries are High Performers

ASEAN economies led the emerging markets in regional GDP growth between 2011 and 2019. The region was able to maintain consistent growth rates of between 4.6% and 6% over the period.
Economic diversification in Southeast Asia resulted in more consistent GDP growth in comparison to other regions that may be dependent on specific industries such as oil and gas, or heavily linked to the performance of neighboring developed markets.
In 2020, ASEAN economies contracted by 6% due to the ramifications of the COVID-19 pandemic and the region’s openness to trade. Southeast Asia is expected to recover at a significantly faster rate than regions such as sub-Saharan Africa, Latin America, and the Caribbean due to effective vaccine rollouts and growth from trade partners like the USA and China.

ASEAN Governments’ Debt-to-GDP Ratio Matches Similar Markets

Lower debt-to-GDP ratios give governments more margin for investment into infrastructure and public spending, lower interest payments on public debt, and better sovereign debt ratings.
Thailand, the Philippines, and Indonesia have maintained low debt-to-GDP ratios of under 50% despite the size of their economies and populations.
Singapore has the highest debt-to-GDP ratio in Southeast Asia. Singapore, however, has the most developed infrastructure in the region, and so would not require large public spending.

We hope that you enjoyed this introduction to ASEAN. We reviewed the organization’s history and economic performance, which provide the basis for the region’s rise to global prominence. The region’s economic growth has been spurred by strong capital markets and high openness to trade. Southeast Asia is a critical market to link the rising superpowers of the East with the spending power of the West. The economic and geopolitical integration of the region will enhance Southeast Asia’s global prominence and economic growth.

ASEAN: Capital Markets and Investment Banking (2 of 4)

This part of J&A’s ASEAN series focuses on the capital markets of the region, their maturity, and their activity. Capital market activity has increased steadily in the ASEAN region over the last 20 years. The number of capital market transactions has more than doubled between 2018 and 2020. Of the capital deployed by ASEAN investors, 56% occurred within mergers and acquisitions. This highlights the appetite for inorganic expansion and the intention for companies in Southeast Asia to grow geographically and into new market segments. Singapore remains the key regional market and houses the largest and most active institutional investors.

Capital markets are maturing in Southeast Asia. Capital deployed and deal count have been increasing steadily over time. Capital deployed by ASEAN investors in the first half of 2021 ($19.3 billion) has already exceeded total deployment in 2020 ($18.8 billion).
A deal count conducted between 2018 and 2020 increased by 147%, from 144 to 356 announced deals. In the first half of 2021, 244 capital market transactions were announced, with a strong capital market growth forecast as the region emerges from the COVID-19 pandemic.
The six largest institutional investment firms, in terms of assets under management, are based in Singapore. The sovereign wealth funds Temasek Holdings and the Government of Singapore Investment Corporation (GIC) are the two largest investors in the ASEAN region. The GIC has a total of 840 active investments and $500 billion in assets under management. Temasek Holdings has a total of $300 billion in assets under management and a total of 336 active portfolio investments.
Temasek Holdings has been the most active Southeast Asian investor in 2020 and 2021. The firm conducted a total of 30 investments between Q3 of 2020 and Q3 of 2021.
The top seven most active 2020 and 2021 investors in Southeast Asia are based in Singapore and include early-stage venture capital firms that made 25 investments in the period.

Mergers and Acquisitions Dominate Capital Markets in ASEAN

In 2020, 56% of total capital deployed by ASEAN investors occurred within mergers and acquisitions. Significant mergers and acquisitions activity highlights the expansion intentions of Southeast Asia firms.
As companies outgrow their markets and become comfortable with international expansion, investment banks will see increased opportunities in M&A advisory and acquisition financing.
Four sectors that illustrate this trend well are financial services, telecommunications, energy, and natural resources.

Competition is Normalizing ASEAN Equity Returns

Return on average equity of Asia-Pacific Banking has been drifting down toward the global average

APAC emerging markets include the 10 ASEAN countries as well as rising superpowers such as China and India.
APAC emerging markets have experienced outsized returns on equity investments over the period from 2010 to 2018. As these markets, and particularly China, have become more accessible to international investments, returns have trended towards global averages.
Returns among APAC developing nations are still higher than in APAC developed nations such as Australia, Canada, and Russia.
However, ASEAN returns are normalizing with parts of the world as growth slows and the region slows from capitalizing on its many competitive advantages.

