Southeast Asia Inc flexing M&A muscle

Southeast Asia companies are flexing their muscle making offshore acquisitions while multi-national companies remain keen on the region, says Deutsche Bank M&A specialist.

Southeast Asia companies have been flexing their muscle, making offshore acquisitions as they seek to diversify their presence outside the region, helped by supportive lending conditions.

“We are seeing more Southeast Asian companies having greater global ambitions outside of the region," Eugene Gong, head of M&A for Southeast Asia at Deutsche Bank, told FinanceAsia in a phone interview. "We have seen more companies look at acquisition opportunities in Europe, the US and Australia."

According to data provider Dealogic, outbound acquisitions by Southeast Asia companies touched $30.9 billion so far this year, the highest year-to-date tally on record.

Reflecting this theme is Singapore-listed Frasers Centrepoint, which last week made an unconditional offer for Australian property firm, Australand, backed by lenders Deutsche Bank, Standard Chartered and SMBC. Other examples that reflect growing global ambitions ambitions include Singapore agribusiness firm Wilmar and First Pacific’s bid for Australian food company Goodman Fielder.

In the Philippines, Universal Robina Corp, controlled by the Gokongwei family, in July struck a deal to acquire New Zealand's Griffin's Foods while Emperador agreed to buy United Spirits’ Whyte & Mackay whisky business in May.

Southeast Asia has long been in the shadow of China when it comes to interest from foreign investors. But lately, there has been renewed interest in the region.

Eugene Gong, Deutsche Bank

“We have seen increased strategic focus from multinational companies looking into expanding into Southeast Asia through M&A during the past few years,” said Gong, who is based in Singapore. “Before that, many multinationals largely concentrated on China and India."

However, challenges to investing in Southeast Asia abound. For one, valuations are punchy and there are plenty of family-run companies that are loath to sell businesses that have been in the family for several generations. Joint ventures are a middle ground, but not all buyers are happy with that arrangement.

"There has been a recent trend where joint ventures have been a preferred transaction structure especially in the food and beverage sector as family-owned companies are sometimes reluctant to sell control upfront," said Gong. "But MNCs typically prefer control, or 100% ownership which has been a inhibitor to some transactions at times."

Japanese companies have been more willing to enter into joint ventures. For example, beverage giant Asahi in 2012 struck a joint venture with Indonesia's Indofood, which is controlled by the Salim family, to make and sell non-alcoholic drinks in Indonesia. In 2011, Suntory entered into a joint venture agreement with Indonesia's GarudaFood.

According to Dealogic, Southeast Asia targeted M&A has chalked up $39.8 billion so far this year, down 27.4% from the same period last year. Indonesia accounted for $3.1 billion of Southeast Asia targeted acquisitions, making it the fourth most targeted country in Southeast Asia, behind Singapore, Malaysia and Thailand. While interest is keen, there have been hurdles.

Source: Dealogic

“Indonesia continues to be on the top of the strategic priority list for many companies for M&A investment into Southeast Asia, but regulatory uncertainty sometimes poses challenges,” said Gong.

Singapore's largest lender DBS last year walked away from its billion dollar acquisition
of a stake in Indonesia's sixth-largest lender Bank Danamon as Indonesia regulations did not allow it to take a majority stake in the bank.

The buyout space is expected to see more activity too as private equity firms are keen to deploy funds in the region and have stepped up their presence in the region.

"Three years ago, some of the major private equity funds covered Southeast Asia out of Hong Kong but many have now opened offices in Singapore, and we expect that Southeast Asia is going to be a region where they will increasingly seek to deploy funds," said Gong.

KKR, for example, opened a Singapore office in 2012, which acts as the firm’s regional hub, and it expects to continue adding people in the region over the next two to three years.

The firm has been active in the buyout market in Singapore, and is in the midst of taking Singapore listed packaging company Goodpack private. The company last week completed a $720 million buyout financing in the US institutional loan market at competitive terms.

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