Big fall in M&A activity involving S'pore firms

Business Times – 26 Mar 2012
Deals in Q1 down to 187 from 273 a year ago, while their value fell 36.5%

By LYNETTE KHOO

(SINGAPORE) A bleak picture on the local merger and acquisition (M&A) scene has emerged, showing M&A activity involving Singapore-domiciled companies sliding to the lowest level in value since the second quarter of 2009.

The total value of announced Singapore M&A deals in the first quarter registered year-on-year and quarter-on-quarter declines of 36.5 per cent and 24.6 per cent, respectively, to US$5.7 billion, latest data from Thomson Reuters shows.

The number of deals stood at 187 in the first quarter, down from 273 in the same period last year.

A similar trend unfolded in the South-east Asian region, with the total deal value slipping 19.2 per cent from a year ago and 11.9 per cent from the fourth quarter to US$20.3 billion.

Wong Ai Ai, principal at Baker & McKenzie.Wong & Leow, noted that deals are taking a longer time to negotiate and close due to gaps in pricing expectations and buyers’ concerns over risks. ‘Deals that were being looked at in the last half of 2011 have either not been completed or have fallen away for these reasons,’ she said.

Singapore companies have slowed down their buying spree abroad, with the overseas deal count falling from 104 in the first quarter last year to 68 this year, though the aggregate value of these deals were 12.3 per cent higher year-on-year at US$2.9 billion.

The total deal value was bolstered by United Fiber System’s proposed acquisition of Indonesia’s Golden Energy Mines through a reverse takeover valued at US$987.8 million.

At the same time, Singapore companies were also less targeted by overseas acquirers, with 30 announced inbound M&A deals in the first quarter compared to 50 deals in the same quarter last year.

This resulted in a 91.6 per cent plunge in the aggregate value of inbound M&A deals to US$224.3 million – the lowest quarterly level since the first quarter of 2004. Chinese acquirers still accounted for the bulk of Singapore’s inbound M&A deals with a 35.1 per cent share.

According to data from Thomson Reuters, Malaysian companies are most targeted in the region by acquirers, followed by Indonesia, Vietnam and then Singapore.

‘There’s been a lot of recent excitement over deals announced across the Causeway, and over the potential assets for sale in Indonesia, so relative to all that activity, Singapore may not look so exciting or well-priced,’ Ms Wong said.

‘But a lot of deal structuring is being done through Singapore, even though the companies involved may not be Singapore companies.’.

Private equity (PE) firms closed smaller M&A deals in the first quarter, with PE-backed deals involving Singapore companies falling by 95.4 per cent year-on-year to US$10.2 million although the deal count remained at five.

In the South-east Asian region, PE-backed M&As marked a 87.8 per cent fall to US$70.2 million while the number of deals declined from 19 in the first quarter last year to 13 this quarter.

Than Su Ee, head of Mezzanine Capital Unit (Private Equity & Special Opportunities) at OCBC Bank, noted that the let-up in M&A activity among PE funds in the last six to nine months is a reflection of the uncertainties surrounding global economic conditions.

‘This is changing as investors are increasingly of the opinion that the eurozone crisis and US economic troubles may have turned the corner,’ he said.

With improvements in economic climate and market liquidity, PE investors are expected to take advantage of better market conditions to undertake M&A financing or exit from their investments, he added. ‘Unless there are any major global economic or political surprises, we should see a return of private equity funds activities in M&A over the next 24 months.’

Slower M&A activities in the first quarter has translated to lower fees for advisors. Estimates from Thomson Reuters/Freeman Consulting Co show M&A advisory fees from completed transactions involving Singapore companies fell 39 per cent from a year ago to US$50 million this quarter.

Leading the pack is Morgan Stanley, which chalked up fees of US$4 million and accounted for 8 per cent of total fees. Daiwa Securities enjoyed the highest jump in estimated fees, enjoying an increase of more than 19-fold from a year ago to US$1.7 million in the first quarter.

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