Malaysia remains attractive M&A market

This is due to Malaysia has 1 of the best-educated populations in emerging Asia and is among the easiest economies to do business in 

by S BIRRUNTHA & ANIS HAZIM / pic source

FOREIGN companies continue to see Malaysia as an entry point into the growing South-East Asia market with its access to resources and strong connectivity. 

Malaysia Ernst & Young Plt (EY) strategy and transactions leader Preman Menon (picture) said this has increased the attractiveness of the country as an investment destination. 

“From a human capital perspective, Malaysia has one of the best-educated populations in emerging Asia and is among the easiest economies to do business in. Thus, foreign companies have an avenue to look at Malaysia as a market in which they can acquire or partner with a local business and leverage the platform to inject technology or drive value creation,” Preman told The Malaysian Reserve (TMR). 

According to him, this has often formed part of a wider ‘buy and build’ strategy to build scale and efficiency as part of a regional roll-up. 

At the same time, investment by foreign companies in Malaysian corporations will give local entities with financial backing and management expertise to weather adversities post Covid-19 pandemic. 

Centre for Market Education CEO Dr Carmelo Ferlito said a fresh number of foreign investments in local companies now could be due to the fact that the Covid-19 pandemic has created opportunities. 

A moment of economic crisis is the right moment to make investment for a business with cash resources, he said, adding a sound investment decision needs to be anti-cyclical.

“As the economy navigates through business fluctuations, corporations are well-positioned to reap good profits by investing in difficult moments when the cycle turns (as it takes time for investments to produce results).

“Furthermore, for firms with financial resources, moments of crisis are good because good investment opportunities can be found (better prices),” he told TMR in a phone interview recently.

Ferlito emphasised that this may be the case in Malaysia, where the economic challenges are forcing businesses into a corner. 

Meanwhile, Preman expects that the merger and acquisition (M&A) activity in Malaysia to pick up and align with global markets. 

“Globally, we have seen and continue to see a positive M&A outlook as companies look to invest ahead of the curve. This pace of deal-making could continue for the next 18-24 months as new financing becomes more affordable due to low-interest rates and sector driving activity,” Preman said. 

Besides, deal-making has surged in most sectors, especially the technology and digital investments as it remains at the top of the corporate agenda. 

“M&A in Malaysia will likely accelerate as companies start to position themselves and invest in the upturn of economic activity, as well as revisit their capital strategy,” noted Preman. 

He anticipates many businesses will start weighing the value of ‘buy versus build’ as they get a better grasp of the current situation. 

“With the pace of change brought by the Covid-19 pandemic, we expect a strong pivot to acquire capabilities versus building them in-house,” Preman added. 

Private equity funds are expected to feature strongly in the local M&A landscape with the availability of ‘dry powder’. 

Preman said the traditional brick-and-mortar businesses such as consumer products, food and beverage restaurant chains and education players would be the least involved inM&A. 

“Pre-Covid-19 pandemic, these were highly sought-after assets, but investors are now cautious of the space and are adopting a wait-and-see approach, particularly how companies in these sectors have pivoted with the changing consumer behaviour and structural changes in the sector,” he noted. 

He said the impact of the Covid-19 pandemic on industries has been widespread and has accelerated the shifts toward digital adoption and in consumer preferences. 

“Companies have recognised the need to change the way they interact with their customers through digital touchpoints and improve efficiency and bottom line by using technology to replace higher-cost labour,” he added. 

This resonates with the EY Global Capital Confidence Barometer 2021 that revealed more than half (51%) of Asia-Pacific executives indicated they intend to pursue M&A in the next 12 months. 

Of those with M&A intentions in the coming year, 25% said its main strategic driver is to acquire technology, talent, production capabilities or innovative start-ups. 

Notable recent corporate deals include Singapore’s sovereign wealth fund GIC Pte Ltd acquisition of a 16% stake in Sunway Healthcare Holdings Sdn Bhd (SHH) for US$180 million (RM753.8 million), so that SHH can further enhance its value and realise the full potential of its healthcare business. 

According to SHH, the investment will be used to partly fund its expansion plans, mainly for the building of six more hospitals, bringing the total to eight hospitals with 3,000 beds altogether. 

Upstream oil and gas concern, Yinson Holdings Bhd, entered into a deal with Sing pore’s SMRT Corp Ltd’s corporate venture arm recently to co-invest an undisclosed amount in an autonomous vehicle start-up named MooVita Pte Ltd. 

Yinson said the co-investment aims to accelerate the development, commercialisation and international expansion of MooVita’s driverless solutions, beginning with the deployment of safe and comfortable driver-less solutions for public transportation and the urban environment. 

Dagang NeXchange Bhd (DNeX) completed the acquisition of an additional 60% stake in Ping Petroleum Ltd for US$78 million recently, and the former also took control of SilTerra Malaysia Sdn Bhd from Khazanah Nasional Bhd in joint venture with Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (Limited Partnership).