KUALA LUMPUR: Malaysia’s private equity (PE) and merger and acquisition (M&A) market is evolving as a decline last year has led to a rethinking in the deal market, said Bain & Company.
The country had experienced a slowdown in Southeast Asia's hot PE investment market in 2018 with moderate corporate M&A activity, largely due to macro and political uncertainty in the lead up to the election,.
Stability in M&A in the country, while the industry was experiencing changes globally, had been largely focused outside of Malaysia, prompting insiders to look at how to grow local deals and the changes that are needed to be made in order to succeed.
This is according to findings presented by Bain & Co here today.
“While Indonesia and Vietnam are proving to be the big winners in the Southeast Asia PE boom, there has been a decline in the number of deals in Malaysia, with PE investment deals declining by 34 per cent in 2018 as compared to the last five year average.”
Bain & Co added that while most countries globally experienced solid PE growth in 2018, especially across Asia, internal uncertainty had caused this decline in Malaysia with deal value declining by 52 per cent compared to the five-year average.
“This is leading to a change in thinking, with value drivers shifting to a greater focus on M&A and operational efficiency as a result,” it added.
Bain's Global Private Equity Practice senior advisor Suvir Varma said many executives were turning to scope deals as companies struggle to find organic growth.
"Locally, we believe this trend is still underleveraged, but it could prove to be an important area of growth in the future. However, given high pricing and a heavy concentration of tech deals, corporates will need to tread carefully," he said in a report.
Malaysia’s corporate M&A activity was also moderate, with macro softness and lack of deals seen as pain point by funds here.
Of the major deals that occurred, 70 per cent were in industrials, TMT (technology, media and entertainment and telecommunications) and financial services. They were largely focused on deals outside of the country, either elsewhere in Southeast Asia or further abroad.
While Malaysian corporates were less active in domestic M&A in 2018, with fewer local acquisitions in the local market, there were sizeable M&A abroad.
Bain & Co said regardless of this trend, domestic strategics would be key drivers of Malaysia's M&A, and were encouraging a rethinking of the current environment.
Globally, the trend in M&A has been of low growth which is affecting the nature of M&A.
“Scope has overtaken scale for the first time and is changing the nature of M&A around the world. This has proven to be relevant to Malaysian corporates who are also struggling to find organic growth in the domestic market.
Bain & Co has worked on more than 1,500 M&A projects globally with both strategic buyers and sponsors in the last year alone.