Mergers, Acquisitions and IPOs viewed as major drivers of competitiveness

Bangkok Condo Finder on October 30th, 2015 with

Kasikorn Mergers and Aquisitions

The Mergers and Acquisitions (M&A) marketplace within Thailand and the Asean region has been the subject of a research report issued by one of Thailand’s major banks, Kasikorn. [1]

Over the last three years the report notes, the value of mergers and acquisitions by Thai companies in the Asean region has reached just on 200 billion baht, and has largely been driven by what it terms ‘outbound transactions’.

The most ostensible reason for this high level of outward M&A action is to give Thai companies some added leverage within the highly-competitive Asia-Pacific region. After all, with the Asean Economic Community (AEC) just weeks away from its start date, Southeast Asia is set to continue its rise as an important economic powerhouse.

The Kasikorn Bank report noted the value of outbound M&A ‘accounted for 0.15 percent of [Thailand’s] GDP, equivalent to 60 billion baht’ in the period between 2009 and 2011. Since 2012 this has ‘increased to 1.3 percent, equivalent to more than 175 billion baht’ between 2012 and this year. [2]

The Kasikorn Bank report said it expects this trend to continue over coming years, especially with the likelihood of countries such as Cambodia, Laos, Myanmar and Vietnam continuing to grow their economies at strong percentages.

The report suggests these four neighbouring countries will see their GDP expand by up to and even beyond an average of seven percent a year, while Thailand has less room for such spectacular growth numbers, and will probably settle in at around 3.2 to 3.6 percent.

This potential will simply mean Thai companies will be looking for more M&A opportunities in Cambodia, Laos, Myanmar and Vietnam, especially in the consumer products and hospitality sectors.

The Kasikorn report suggests consumer spending in these four growing economies will reach around the equivalent of 8.05 trillion baht by 2020, up by almost 28 percent on the current spending level of the equivalent of 6.3 trillion baht.

The report said that outside of the Asean region, most Thai companies were doing deals in the energy, hotel and petrochemical industries.

Turning to the local marketplace, the Kasikorn Bank report said most internal M&A’s were driven by the desire to go into a period of consolidation, especially given sluggish macroeconomic numbers in Thailand.

There have been a number of M&A deals in the food and beverage, chemical, healthcare and beauty, and property sectors.

Kasikorn believes this trend will continue until well into 2016. ‘This is because the M&As are taking place among unlisted firms who find it hard to raise money from the stock market and also access debt as banks tighten loan approvals. [3]

Of course, while Thai companies may be looking overseas for deals, there is plenty of inbound activity with Kasikorn stating some 230 M&A deals have been concluded in Thailand since 2010. These deals have been valued at 650 billion baht with most of the businesses emanating from Japan, China, Singapore and Malaysia. The main sectors of interest for these overseas investors have been in logistics, tourism and services as well as larger financial deals involving banks, the insurance industry and telecommunications.

While the global value of M&As is expected to jump 19 percent a year over the next three years, in Asia it is expected to reach 23 percent per annum in the same time frame.

Local companies lining up to launch IPOs

For the final quarter of this year almost 14 companies have lodged the required paperwork to launch their Initial Public Offerings (IPOs) in an effort to lock into the stock market and raise much needed capital for their businesses.

The IPOs are taking place in spite of, or maybe because of, the economic slowdown in Thailand, which is set to continue into next year.

Among the variety of companies looking to launch IPOs are Raja Ferry Port, JAS Asset, and Ladprao General Hospital. In other words, the range covers a wide spectrum.

Around 29 companies in Thailand have raised a total of 114.87 billion baht from the start of January until the beginning of October this year, a steep rise when compared to 2014’s IPO total value of 65.65 billion baht, raised across 36 companies. [4]

Of the 29 companies which have launched IPOs to the start of October, 17 are currently listed on the Stock Exchange of Thailand (SET), eight are part of the Market for Alternative Investment (MAI), two are real estate investment trusts (REITs) and two are infrastructure funds. Most operate in the property, energy and hospitality sectors.

At the start of 2015 the SET announced it was aiming to achieve a market capitalization level of 250 billion baht by the end of the year. As of the beginning of October the capitalization stood at 216.69 billion baht. Whether it will reach the SET target is yet to be seen, but in general the figures have been good, especially given the overall poor economic numbers witnessed throughout this year.

There is a general feeling among long-term investors that the IPO market is attractive because it usually provides a healthy return on investment, especially for those who take on investments in companies with good fundamentals.

As the management team behind the planned November launch of the JAS Asset IPO noted, they believe as long as investors pay attention to the company and its fundamentals rather than external economic, and even political, factors, then they should reap the benefits.

JAS Asset says it prefers long-term investors rather than speculators or those with a short-term perspective, as long-term investors are generally better able to look over the potential returns for periods out beyond five years or more.

Across the investing spectrum, from IPOs to M&As and beyond, the general feeling among senior executives of major Thai companies is that the sooner the government and related agencies can encourage foreign funds into the stock market, the faster the overall economy will rebound.

[1] http://www.kasikornbank.com/en/

[2] ibid.

[3] ibid.

[4] http://www.dealstreetasia.com/stories/thai-ipo-market-boom-to-continue-till-next-year accessed 26/10/15

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