Cross-border M&A in Southeast Asia: what 30 years of deals has taught us

Cross-border M&A in Southeast Asia has grown steadily over the past decade, driven by regional consolidation and international buyers seeking exposure to high-growth consumer markets.  But the deals that close are rarely the ones that started as planned. Targets are often founder-led. Financials are built for tax compliance, not for buyer scrutiny. And the gap between local reporting and international expectations is wider than most acquirers expect. After 30 years advising on M&A across the region, we have learned that successful transactions depend less on price and more on how that gap is bridged.

Target screening in Southeast Asia: start wide and refine

Companies headquartered across the region often do not advertise that they are open to acquisitions. While buyers may have strategic targets, and priority industries, we advise our clients to take a broad view of targets in the country to evaluate a comprehensive list of companies in a buy-side mandate. This includes companies in the primary, as well as adjacent industries, and screening the universe of targets against financial and operational criteria to objectively identify the optimal targets for acquisitions.

Identifying companies for acquisition is however the first step. In a buy-side mandate, we evaluate companies on alignment with our client’s business strategy, not on a target’s willingness to sell. After confirming the optimal candidates, we then approach the targets to gauge their interest in partnership with our client. We frame the early discussions as mutually benefitting for both parties to open the door for strategic discussions on the forms of partnership that the target is open to considering. This approach has been successful because it allows the target to articulate the form of partnership they would consider and creates alignment between both parties.

Due diligence in Southeast Asian deals: construction, not just review

Once due diligence begins, the realities of operating in Southeast Asia become more apparent. While most companies maintain locally compliant statutory reporting, the information is not always aligned with International Financial Reporting Standards (IFRS), or the expectations of multinational corporations. The level of detail that multinational companies require is often not available in financial reporting provided by the targets. We have found that financial data may be kept across several systems, or teams, and historical records may need to be reconciled. Due diligence therefore becomes as much an exercise in data construction as it is in data review. Significant effort is required to gather and normalize information into a coherent narrative that accurately reflects the company’s financial, operational, and legal position.

From risk identification to value creation

Due diligence will inevitably identify yellow and red flags whether related to regulatory, tax, financial, or operational areas. Founder-led businesses across Southeast Asia may have a greater appetite for risk than the multinational acquirers and this must be understood in the local operating context. Our role as an advisor is not only to identify these issues, but to interpret them based on our client’s risk tolerance, and identify corrective actions as well as exposure to our client. We work with our client and the target to define clear corrective actions, ensuring that areas of non-compliance or inefficiency are addressed in a practical and collaborative manner, and do not expose either party to long-term risk.

Valuation: bridging statutory reporting to economic reality

Financial modelling goes well beyond applying simple market multiples. The objective is to translate statutory financials into an economic view of performance that can be relied upon by institutional buyers. This requires a detailed normalization process, including adjustments to revenue quality, margin sustainability, inventory provisioning, receivables ageing, and intercompany transactions. In many cases, SMEs in Southeast Asia prepare financial statements primarily for tax compliance purposes, rather than to reflect underlying business performance. We work to develop a defensible valuation framework that aligns with both buyer expectations, often governed by IFRS or GAAP standards, and the operational realities of the target.  

Assessing the full asset portfolio of the target

Another critical element in mid-market transactions is understanding the broader asset portfolio of the target. Many regional businesses operate across multiple adjacent business lines, some of which may fall outside the buyer’s core strategic focus. These assets may be underperforming and be dilutive to the core business. Through detailed analysis, we work to assess how each component contributes to overall enterprise value. This enables more informed discussions and a reasonable valuation based on the strategic business and underperforming asset. Approaching underperforming assets in this method can significantly improve alignment between buyer and seller expectations and facilitate smoother transaction outcomes. It also presents the opportunity for the buyer to purchase the underperforming assets at a lower valuation and potentially create a compelling turnaround narrative.

Process, not price, determines cross-border M&A success

Successful cross-border M&A in Southeast Asia is rarely determined by price alone. It is driven by a combination of structured process, cultural sensitivity, relationship building and rigorous financial, operational, legal and tax due diligence.

Tractus M&A Partners brings together Tractus, with 30 years of advisory experience across Asia Pacific, and M&A Partners, an Australian corporate finance firm focused on the mid-market. Together, we guide clients across the buy or build continuum, from market entry to acquisition. Our approach enables even initially cautious targets to become constructive partners in the transaction process, and ultimately leading to more aligned, sustainable outcomes.

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James Meisenheimer is Consulting Manager at Tractus Thailand office, Pei Wen Ng is a Consultant at Tractus Singapore office.