Investment Banking in ASEAN

There are currently 91 registered investment banks operating in ASEAN. Over 80% of these institutions are headquartered outside of Southeast Asia with regional headquarters in Singapore. Morgan Stanley, Royal Bank of Canada, and Bank of America are the three most active investment banks in the region and are all headquartered in North America.
The expansion of international investment banks into Southeast Asia is driven by strong regional macroeconomic growth and positive investor environments.
The level of investment sophistication in Southeast Asia differentiates the region from other developing markets.

ASEAN Technology Companies are Globally Competitive and Their Strategic Geographic Access to the USA, China, and India Makes High-Growth Companies in the Region Prime Targets for Investors

With uncertainty surrounding the role of Hong Kong and Taiwan, Singapore has become the gateway to the East. Capital market activity in the region is dominated by institutional investors from the city-state. The strength of mergers and acquisition activity by Southeast Asia companies is a sign of the expansion ambitions of the region. International investors and companies seeking growth partners should be mindful of the continued expansion and strategic position of the ASEAN markets. J&A forecasts an increase in capital market activity as nations such as Indonesia, Malaysia, Thailand, and Vietnam develop.

We hope that you enjoyed this overview of ASEAN capital markets. In the next section of this analysis, we will review the region’s position on global trade. The region’s economic growth has been spurred by strong capital markets and high openness to trade. Southeast Asia is a critical market to link the rising superpowers of the East with the spending power of the West. The economic and geopolitical integration of the region will enhance Southeast Asia’s global prominence and economic growth.

ASEAN: Global Trade (3 of 4)

Part three of J&A’s ASEAN series focuses on the region’s trade openness and trade advantages. The Association of Southeast Asian Nations (ASEAN) has facilitated the rapid economic growth and development of the region. The increase in trade between member states and other regions internationally is a critical factor for this growth and success. Singapore acts as a regional trade hub and is ranked first in global exports per capita and third in openness to trade. J&A forecasts continued growth in trade in Southeast Asia and the continual rise of the region in global prominence.

Openness to Trade

The trade openness index is calculated through the sum of a nation’s exports and imports as a share of the total GDP as a percentage. Trade openness indicates the strong influence of trade on domestic industries.

Trade openness spurs economic growth and encourages foreign direct investment. It also promotes competitive markets and allows consumers access to a wider range of products at competitive prices.

Trade openness can negatively impact domestic businesses and industries that are not competitive with large, multinational companies. This is particularly common in sectors such as agriculture and manufacturing. Countries with high trade openness indexes rely heavily on international business cycles and may experience highly volatile economic conditions.

Trade within Southeast Asia has grown remarkably from $790 billion in 2000 to $2.8 trillion in 2019.
Five of the 10 ASEAN nations—Cambodia, Malaysia, Singapore, Thailand, and Vietnam—have a trade openness index of over 100%.
Intra-ASEAN trade accounted for 22.5% of total merchandising imports and exports.
ASEAN’s largest trading partners in 2019 were China, with 22% of imports and 14% of exports, the European Union, with 21.5% of imports and 13% of exports, and the United States, with 8% of imports and 13% of exports.

Key Market: Singapore

Singapore ranks first globally on per capita exports, $52,700 annually, and fifth globally for imports per capita, $56,300 annually. The nation has a trade openness index of 317%, the third-highest globally.
Singapore is the regional trade hub of Southeast Asia and accounts for 27.5% of the region’s total exports.
The nation had a 79% manufacturing products to total exports ratio, and a 74% manufacturing products to imports ratio, showing the reliance of domestic industry on trade.
Top imports into Singapore include electrical equipment (21%), minerals (22%), machinery and appliances (13%), and precious metals (6%).
Leading exports from Singapore include electrical equipment (28%), minerals (15%), machinery and appliances (13%), and instruments and apparatus (7%).

Deregulation Has Boosted the ASEAN Economy

ASEAN nations have reduced internal and international tariffs and non-tariff barriers (NTB) in an effort to stimulate trade in the region.
Average regional tariffs have decreased from 25% in 1990 to 7% in 2010, a period in which ASEAN nations also experienced large real GDP growth.

Openness to trade and ease of business have been vital contributing elements to the growth of Southeast Asian economies such as Singapore, Malaysia, and Thailand.

The region is ideally positioned to act as a hub for trade among the emerging superpowers of India and China and developed markets such as Australia and the USA. J&A forecasts continued growth of regional and international trade in ASEAN, which will further spur the region’s economic and geopolitical rise.

