Maybank Investment Bank head of advisory Reza Mohd Zin
PETALING JAYA: Corporate Malaysia is set to see active merger and acquisition (M&A) activities moving into 2025 underpinned by various drivers amid downside risks.
Certain sectors, at the same time, are expected to attract more M&As which is a boon to the local economy despite uncertainties at the global economic front.
Maybank Investment Bank head of advisory Reza Mohd Zin told StarBiz deal-making, including capital raising exercises and M&As, tend to escalate when business outlook is robust and economic environment is stable.
Conversely, he said the appetite for transactions tends to be soft when business outlook is challenging in an uncertain economic environment, that is, as most parties tend to avoid “catching a falling knife”.
“In Malaysia’s case, our growth has been encouraging, anchored by business-friendly policies, with the 2025 gross domestic product growth forecast to be 4.5% to 5%.
This includes government-linked investment companies’ focus in several sectors that will support the achievement of the National Industrial Master Plan, National Energy Transition Roadmap and other socio-economic developments that aim to strengthen the country’s economic base whilst also ensuring a wider distribution of benefits to society,” he noted.
Furthermore, he said with the stable interest rate environment coupled with a robust capital market all bodes well for active M&A deals, adding that he believes 2025 would remain an active year for M&As.
OCBC Bank (M) Bhd managing director, senior banker and head of investment banking Tan Ai Chin said recent economic indicators suggest a decline in interest rates, which is a significant catalyst for M&A activities.
After a contraction in 2023, she said deal volume has rebounded in 2024, setting the stage for continued growth into 2025.
OCBC Bank (M) Bhd managing director, senior banker and head of investment banking Tan Ai Chin
“Private equity (PE) is also expected to play a significant role in the M&A landscape, in driving middle-market transactions.
“Generally, PE tends to hold onto investments for an average of three to five years and considering the uptick in PE investments in 2020 and 2021, we expect the PE funds to start their divestment and reinvestment plans in the next one or two years,” she said.
Surging volumes
The M&A volume in Malaysia surged by 87% in 2024, reaching US$8.3bil. This was largely driven by large M&A deals such as the RM12bil buyout of Malaysia Airports Holdings
involving Global Infrastructure Partners and Abu Dhabi Investment Authority, indicating a strong upward trend. Notably, this was achieved while Asia-Pacific as a whole is down 15%.
Tan expects the healthcare sector to continue to be a significant area of interest for M&A with transactions valued at high multiples.
She said this indicates strong market interest, driven by strategic corporate realignments and the sector’s growth potential due to increased consumer health and wellness concern.
There were a number of significant deals done in the healthcare and pharmaceutical sectors. For example, Island Hospital (acquired by IHH Healthcare Bhd), Ramsay Sime Darby Healthcare (acquired by Columbia Asia), Timberland Medical (acquired by IHH) and Caring Pharmacy (acquired by BIG Pharmacy).
“We also expect infrastructure targets to be a powerhouse for M&A activities, in particular environmental and renewable energy assets which provide steady recurring income.
“OCBC also expects an uptick in activities in digital-related infrastructure assets such as telco towers and data centres. This is because of the need for data connectivity and the boom in artificial intelligence would fuel demand for faster speeds of data transfer and the need for ever increasing processing power,” Tan said.
Reza said based on the secular trends of an affluent yet ageing society, he expects sectors such as private healthcare, private education and consumer retail to remain active as they have in prior years given the robust outlook.
“As Malaysia grows its industrial base for exports, we expect to also see M&As in the industrial and logistics sectors, in particular, inbound investments into Malaysia.
“Another recurring theme is the need for scale to compete effectively and stay relevant.
“We saw that in the telco sector (Celcom-Digi merger) and financial services sector MBSB Bhd acquisition of Malaysian Industrial Development Finance Bhd), and it is likely that consolidation will continue in sectors where competition is very keen and consolidation offers a means of benefiting from scale efficiencies,” he noted.
Deloitte Malaysia mergers and acquisitions partner Yap Kong Meng
Deloitte Malaysia mergers and acquisitions partner Yap Kong Meng said based on the firm’s own observations, he believes that M&A activities in 2025 would see similar activities as this year, if not at elevated levels compared with 2024.
He said usual evergreen industry sectors such as consumer driven businesses, healthcare and industrials would continue to have good levels of M&A activities.
Such sectors were experiencing a decent level of M&A in 2024 and are expected to continue in 2025, he said. Other areas enjoying strong secular growth such as technology and semiconductor would garner a fair amount of M&A activities in 2025.
Active market
He said on balance, Malaysia’s M&A market is a fairly active one but not the most attractive relative to other countries such as Indonesia.
“This is because Malaysia’s domestic market is smaller than many other Asean countries, but it has, amongst others, better adherence to rule of law, which is ranked second among Asean peers according to World Justice Project Rule of Law Index 2024.“And its own vibrant entrepreneurial class, particularly those that perform well against foreign competitors in domestic and global markets within niche industry segments,” Yap said.
As to the potential challenges in the M&A space in Malaysia, OCBC’s Tan said a multitude of factors could affect the success of M&A deals.
“With the nature of cross border deals adding complexity as compared to pure domestic deals, where we need to take into consideration factors such as the different laws and regulations such as local or bumiputra equity requirements and foreign ownership restrictions in certain sectors which will have an impact on acquisition and funding structures.
“Some of the challenges typically faced in executing M&A deals would include the on-going high interest rate environment, making transactions more costly to finance and the virtuous cycle of valuation gaps between buyer and seller,” she said.
Yap said given the worsening China-US geopolitical tension, there is an influx of Chinese investors gaining new presence in Malaysia that may cause the local competitive environment to intensify further.
While this will not affect all industries, certain industries would certainly feel such effects.
“In addition, we are also seeing the local retail sector facing tapering growth due to sluggish consumer spending. “The aforementioned situations will tend to reduce M&A activities within the affected industry segment,” he said.
