Mergers & Acquisitions booming in ASEAN; However, a Due Diligence firm says take precaution


Deals, Deals, Deals and Deals from leading Southeast Asia’s conglomerate. But a Due Diligence firm, Kroll, is urging caution!

The Wall Street Journal says: quote:

“This will be remembered for being the year that Southeast Asia stole the limelight from China, playing host to some of Asia’s biggest and most contested mergers and acquisitions. Bankers say the trend will persist, as increasingly confident Southeast Asian companies vie for assets against multinationals or each other—potentially resulting in too many buyers chasing too few assets……..………….M&A activity involving companies in Southeast Asia, a region dominated by Singapore and Thailand, stands at its highest level since the 2008 financial crisis. Deals worth $105.4 billion have either been completed or are pending completion this year, an increase of more than 50% from the $68.6 billion involving the region last year, according to Dealogic. It also accounts for a bigger chunk of deal making in the Asia Pacific region outside Japan: 26% this year, compared with 18% in 2011.”

  • The Wall Street Journal, then gave a list of major deals, including:

1) The fight for Singaporean conglomerate Fraser & Neave, where the fight began when a Thai billionaire bought stakes in the Singapore real-estate and soft-drinks firm and Asia Pacific Breweries in which Fraser & Neave owned 29.7%, as the first step in taking over F&N.

2) Another Thai firm, Charoen Pokphand Group, an agriculture conglomerate, which is unconnected to Mr. Charoen, agreed to pay $9.4 billion for HSBC Holdings PLC entire stake in Chinese life insurer Ping An Insurance (Group) Co. of China Ltd in this month, as it seeks to capitalize on China’s growth. That M&A deal is the biggest-ever bid by a Southeast Asian firm for an overseas asset.

3) State-backed Thai oil firm PTT Exploration & Production PCL made waves this year when it beat out Royal Dutch Shell PLC to acquire London-listed, Mozambique-focused natural-gas explorer Cove Energy PLC for £1.22 billion, or US$1.95 billion.

4) Philippine conglomerate San Miguel Corp. sold a majority stake in Bank of Commerce to CIMB Group Holdings in May for 881 million ringgit ($288.3 million).

5) Some insurance operations of Dutch financial-services company ING Groep attracted much interest from Western and regional bidders this year. AIA Group Ltd. paid $1.73 billion for its Malaysian life business and Hong Kong tycoon Richard Li bought the Thai, Hong Kong and Macau businesses for $2.14 billion.

6) This month, Singapore-listed Petra Foods Ltd. sold its cocoa ingredients business to Swiss chocolate maker Barry Callebaut AG for US$950 million to focus on making and distributing products like chocolate, wafers and biscuits.

  • Wikipedia says:

Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a “merger” and an “acquisition” has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.

Professionals who value businesses generally do not use just one of these methods but a combination of some of them, as well as possibly others that are not mentioned above, in order to obtain a more accurate value. The information in the balance sheet or income statement is obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or an Audit.

Accurate business valuation is one of the most important aspects of M&A as valuations like these will have a major impact on the price that a business will be sold for. Most often this information is expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interest’s sake. There are other, more detailed ways of expressing the value of a business. While these reports generally get more detailed and expensive as the size of a company increases, this is not always the case as there are many complicated industries which require more attention to detail, regardless of size.

As synergy plays a large role in the valuation of acquisitions it is paramount to get the value of synergies right; synergies are different from the “sales price” valuation of the firm, as they will accrue to the buyer. The analysis should, hence be done from the acquiring firm’s point of view. Synergy creating investments are started by the choice of the acquirer and therefore they are not obligatory, making them real options in essence. To include this real options aspect into analysis of acquisition targets is one interesting issue that has been studied lately.[5]

  • Thus, Mergers and Acquisition does not guarantee success.  The Asset, reports a Due Diligence firm has sounded some caution!

The following is from the Asset:

Growing Thai investments into Asia bring possible perils, Kroll reports

19 Dec 2012

by The Asset

This month’s news that Charoen Pokphand Group’s US$9.4 billion investment in Ping An Insurance Group of China has pushed Thailand’s outbound foreign direct investment (FDI) for 2012 up to a record US$25 billion. FDI from Thailand this year was more than the whole previous 12 years, and Thailand’s overseas investments are behind only Japan and China in Asia-Pacific. However, this strong growth news brings its own set of unique challenges for Thai’s major companies and their billionaire owners, according to Kroll Advisory Solutions.

Richard Dailly, managing director of Kroll, South and Southeast Asia, cautioned that investments, mergers or partnerships outside of Thailand – particularly those into emerging markets, such as Myanmar and Indonesia – can bring unforeseen complications.

“Historically, Thai businesses, unlike those from China and India, do not have strong networks among C-Suites in other emerging markets in Asia, and this lack of connections can put their investment at risk. As Thai investors continue to look overseas for growth, they need to be sure they are paying a fair price for their investment, against a wide range of issues including understanding cultural differences; ensuring that the company leadership conducts itself legally and ethically; being aware of local labor laws and legislative requirements; as well as having knowledge of their potential exposure to US and UK anti-corruption legislation,” he adds.

“It is critical for Thai businesses to mitigate these risks with in-depth due diligence before entering into relationships in new markets – looking at both of the financial and human capital risks.   The primary purpose of due diligence is to ensure that no material ‘surprises’ emerge once the deal has been signed. In many respects it can be regarded as the most crucial part of any transaction,” Dailly notes.

According to Kroll, the intelligence obtained from due diligence can enable investors to make smarter investment decisions to ensure a successful deal. Investors can use this intelligence to add value by restructuring payment terms or management teams, or, as a result of the risks identified, even exit from a proposed bid.

Kroll has seen an increase in requests for due diligence and market entry support from Thai companies to help them map competitive landscape, review potential partners and transparency of contracts, and assess political, societal, economic and operational risks. In some markets, the influence of criminal elements or unethical practices can significantly hinder a company’s ambitions, causing long-term financial and reputational damage.

The need for both financial and HR-related due diligence is particularly evident in Myanmar, which is firmly on the radar for many expansionary companies in Thailand. Over the past 20 years, Thailand has been the second largest provider of FDI to Myanmar, behind China.  

Cumulative FDI into Myanmar from Thailand since 1989 has now reached US$9,568, according to the International Monetary Fund (IMF). However, Thai companies should recognize that there are likely to be a number of significant challenges to face when moving into this geography – including a lack of functioning legal and banking systems; particularly relating to foreign investment; corruption; partner due diligence, and political and security risk, Kroll adds.

Dailly concludes: “Thai companies realize the need to mitigate their risks but do not have enough knowledge of the new markets they are moving into; they have limited awareness of how their new prospective partners really do business. Kroll can help these companies with our extensive on-the-ground knowledge and our huge experience of conducting due diligence in emerging markets.”


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