We hope that you enjoyed this introduction to ASEAN. We reviewed the organization’s history and economic performance, which provides the basis for the region’s rise to global prominence. The region’s economic growth has been spurred by strong capital markets and high openness to trade. Southeast Asia is a critical market to link the rising superpowers of the East with the spending power of the West. The economic and geopolitical integration of the region will enhance Southeast Asia’s global prominence and economic growth.

ASEAN: Economic Integration with the USA, MENA, and China (4 of 4)

This is the final part of J&A’s ASEAN series, wherein we will investigate the integration of ASEAN economies into the rest of the world. ASEAN will prove a key geopolitical and economic battleground for the United States and China.

The region’s geographic positioning, openness to trade, and expeditious economic emergence have made the ASEAN a prominent economic and political force. Southeast Asia is closely integrated with the developed nations of the European Union, the USA, and Australia through trade, foreign direct investment (FDI), and business. China, however, is now the region’s closest trade partner and has increased its share in FDI to exceed that of the USA. Economic integration between ASEAN and the Middle East and North Africa (MENA) has strengthened through trade and capital market activity. J&A forecasts the continued rise to global prominence of the ASEAN as a hub for trade positioned to connect the manufacturing of the East with the spending power of the West.

Southeast Asia is strategically positioned to act as a link between the rising superpowers of India and China and established markets such as the USA, Canada, and Australia.
Intra-ASEAN trade has increased at a rate of 9.5% annually from $608 billion in 2013 to $1.15 trillion in 2020.
ASEAN’s biggest trading partner is China, which conducted a total trade, consisting of both imports and exports, of $777 billion with the region in 2020. The share of ASEAN exports to China has increased from 3.7% in total exports in 2005 to 13.9% in 2018. The share of Chinese imports in the region has increased from 5.4% to 20.5% of imports in the same period.
ASEAN conducted a total of $358 billion in trade with the US. The share of imports and exports with the US and the EU as a percentage of total trade has declined significantly between 2005 and 2018 and signals the global rise of Asian markets.
Trade between Southeast Asia and MENA has increased at a compound annual growth rate of 8.9% between 2013 and 2020 and now accounts for $296 billion in ASEAN total trade.

Southeast Asia is strategically positioned to act as a link between the rising superpowers of India and China and established markets such as the USA, Canada, and Australia.

Trade surpluses in ASEAN have been driven by nations’ rapid increase of production in agriculture and manufacturing. In addition, the region now has a globally competitive services sector.
The $1,432 billion of regional exports in 2018 exceeded the $1,384 billion spent on imports in the same year. Thus, a total regional trade surplus of $48 billion was achieved in 2018.
Large trade surpluses ensure a continual injection of capital into an economy and grant authorities the ability to increase foreign reserves or strengthen local currencies depending on policy preferences.

ASEAN Receives FDI from Diverse Nations and Growingly in China

Countries in Southeast Asia have historically received large amounts of FDI from developed nations such as the USA, Japan, and members of the European Union.
China and Hong Kong have recently displaced the USA in the region’s top five FDI contributors and jointly contributed over 13% of the region’s FDI in 2018. The geopolitical significance of China’s influence through FDI and trade, which now eclipse the influence of the USA, should not be understated.
Intra-ASEAN FDI has grown substantially and contributed approximately 16% of FDI in 2018. Developed nations in the region are contributing large quantities to stimulate growth in neighboring markets.

Southeast Asia is strategically positioned as a global trade and investment hub. The economies of Singapore, Indonesia, and Thailand could serve as a springboard for western companies to access the rising superpowers of India and China.

The level of Chinese influence in the region through trade and FDI will leave many in the USA weary. However, companies from North America should spot opportunities now available to them to access Chinese customers through the ASEAN markets. The increase in economic integration between the ASEAN through trade and FDI is undoubtedly a contributing factor to the region’s economic growth and one that many other developing regions have struggled to emulate. J&A forecasts the continued rise of ASEAN prominence through economic integration.

We hope that you enjoyed this introduction to ASEAN. We reviewed the organization’s history and economic performance, which provide the basis for the region’s rise to global prominence.

The region’s economic growth has been spurred by strong capital markets and high openness to trade. Southeast Asia is a critical market to link the rising superpowers of the East with the spending power of the West. The economic and geopolitical integration of the region will enhance Southeast Asia’s global prominence and economic growth.

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