PETALING JAYA: Local mergers and acquisitions (M&As) are expected to intensify over the next few months.
Experts are upbeat about more transactions this year compared with 2023, and the strong momentum would likely continue into 2025.
Maybank Investment Bank head of advisory Reza Mohd Zin said there has been an increased deal-making appetite as the country’s improved political stability has allowed the government to implement policies which are expected to have a positive economic impact.
The policies included the New Industrial Master Plan 2030, the National Energy Transition Roadmap and rationalisation of subsidies, he noted.
“This, combined with robust macroeconomic fundamentals like the strong gross domestic product (GDP) growth and rising disposable incomes had resulted in a positive outlook for the nation’s economic growth and improved investor sentiment.
“We see a lot of interest from investors in sectors such as healthcare, pharmaceuticals, food production and processing, green energy as well as technology.
Maybank Investment Bank head of advisory Reza Mohd Zin
“In the technology space, it will mainly be driven by data-centre players looking to capitalise on lower cost land and green energy.
“Semiconductor manufacturers are attracted by the established hubs for outsourced assembly and testing and recent government policies to further move up the semiconductor value chain,” Reza told StarBiz.
Ernst & Young PLT Malaysia strategy and transactions leader Preman Menon expects transactions to be more dynamic in the coming year compared with 2023 on the back of a softer initial public offering (IPO) market.
There is shown by IHH Healthcare Bhd
acquiring Island Hospital from private equity firm Affinity Equity Partners and ZUS Coffee securing new investments for its regional expansion.
“We are also aware of other sizeable transactions locally, which are in various stages of due diligence and looking to complete by year-end.”
He said the IPO market in South-East Asia was subdued in 2023 with high interest rates and inflationary pressures affecting the confidence of both investors and issuers.
As the issues are beginning to subside, it is likely to create more favourable conditions for IPOs and M&As, he said, noting that thesuccess of 99 Speed Mart Retail Holdings Bhd’s IPO was a good example.
Ernst & Young PLT Malaysia strategy and transactions leader Preman Menon
Furthermore, Preman said the expected rate cuts in some of the foreign markets could also improve market sentiment.
“In our recent EY CEO outlook survey, we asked CEOs how confident they are about the outlook for the next 12 months and the results were fascinating.
“CEOs with higher levels of confidence anticipated portfolio and strategy actions including M&As.
“Over half of the CEOs, who scored in the top quartile for confidence, are planning acquisitions over the next 12 months.
“This is in 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 an increase in M&A activity in the second half of this year, as deals, which have been in the pipeline for some time, will eventually materialise.
However, she expects M&A activity to primarily feature smaller deals.
The lower levels of M&A activity in the past two years had created pent-up demand for good assets.
“Corporates that are looking to accelerate expansion and transform their businesses, at a time of dynamic change, are turning to M&A as part of their longer term strategy to achieve sustainable growth,” she explained.
OCBC Bank (M) Bhd managing director, senior banker and head of investment banking Tan Ai Chin
She expects strong interest in high- growth and defensive sectors such as healthcare and healthcare-related businesses as well as technology and advanced manufacturing.
“Last year, there were many significant deals done 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 space, where IHH had just won the bid for Island Hospital for a RM3.9bil equity value, and in the pharmaceutical sector, Symbiotica was acquired by government-linked private equity firm Ekuiti Nasional Bhd this year.
“We also received enquiries from interested foreign investors for infrastructure targets, which are able to provide steady recurring income, in particular for environmental assets including KUB-Berjaya Enviro, renewable energy and digital-related infrastructure assets as the need for data connectivity.
“The boom in artificial intelligence (AI) is fuelling demand for faster data transfers as well as the need for increasing 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 privatise Malaysia Airports Holdings Bhd.
Meanwhile, Yap Kong Meng, who is Deloitte Malaysia’s partner for M&As said based on the current landscape and current performance, it is likely that Malaysia would end the year on a strong note.
Currently, most of M&As are from sectors such as consumer business, industrials and manufacturing, as well as thr technology, media and telecommunications ot TMT industries.
“Generally, Malaysia stands out as one of the more vibrant M&A markets in the Asean region in terms of deal volume.
“With the global macroeconomic environment seeing improvements due to the declining US Federal Funds Effective Rate, the current geopolitical environment is showing that the landscape is favouring more inbound investments into Malaysia and Asean markets,” Yap said.
Yap Kong Meng, who is Deloitte Malaysia's partner for M&As
On the region, OCBC’s Tan said as of September, Malaysia ranked fifth in terms of M&As volume among emerging Asian countries, behind China, India, South Korea, and Indonesia.
In comparison with some of its Asean peers, Malaysia stood out in terms of being a politically stable and open economy, with foreign direct investment-friendly policies and regulations, as well as neutral political standing in the global arena.
Among others, the recent data centre boom in Malaysia, which is largely concentrated in Johor due to its proximity to Singapore, could also present increased opportunities for M&As, according to Tan.
Elaborating on the M&A arena, she said some of the persistent challenges would be the ongoing valuation gaps between buyers and sellers and the high costs of financing as well as funding for foreign buyers.
“The introduction of the capital gains tax this year may deter corporates that are looking to dispose of unlisted shares as part of M&As, or for those undertaking group restructuring.
“In this regard, several aspects are unclear pending formalisation whether there would be an exemption for the disposals of unlisted shares for certain categories of sellers.
“While we expect more crossborder M&A deals to happen, regulatory considerations such as local equity requirements and foreign ownership restrictions in certain sectors, may add intricacy and complexity in attracting credible foreign investors to our local scene,” Tan added.
Reza pointed out that the potential slowdown in the US economy and strengthening of the ringgit might reduce the appetite for foreign and inbound acquisitions.
However, he said if Malaysia’s GDP growth and economic stability could be maintained, the domestic appetite for M&As should remain intact.
