PETALING JAYA: The government’s RM1bil financing guarantee for mergers and acquisitions (M&A) may not trigger an immediate surge in deal activity, but is expected to encourage more deal activity among small and medium enterprises (SMEs) by easing access to financing.
Rosewood Consulting managing director Nachiappan Arunachalam said the RM1bil facility fills an important gap and gives local companies more options to pursue strategic acquisitions that might otherwise not happen.
Ultimately, he said, the facility’s success will depend on practical implementation, including clear eligibility criteria, efficient approvals and financing terms suited to acquisition transactions.
“There is a genuine need for consolidation among mid-tier companies across industries to achieve economies of scale, improve vertical integration, diversify and become more globally competitive,” he told StarBiz.
Nachiappan said the key challenges holding back M&A activity include access to acquisition financing, differences in buyers’ and sellers’ valuation expectations, and the lack of M&A expertise and transaction readiness among mid-tier businesses.
“Acquisition financing is particularly challenging because the acquiring company may lack sufficient assets or balance-sheet strength, even when the target business has sound cash flows and strong growth prospects. A government guarantee can help bridge this gap by giving banks greater confidence to finance commercially viable acquisitions,” he said.
The government announced during Budget 2027 that Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP) and Credit Guarantee Corp Malaysia Bhd will provide financing guarantees of up to RM32bil next year.
SJPP’s coverage will be expanded to include mid-tier companies across all sectors, with the guarantee limit also increased to RM50mil. Of this, RM1bil in SJPP guarantees will be allocated specifically to support local companies’ expansion through M&A.
Shearn Delamore & Co deputy head of corporate and M&A Nicholas Tan said while the RM1bil allocation may be relatively modest in the context of the overall M&A market, it would nonetheless offer support to local companies seeking to expand through M&As.
“Financing is one of the considerations in M&A activity, but it is not the only one.
“Other considerations include valuation, regulatory requirements and business integration.
“That said, the guarantee can help companies overcome funding constraints, especially mid-tier companies looking to expand and consolidate their businesses locally and overseas,” he said.
Tan said differences in valuation expectations between buyers and sellers remained a key obstacle to M&A deals, while regulatory requirements and the challenges of integrating an acquired business could also complicate transactions.
“In Malaysia, there are still quite a lot of family-owned businesses. Whether existing shareholders or founders are prepared to sell and give up control of their businesses can also make M&A transactions more challenging.
“For example, a buyer may want to acquire a 51% stake, but the owner may only be willing to sell 49%. Ultimately, any M&A transaction must make commercial sense. While the guarantee could encourage more companies to consider acquisitions, the availability of financing alone is not enough to ensure a deal goes ahead,” he said.
