The various examples of mergers and acquisitions related to Malaysian companies reflect the vibrancy and attractiveness of Malaysian corporations on the international radar, boosted by solid financial strength and good liberalisation allowing for these entities to explore takeover options outside the country. BizHive Weekly takes a look at takeover scenarios this year and highlights certain sectors with high potential.
Crossing borders with M&As
The vibrancy seen in the M&A scene in Malaysia is due to several positive factors, including Malaysia’s stable economic fundamentals, liberal foreign investment policies and government initiatives such as the Economic Transformation Programme. This fuels players to conduct cross-border consolidations for future growth here.
Gan Eng Peng,
HwangIM head of equities
In a bid to further survive and thrive in today’s economic climate, corporations and entities worldwide are looking to mergers and acquisitions (M&As) as the next step to further grow.
Whether done locally or internationally, M&As will fuel the growth of these players by providing synergies and economies of scale for the merged entity, leading to better operational efficiencies.
A recent report by Wall Street Journal highlighted several local players that have successfully clinched international deals in their respective fields, citing companies such as Petroliam Nasional Bhd (Petronas), Genting Bhd, Felda Global Venture Holdings Bhd, Sime Darby Bhd and so on.
“A noteworthy example in the international scene would be the acquisition of RBS’ operations in Asia by CIMB Group,” said Hwang Investment Management Bhd’s (HwangIM) head of equities, Gan Eng Peng, in an interview with BizHive Weekly.
“It has transformed CIMB from an Asean banker to an Asia Pacific player overnight.
The bank is fast becoming one of the top three Southeast Asia banks by assets and returns on equity put CIMB on par with its rivals namely Goldman Sachs Group Inc and JPMorgan Chase & Co for the Asia-Pacific deals.” Gan noted the highly soughtafter asset in London, the Battersea Power Station as another striking acquisition deal of a joint venture between Sime Darby Bhd, SP Setia Bhd and the Employees Provident Fund (EPF).
This 400 million pound deal, he said, would potentially turn into returns of approximately eight billion pounds in the form of gross development value should this trio partnership work out well.
“It comes as little surprise that Malaysian companies are involved in cross-border acquisitions as many of our large blue-chip companies already have a strong global presence in a number of growing sectors such as oil and gas, healthcare, plantation and energy,” added Ernst & Young Malaysia’s partner and Transaction Advisory leader, George Koshy.
“These companies have strong business and growth fundamentals.
These, coupled with weaker global markets following the Global Financial Crisis and eurozone debt crisis, also provide a good opportunity for Malaysian companies to gain access to newer markets or to consolidate their positions globally or regionally.”
Robustness of economy
Ernst & Young’s Koshy went on to affi rm how vibrant the M&A scene was in Malaysia as the country continues to be one of the top five markets within the Asian Pacifi c region for expansion and growth for both global and regional companies.
“Two of the world’s largest company listings this year happened in Malaysia – Felda Global Ventures Holdings Bhd and IHH Healthcare Bhd; and ASTRO is planning to launch its IPO end-September 2012,” he cited as examples.
“They represent robust and growing industries in commodities, healthcare, communications, content and infrastructure.
“We in Ernst & Young have had first-hand experience of this surge in interest.
We have seen a marked increase in enquiries by and discussions with foreign players who are actively seeking and pursuing deals in Malaysia. These include both corporate players and private equity funds.” Equally, HwangIM’s Gan shared the same sentiment with Koshy, adding that the Malaysian government contributed its fair share of excitement to the driving force behind this vibrancy.
“M&A activities in Malaysia have been exciting, especially last year due to a combination of internal and external factors,” he shared with BizHive Weekly.
“Locally, the governmentled divestments and Economic Transformation Programme (ETP) are the driving forces, while the growth slowdown in the developed markets forced the foreign giants to rethink their business model in the West and expand to Asia.
“Coupled with strong domestic demand in Asia, this helped to pick up the slack of growth in the developed market and power economic growth in Southeast Asia. The regional element adds flavour to the M&A in the Malaysian corporate scene.” Gan went on to pinpoint the financial and energy sectors as the industries with the most notable M&As this year.
“The financial industry is spurred by the need to create scale up their size and expand their business, while the energy sector is partly due to the ETP’s push to create an oil field services hub in the country and the consolidation of local operators into regional champions.”
Impacts from eurozone crisis
In light of the global economic crisis which is still ongoing, some specialists believed that the vibrancy seen in M&As in Malaysia was somewhat caused by slower international businesses due to the eurozone debt crisis.
Ernst & Young’s Koshy opined that in part, some of the growth could be attributed to the eurozone debt crisis as companies and funds looked to Southeast Asia to try and invest into growing economies.
“With other mature markets such as China suffering a slowdown in exports to Europe and North America, and India challenged on a number of fronts, Southeast Asia’s rapid growth markets including Malaysia are likely to offer good opportunities for M&A in the future, driven by resilient financial performance, support of investors and other funds, and ample liquidity.
“We further believe that the vibrant M&A scene in Malaysia is also due to several other positive factors including Malaysia’s stable economic fundamentals, liberal foreign investment policies and government initiatives such as the Economic Transformation Programme.” Gan concurred, adding his thoughts that outbound M&As were likely to be stronger in order to diversify the country’s dependency from the West and to cushion the impact of its economic slowdown.
“Corporations in the eurozone in particular, are moving their European and American operations to Asia.
This is a clear sign that Asia is the next wave of growth.
“Besides, Malaysian corporation are gradually expanding their reach in the overseas market as the crisis has made many assets cheaper and marks a change from the traditional strategy of expanding by grabbing more market share at home.
“We also think that the efforts made by the economic leaders to forge closer ties in the region through the Asean Economic Community (AEC) blueprint could be another factor as it seeks to consolidate the 10 economies into a single market and production base through the free movement of goods, services, investments and skilled labour within Southeast Asia.
“This changing economic and financial landscape brought many opportunities for trade and investment which promote closer regional economic and financial integration and enhance the level of economic performance, indirectly encourage greater cross-border relationship.”