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8. Spotlight on Asia

As we have already highlighted, our analysis does not capture deals by privately held companies or minority investments by financial and corporate sponsors. One region where these forces play a significant role in the tech and digital deal landscape is Asia. Here are a few of the emerging stories we are seeing in the market – including some significant deals that came after the cutoff point in our study.

China: investors tap into ‘big four’ success

The success of China’s four tech giants (Baidu, Alibaba, JD.com and Tencent) has created a thriving digital sector that is driving rapid innovation, particularly around payments and mobile-related technologies. The ability of China’s tech businesses to tap into the country’s burgeoning wealth (wages more than doubled  between 2008 and 2018) has generated huge interest from domestic and international investment funds. Many of them are sitting on large quantities of dry powder and are using it to make VC-style investments in Chinese platform businesses such as Ant Financial, Alibaba’s payment arm. When its IPO was put on hold this year, Ant launched a $14bn funding round – reportedly the biggest ever by a private company – that was subscribed to by investors including Warburg Pincus and the Singaporean sovereign wealth fundsgovernment-linked funds Temasek and GIC. This level of interest in China’s digital leaders is driving high valuations and the sort of ‘company friendly’ terms on which sponsors are required to invest. 

South East Asia: corporates use minority stakes to drive digital transformation

VC-style growth equity investments are also increasingly being used by corporates as part of their digital transformation strategies, particularly in South East Asia. No longer can strategic investors delay their participation in early-stage tech businesses until they have reached relative maturity if they want to secure access to industry-changing innovations. A case in point was the latest fundraising from Indonesia’s Go-Jek, which started life as a ride-hailing app but has since evolved into an on-demand mobile platform offering services from transportation to logistics, payments and food delivery. The round attracted a significant investment from PT Astra International Tbk, one of the country’s largest diversified conglomerates, which was keen to seize the opportunity for the two businesses to innovate together. Toyota followed a similar route when it took the lead on a recent fundraising from the Singapore-based ride-hailing company Grab, investing more than $1bn to join the long line of traditional auto-makers building relationships and collaborating with early-stage tech businesses that are ahead of the curve in their development of autonomous driving technologies.

India: US e-commerce giants go head-to-head

When Walmart spent $16bn in May this year (2018) this year (2018) acquiring a majority stake in Flipkart, one of the country’s biggest consumer platforms, it was pitched into a head-to-head battle with Amazon for the Indian retail market. Amazon has moved aggressively into India in recent years and the face-off with Walmart could lead to further digital/tech M&A as smaller e-commerce companies are swallowed up. The competition is also likely to drive acquisitions of offline assets in warehousing and transport as the two companies look to tackle India’s infrastructure gaps. This ‘last mile’ in the supply chain – home deliveries, return logistics – has long been a challenge for online retailers looking to capitalise on India’s growth story. The country’s president recently revealed he expects India to become the world’s third-largest consumer market by 2025 .

Japan: market mellows to private equity

In 2018 Japan has emerged as the most aggressive player on the M&A markets after the US, spending a record ¥16tn ($141bn) in cross-border deals between January and October alone. Tech is a major driver of this activity, with a broad range of Japanese industries competing for the best tech and digital assets - in the first 10 months of 2018, deals for domestic digital/tech assets grew by 500 per cent to $6bn compared to the same period in 2017. In terms of outbound deals Japanese companies are particularly focused on the US, with Japanese chipmaker Renesas Electronics, for example, spending $7.2bn to acquire Integrated Device Technology. Foreign investors are active in the Japanese market as domestic companies look to dispose of peripheral assets (eg French auto supplier Faurecia is set to buy Clarion, which makes car navigation systems, from Hitachi for $1.3bn). Private equity investors have also shown increasing interest in Japanese tech businesses, particularly since the breakthrough $17.7bn sale of Toshiba’s chip business to a Bain-led consortium that completed this year. This is largely thanks to a combination of significant reserves of uncalled capital and a mellowing of the Japanese stigma against PE investors. KKR notably announced this year that investments in Japan – including in the tech sector – are among its top priorities.