M&As set record in 2012, carry-over likely in 2013

M&As set record in 2012, carry-over likely in 2013
PHOTO: M&As set record in 2012, carry-over likely in 2013

SINGAPORE - A record year for mergers and acquisitions (M&As) in Singapore in 2012 could flow into a robust 2013 as cross-border deals and privatisations continue to fill up pipelines, industry players said.

"2012 is a landmark year for the M&A market in Singapore," said Tan Kuan Ern, Credit Suisse's head of Singapore investment banking coverage.

"The M&A market has not been this active since 2001, when we saw a wave of consolidation in the local banking industry."

Announced M&A deals involving Singapore, including indirect acquisitions where the ultimate parent is based in Singapore, hit a record US$79.4 billion (S$96.8 billion) in 2012, up 83 per cent from 2011, preliminary data from Thomson Reuters showed.

In terms of direct acquisitions, domestic deals more than doubled to US$20 billion from US$8.7 billion in 2011.

As a percentage of total deal volume, all-Singapore transactions this year accounted for 30 per cent of the total, up from 26 per cent a year ago. Vikram Chakravarty, head of strategy and corporate finance Asia for AT Kearney, outlined three broad themes from a sectoral perspective.

First, acquirers looking for defensive investments settled on consumer and healthcare businesses where fragmentation offered a number of opportunities.

There were also "leveraged plays" in the insurance and banking industries, where high barriers of entry continued to drive demand for control of existing players.

Cyclical plays, such as coal and natural gas, also drew attention depending on an acquirer's point of view of the market.

Alvin Lim, head of Singapore advisory for HSBC, thinks those themes will largely continue into next year. 

"There will also be more consolidations and private equity interest in cyclical sectors, such as shipping and technology, where valuations continue to be depressed," Mr Lim said.

"On the other side of the equation, in sectors such as consumer and retail, valuations may have reached a level whereby owners may begin to contemplate selling."

Cross-border deals almost doubled to US$46.7 billion, from US$24.5 billion the year before, on the back of a number of mega deals.

Notably, the family of deals surrounding the battle for 129-year-old Fraser and Neave (F&N) and DBS Bank's planned acquisition of Bank Danamon in Indonesia set industry milestones and gave volumes a boost.

Average deal sizes got an obvious boost from those record setters. "Clearly what is evident is that deal sizes on average have significantly increased this year," said Keith Magnus, head of investment banking for Singapore and Malaysia at UBS.

Acquirers liked a mix of factors in Singapore, industry players said.

"The key drivers for strong M&A activity continue to be intact - access to low-cost financing, strong balance sheets, global ambitions of cash-rich Asian corporates, the need to diversify and scale up to improve efficiencies in a slow-growth environment will continue to underpin M&A activity in the coming year," Mr Magnus said.

"Also Asia continues to be the highest growth region globally and I expect we will continue to see significant M&A activity in the real estate, natural resources, and consumer sectors which are most correlated to economic growth in the region."

The F&N saga headlined an active year for deals in the consumer sector.

Singapore's position in a region that is expected to experience strong growth in coming years was a large part of the attraction.

"When you look at the character of the transactions that took place in Singapore this year, what they represented was companies and investors seeing a real opportunity to access Singapore as a platform for South-east Asia," said Rob Sivitilli, JP Morgan's head of M&A for Asia ex-Japan.

But looking ahead, Mr Sivitilli expects that trend to evolve somewhat, with some of the Singapore deals from 2012 becoming a "template" for transactions in the rest of the region in 2013.

"The general trend of companies looking to grow in South-east Asia will continue in 2013," said Mr Sivitilli, who noted a pipeline about 10 to 20 per cent larger than a year ago at his firm.

"I think the trend that you saw in Singapore is going to change a little bit in 2013 because I think what you're going to see is the trend would have started in Singapore in 2012 and it will carry over into other countries in South-east Asia in 2013."

"So I think 2012 was very much about Singapore driving South-east Asian M&A. I think Singapore M&A will continue in 2013, but I think you will see a domino effect where it's going to spread into some of the other countries in the region."

The coming year could also see Asia's wealthy families take a closer look at the value of their businesses, many of which are conglomerates spread across many industries.

"Restructuring of state-owned and family companies will provide another source of M&A activity in Singapore and the region," said DBS managing director of strategic advisory Choe Tse Wei."

"A number of such companies will be adversely impacted by

(1) changes in the volume and flow of global trade

(2) reduced demand for hard and soft commodities, and

(3) a reversal of past decades of outsourcing, as more companies in the US and Europe choose to in-source rather than out-source.

Companies affected by these trends may need to shut or divest less-profitable units, and venture into other segments of their value chain in order to remain relevant in the years ahead."

This website is best viewed using the latest versions of web browsers.