The M&A sector in Southeast Asia has shown strong growth, supported by steady economic advancement and an increasing presence of foreign investors. Key legislative changes, such as Vietnam’s Law on Investment and the Philippines’ Foreign Investment Act, have played an essential role in enhancing the region’s appeal to international investors. Consequently, Southeast Asia has become a prime location for global investors aiming for expansion and sustainable growth opportunities.

Pham Duy Khuong, lawyer, ASL Law and Nguyen Thi Thuy Chung, lawyer, ASL Law

In 2023, a modest decline in transaction volume was observed, while the average transaction value remained relatively high. This trend likely reflects a cautious approach by investors facing global economic instability and inflationary pressures. Nevertheless, high-value deals are still materialising.

The support of governmental support and national investment funds has been instrumental. Southeast Asia has experienced a surge in investment funds from entities such as Singapore's GIC and Temasek Holdings. More recently, the establishment of Indonesia Investment Authority and the Maharlika fund of Philippines aims to encourage investment in important industries like technology, financial services, and healthcare.

In addition, the GDP of the six leading Southeast Asian economies (SEA-6) is anticipated to grow at an average annual rate of 5.1 per cent. Vietnam and the Philippines are projected to be the primary drivers of this growth, each expected to exceed a 6 per cent growth rate, while Indonesia is closely following at 5.7 per cent.

Frontier markets in Southeast Asia are proactively dismantling investment barriers to stimulate economic growth. In Vietnam, the amended Investment Law that took effect in 2021 signifies a significant shift by replacing the previous “permitted industries” list with a “prohibited industries” list.

Similarly, in 2022, the Philippines amended its Foreign Investment Act to encourage foreign capital inflows. These legislative amendments have granted foreign investors better access, thus facilitating cross-border M&A activities.

The strategic geographical position and shifting supply chains enhance the region's advantages. Southeast Asia is emerging as an attractive destination for M&A transactions due to its advantageous location. Proximity to major markets such as China, India, South Korea, and Japan, coupled with its position at the crossroads between Asia and Oceania, the Pacific and Indian Oceans, makes it highly favourable for investors.

Environmental, social, and governance requirements have become a critical consideration in M&A transactions, especially for international investors from regions like Europe and the United States.

Southeast Asia faces the dual challenge of pursuing economic growth while reducing emissions, which makes it difficult for companies to meet these standards. This may reduce the appeal of firms that fail to adhere to these standards for investors seeking sustainable acquisitions. Additionally, the SEA-6 region holds potential for renewable energy development. However, limited infrastructure may prevent international investors from M&A opportunities in this sector.

The lack of policies and financial incentives for businesses to shift towards sustainable models further complicates efforts to achieve environmental targets. Consequently, green M&A deals become less attractive due to high costs and increased investment risks.

Corporate governance is also a concern in M&A transactions. Many companies in Southeast Asia still face limitations in providing transparent financial information, lack adequate risk control systems, and suffer from weak internal governance. International investors often encounter issues in conducting due diligence and assessing the transparency of target companies in the region.

Meanwhile, with the rise of digital business activities and the development of online platforms, personal data protection has become a critical factor in M&A transactions. Data protection regulations in countries like Singapore, Vietnam, and Thailand have imposed strict requirements on the collection, processing, and storage of personal data.

Vietnam is advancing its legal framework for data protection through the Personal Data Protection Law and Cybersecurity Law. These regulations mandate that organisations, particularly technology companies offering cross-border services, store Vietnamese user data domestically and comply with strict information security standards.

Meanwhile, the implementation of the global minimum tax (GMT) is gradually emerging as a key factor that has a profound impact on M&A transactions in Southeast Asia. The GMT imposes a minimum tax rate of 15 per cent on the profits of multinational corporations. This policy has significant implications for Southeast Asian countries, which have long been considered attractive destinations for investment due to their competitive tax incentives.

As the GMT comes into effect, traditional tax incentives in Southeast Asian countries will lose much of their appeal, forcing investors to reconsider their M&A strategies. Investors may either seek out regions offering alternative tax benefits or shift their focus to markets with stronger competitive advantages beyond tax incentives.