In a recent article published by Asia Business Law Journal, MoFo partners Lip Kian Ang and Marcia Ellis shared their thoughts on investment trends and evolutions of regulation.
Lip Kian sees keen interest in acquisition and investment transactions in the technology, payments, and data center sectors in Southeast Asia. However, he notes that deals are taking longer to complete as acquirers and investors grow more cautious due to tightening liquidity and broader macro conditions. In the private equity and venture capital space, Lip Kian observes investments are increasingly being done using convertible instruments such as convertible notes and simple agreements for future equity, as investors and companies alike are hesitant to commit to priced rounds, given lowering valuations.
During the current market uncertainty, Lip Kian expects acquirers and investors to become more selective and evaluate targets more carefully to safeguard their transactions. “Deal terms will likely turn more buyer-friendly if current market conditions persist or worsen. For example, we have seen investors asking for more aggressive liquidation preferences or, in the case of convertible note financing, more information and governance rights and higher discount rates upon conversion,” said Lip Kian.
On the regulatory side, Marcia says China-related transactions are being impacted by the evolving domestic regulatory landscape and the evolution of international regulations and enforcement priorities, with a specific impact on China-related transactions. She explains, “Looking abroad, geopolitical tensions and the steady rise of national security review regimes around the world have continued to put a damper on outbound activity. Many geographies where good targets have been located historically, such as the U.S. and Europe, have doubled down on reviews of foreign investment in sensitive sectors.”
“As a consequence, Chinese acquirers are often looking further afield for opportunities in markets like Southeast Asia, the Middle East and Latin America,” Marcia added.
Overall, Marcia believes that longer-term investor sentiment across corporate and private equity players active in China remains positive. Strategic M&A transactions in sectors that support China's national policy directives aimed at decarbonization, digitalization, and domestic consumption are attractive, as are investments that can be linked to the theme of common prosperity. “We have observed significant deals in technology, media and telecoms, healthcare and life sciences, and alternative energy reach completion this year as investors look to enhance market share and deepen capabilities in targeted areas,” said Marcia.
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