M&A activities to gain momentum

PETALING JAYA: The Covid-19 pandemic is spurring South-East Asian firms, including Malaysian companies, to pursue growth opportunities via mergers and acquisitions (M&As) over the near to medium term, according to the latest EY Global Capital Confidence Barometer survey.

Ernst & Young PLT strategy and transactions partner Preman Menon said Malaysia echoed much of the trends seen across the region, including performance, during the Covid-19 period.

“There is heightened strategic focus on and investments in digital transformation, customer engagement and flexible cost base, ” he said during a webinar on the survey’s findings.

Preman (pic below) said many respondents are revisiting their capital allocation following recent strategic reviews, which were accelerated by the pandemic.

“Currently, the main strategic consideration for respondents in Malaysia is on identifying underperforming assets for divestiture, ” he said.

Preman added that M&A activities in Malaysia will gain momentum as companies start to position themselves and invest in the upturn of economic activity.

“Private equity (PE) is expected to feature strongly as most respondents believe that PE will be the major acquirer of assets.

“We’re also seeing the mid-market PE players looking at Malaysia quite closely and we see 2021 and 2022 as years for PE for both local and foreign firms.”

Additionally, Preman said the Malaysian market is a level playing field for both local and international PE players.

“I don’t think it’s harder for foreign PE players. I think they (local and foreign firms) both have an equal chance. The regulations and the market are open enough to allow for a level playing field.

“Why aren’t there more foreign PE firms? I think valuations are a bit of a challenge. But post-Covid, that’s come down, somewhat. It’s what each party can bring to the table and each circumstance is going to be different.”

In terms of areas of focus for potential PE firms, Preman said the consumer and education sectors have always continued to remain as popular choices.


“Where I think they can look into is digital service enablers, such as last-mile logistics. The pandemic has resulted in e-commerce picking up and going through the roof, ” he said.

With rising optimism for business recovery, the EY Global Capital Confidence Barometer survey revealed that over half of respondents (56%) are looking to actively pursue M&A in the next 12 months; the highest since 2012 and beating the 11-year average of 44%.

“About half (46%) of corporates expect South-East Asia to generate the most growth prospects and opportunities for their organisations in the next three years. Other geographic regions that are expected to generate growth opportunities are India (18%), Japan (15%) and Oceania (11%).

“The top investment destinations (cross-border and domestic) among South-East Asian corporates are India, Singapore, Japan, Thailand and China.”

The EY Global Capital Confidence Barometer survey comprised more than 2,400 executives in 52 countries, including 185 respondents across South-East Asia.

It revealed that technology, advanced manufacturing, power and utilities, consumer and financial services topped the list of the most acquisitive sectors for South-East Asian respondents.

“An overwhelming 95% of respondents indicated that they are targeting cross-border deals.

“Driving this acquisition appetite are concerns about tariffs and trade flows (24%); strengthening of technology, talent and new capabilities (24%); and growth into adjacent business sectors or activities (22%), ” the survey said.

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