Thailand lags regional counterparts in M&A plans

Thailand lags regional counterparts in M&A plans, 

  THE NATION

 

WHILE more Thai business leaders plan to grow through mergers and acquisitions in the next three years – 16 per cent in fact, double last year’s result – they lag the rest of the big economies in Asean, according to Grant Thornton.

Worldwide, corporate appetite for M&A is deepening, but Asia-Pacific is still the least hungry region, as found in Grant Thornton’s global survey of 5,400 business leaders in 35 economies.

M&A demand is set to grow further over the next 12 months. 

Businesses’ M&A plans, both current and forecast, are becoming more focused as the quality of available targets improves and is matched by a five-year high in the willingness of potential vendors to contemplate a sale. 

About 43 per cent of business leaders seriously considered at least one acquisition opportunity over the past 12 months, up from 39 per cent in the previous period. 

Some 33 per cent of businesses are planning to grow through M&A over the next three years, a steady rise from 31 per cent in 2013 and 28 per cent in 2012. 

North American business leaders remain the most bullish (45 per cent), ahead of Latin America (38 per cent), Europe (32 per cent), Asean (28 per cent) and Asia-Pacific (22 per cent). 

While Thailand’s result – 16 per cent – is low compared with other Asian countries, it is the highest since the survey began. Regionally this compares with 32 per cent in Singapore, 38 per cent in Malaysia and even 28 per cent in Indonesia, a rise of 15 points from last year.

Also 12 per cent of those interviewed in Thailand anticipate a change in the ownership of their business in the next three years. 

This is a strong increase from last year, which at 5 per cent was one of the lowest in the world, and compares more favourably regionally – 13 per cent in Singapore, 15 per cent in Malaysia and 22 per cent in Indonesia.

Julaporn Namchaisiri, managing director of corporate finance at Grant Thornton Thailand, said yesterday that although Thailand’s result is still low, the increase on last year’s result was a good sign that everyone had started to realise the importance of business growth through M&A strategies, which can help organisations gain an advantage amid drastic competition in emerging markets. 

Compared with companies that expand through starting or setting up businesses, M&As require less time and allow a quicker commencement of business operations.

Normally, there are two formats for M&A. The first is a horizontal merger, which is a business consolidation of firms operating in the same space, often as competitors offering the same product or service. 

 

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Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market shares are much greater for merging firms. 

The second format is a vertical merger of two or more firms operating at different levels within an industry’s supply chain. 

“Often the logic behind the merger is to increase synergies created by merging operations that would be more efficient as one. This is the most common M&A activity we see in Thailand,” Julaporn said.

“Globally, of all those surveyed, the mining and quarry industry is the most likely to grow through M&A. However in Thailand we forecast that the service sector will see the most growth through M&A activity this year. 

“This is long overdue. However, currency fluctuations and an uncertain economy are still important factors that every business must consider. By not adequately doing so, problems may arise later or the M&A may fail.”

Business leaders are increasingly looking to banks to fund growth. Retained earnings (62 per cent) are still expected to be the largest source of finance, but the proportion of businesses planning to use bank debt to finance deals has risen to 57 per cent from 48 per cent this time last year. 

Confidence is also rising on the vendor side, with 14 per cent of business leaders planning to sell up over the next three years – up from 11 per cent in 2013 and 8 per cent in 2012. 

“The results confirm that the M&A market has rediscovered its vigour, with the most dynamic businesses embracing acquisitions as a vital growth tool,” Julaporn said. 

“Despite some familiar challenges and uncertainties, underlying growth is relatively strong in many developed economies, while other key metrics such as interest rates, employment and availability of funding are also positive.

“Historically, the transaction market has been relatively cyclical but according to our research, we may well now be at a point where the objectives and valuations of buyers and sellers are broadly aligned. 

“The supply of available targets is clearly key for a successful M&A market but in recent years, vendor confidence in achieving a successful exit has been low, driven by modest financial performance, valuation concerns and perceived transaction risks, such as availability of buyer funding.

“We have also seen a significant shift in the funding landscape with traditional bank funding more accessible and the rise of the alternative lending sector.”