A lot of transactions in the M&A sector

PETALING JAYA: Local mergers and acquisitions (M&A) are expected to intensify in the next few months.

Experts are optimistic, predicting more transactions this year than in 2023, and the strong dynamics will probably continue in 2025.

Maybank Investment Bank head of advisory services Reza Mohd Zin said there had been increased interest in doing deals as the country’s improved political stability had allowed the government to implement policies that were likely to have a positive impact on the economy.

As he noted, the policies include the New Industry Master Plan 2030, the National Energy Transformation Road Map and subsidy rationalisation.

“This, coupled with solid macroeconomic fundamentals, such as strong gross domestic product (GDP) growth and rising disposable incomes, has translated into positive growth prospects for the country and improved investor sentiment.

“We see strong investor interest from sectors such as healthcare, pharmaceuticals, food production and processing, green energy, and technology.

Director of Consulting at Maybank Investment Bank Reza Mohd Zin

“In the technology sector, the driving force will primarily be entities from the data centre industry, which want to take advantage of cheaper land and green energy.

“Semiconductor manufacturers are attracted by the established assembly and testing outsourcing hubs, as well as recent government policies aimed at further developing the semiconductor value chain,” Reza told StarBiz.

Preman Menon, strategy and transaction leader at Ernst & Young PLT Malaysia, predicts that next year’s deal activity will be more dynamic compared to 2023, due to the weaker initial public offering (IPO) market.

Shown by IHH Healthcare Bhd acquisition of Island Hospital from private equity firm Affinity Equity Partners and ZUS Coffee, securing new investments for regional expansion.

“We are also aware of other significant local transactions that are in various stages of due diligence and are expected to close by the end of the year.”

He said the Southeast Asian IPO market would be depressed in 2023, with high interest rates and inflationary pressures weighing on the confidence of both investors and issuers.

He added that as the problems begin to subside, more favourable conditions for initial public offerings and mergers and acquisitions are likely to emerge, noting that the successful initial public offering of 99 Speed ​​​​Mart Retail Holdings Bhd is a good example.

Ernst & Young PLT Malaysia Strategy and Transaction Leader Preman Menon

Additionally, Preman said expected rate cuts in some overseas markets could also improve market sentiment.

“In our latest EY CEO Outlook survey, we asked CEOs how confident they were about the outlook for the next 12 months. The results were fascinating.

Higher-trust CEOs anticipated portfolio and strategy actions, including mergers and acquisitions.

“More than half of CEOs in the top quartile of confidence plan to make acquisitions in the next 12 months.

“That’s a stark contrast to those in the bottom quartile,” he said.

OCBC Bank (M) Bhd Managing Director, Senior Banker and Head of Investment Banking Tan Ai Chin expects M&A activity to pick up in the second half of this year as deals that have been in the works for some time finally come to fruition.

However, he expects M&A activity to mainly involve smaller transactions.

Lower levels of M&A activity over the past two years have led to increased demand for good assets.

“Companies looking to accelerate expansion and transform their businesses in times of rapid change are turning to mergers and acquisitions as part of their long-term strategy to achieve sustainable growth,” she explained.

Managing Director, Senior Banker and Head of Investment Banking OCBC Bank (M) Bhd Tan Ai Chin

He expects strong interest from high-growth and defensive sectors such as healthcare and related businesses, as well as technology and advanced manufacturing.

“The past year has seen a number of significant deals in the healthcare and pharmaceutical sectors.

“For example, Ramsay Sime Darby Healthcare was acquired by Columbia Asia, Timberland Medical was acquired by IHH, Caring Pharmacy (acquired by BIG Pharmacy), and Straits Orthopaedics (acquired by Quadria).

“We continue to see deals in this sector, with IHH just winning the bid for Island Hospital with an equity value of RM3.9 billion, and in the pharmaceutical sector, Symbiotica was acquired by government-linked private equity firm Ekuiti Nasional Bhd this year.

“We have also received enquiries from interested foreign investors regarding infrastructure targets that can provide stable, recurring income, particularly in relation to environmental assets, including KUB-Berjaya Enviro, renewable energy and digital infrastructure assets as there is a need for data connectivity.

“The artificial intelligence (AI) boom is driving demand for faster data transfers as well as the need for more processing power,” she noted.

According to Tan, there is a proposal by a consortium led by Khazanah Nasional Bhd and Employees Provident Fund, as well as New York-based Global Infrastructure Partners and Abu Dhabi Investment Authority, to privatize Malaysia Airports Holdings Bhd..

Meanwhile, Deloitte Malaysia M&A Partner Yap Kong Meng said that given the current situation and ongoing results, Malaysia is likely to end the year on a strong note.

Currently, most mergers and acquisitions occur in sectors such as consumer goods, industrials and manufacturing, as well as technology, media, telecommunications and TMT industries.

“Overall, Malaysia stands out as one of the most dynamic M&A markets in the ASEAN region in terms of deal volume.

“Amidst the improvement in the global macroeconomic environment resulting from the decline in the US federal funds effective rate, the current geopolitical environment shows that the situation is conducive to more inward investment into Malaysian and ASEAN markets,” Yap said.

Yap Kong Meng, Deloitte Malaysia M&A Partner

Malaysia had the fifth-largest M&A volume among emerging Asian countries in September, behind China, India, South Korea and Indonesia, OCBC’s Tan said.

Compared to some other ASEAN countries, Malaysia stood out in terms of its political stability and open economy, with policies and regulations favourable to foreign direct investment, and a neutral political position on the international stage.

According to Tan, the recent data centre boom in Malaysia, which is mostly concentrated in Johor due to its proximity to Singapore, could also create greater M&A opportunities.

Elaborating on mergers and acquisitions, she said ongoing challenges would include persistent valuation gaps between buyers and sellers and high financing costs, as well as funding for foreign buyers.

The introduction of capital gains tax this year could be a deterrent for companies looking to shed unlisted shares in mergers and acquisitions or carrying out group restructurings.

“Therefore, several aspects remain unclear until it is determined whether there will be an exception for the disposal of unlisted shares for certain categories of sellers.

“While we expect to see more cross-border M&A transactions, regulatory considerations such as local capital requirements and restrictions on foreign ownership in certain sectors may increase the complexity and intricacy in attracting credible foreign investors to our local scene,” Tan added.

Reza noted that a potential slowdown in the U.S. economy and a strengthening ringgit could reduce interest in foreign and domestic acquisitions.

However, he added that if Malaysia’s GDP growth and economic stability can be sustained, the country’s appetite for M&A should remain intact.