Asia Pacific is becoming a hotbed for mergers and acquisitions as well as investment because of its vibrant growth, while at the same time some of the region’s larger countries are opening up more to foreign investment.
Among the notable M&A deals of the past year involved the prized assets of the Singapore-based conglomerate Fraser & Neave (F&N). Thai billionaire Charoen Srivadhanabakdi won a months-long bidding contest with an outlay of US$11 billion, edgong out the Indonesian tycoon Stephen Riady.
The F&N transaction resulted in a second major deal when the Dutch brewer Heineken acquired F&N’s interest in Asia Pacific Breweries for $6.5 billion in order to keep the beer business fron falling into Mr Charoen’s hands.
Kroll Advisory Solutions, a firm that specialises in M&A, says such deals are likely to continue. It notes that cross-border deal traffic in high-growth Asia increased from 97 transactions worth $15 billion in 2009 to 194 transactions worth $51 billion in 2012.
The strong performance of the consumer sector and the growing wealth of Asia’s rising middle class give reason to believe the acquisition trend will continue to grow.
While rising consumer demand and wealth have been mayor drivers of M&A, low labour costs and countries that are rich in natural resources make investment in Southeast Asia interesting. Each economy also has individual drivers that attract investors.
Singapore witnessed the most M&A action in the region during last year thanks to its increasingly investor-friendly tax regime, stability and sound regulatory environment.
Thailand is weel regarded as an open economy, while investors are also finding more to draw them to Malaysia, the Philippines and especially Indonesia, with their steady growth rates. As well, Vietnam is attractive for its large and cost-efficient labour force, according to a recent quarterly report compiled by Kroll.
The opening up of Myanmar is a major development that will bring about possibilities for foreign investment but it also presents risks, said Richard Dailly, managing director for South and Southeast Asia of Kroll Advisory Solutions. The key for investors, he said, would be to understand the market and the shallow talent pool available, apart from risks inherent in the immediate region.
Nevertheless, there has been a notable investment trend by South Korean companies into Myanmar because of strong bilateral ties, while Japanese investors have already committed $12.6 billion tp the country’s emerging special economic zones.
Japan is investing not only in Myanmar but all across Asia as its companies seek outlets for their growing cash piles, as they realise that growth opportunities in ageing Japan have become limited.
During last year Japanese businesses accounted for 30 M&A deals, the highest transaction volume into Southeast Asia, and Kroll predicts they will extend this position in the future. The main destination for Japanese investment was Thailand, followed by Malaysia and Vietnam.
However, cross-border activity and investment still tend to stay within Asia, as a limited number of companies in the region have the scale to pursue deals in more developed Western markets. Intra-regional transactions in Asean made up 23% of the total with 16 deals from Singapore and 14 from Malaysia, while other Asian bidders were responsible for another 41% with 76 transactions coming mainly from Japan (30 deals) and Greater China (18). Europe accounted for 34 transactions and North America 19 within the last year.
Singapore has been the gateway to Southeast Asia for M&A in terms of volume (61 deals) as well as in value ($30 billion) mostly due to its well-established regulatory environment and clean, secure governance.
The second largest rise from the second quarter of 2012 to the first quarter of 2013 has been by Indonesia, where natural resource wealth and a fast-growing middle class have created a fertile business environment. Indonesian businesses undertook 37 deals worth almost $10 billion. Malaysia had 33 deals worth $4.5 billion and Thailand 19 deals worth $3 billion.
“As investment grows, investors still need to be attentive and aware of the inherent risks and therefore inform themselves sufficiently about the company,” Mr Dailly said.
The consumer sector has been the most lucrative in countries such as Singapore and Indonesia but in other countries such as Thailand and Malaysia the industrial sector and financial services attracted investment, he said.
“By sector, risk is most prevalent in those that involve land transfers or land use rights, specifically in the mining and plantation or agriculture space, ” he said.
“The nature of these sectors and involvement of multiple parties leaves considerable room for corruption, fraud, or bribery. The best way of mitigating these risks is by acquiring as much information as possible and asserting a fair amount of control over the negotiation and deal process.”
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Writer: Jurgen Gabel