MERGER and acquisition activity in Thailand has risen consistently over recent years.
As an established destination for inbound foreign direct investment, Thailand’s M&A will remain strong due to a number of tailwinds including the government’s “Thailand 4.0 Economic Plan”, the ongoing integration of the Asean Economic Community and the country’s continued development from an emerging economy to a stronger regional and global player.
The significant increase in outbound M&A by a variety of Thai conglomerates is further testament to the strength of businesses in Thailand. Those businesses remain attractive to multinational corporations from developed economies seeking growth, along with private equity funds that see Southeast Asia as an increasingly attractive destination.
The underlying macro-economic fundamentals are relatively healthy. supported by low inflation, a strong current account position, healthy international reserves and low external debt. The banking system is well capitalised, the unemployment rate remains very low, and public infrastructure investment and government spending are also accelerating. However, there are shortages of skilled labour in some sectors, especially as we move towards Thailand 4.0.
KPMG in Thailand drew valuable insights from many leading domestic and international clients who have recently undertaken M&A projects in Thailand – both successful and unsuccessful – who shared their insights on the process, challenges and opportunities via a survey and interviews. Some of the key takeaways bolstered our belief of a fast developing, increasingly active and sophisticated M&A market.
88 per cent of the survey respondents expected to make at least one more acquisition in Thailand within the next five years, with 65 per cent expecting to do at least two, and almost a quarter expecting to do more than six. Food and beverages, FMCG and industrial products were the key sectors of interest.
Based on the survey, Thailand appears to be more attractive than three of the “CLMV” countries (Cambodia, Laos and Myanmar), with Vietnam the only emerging Asean country seeming to compete with Thailand on overall attractiveness.
“We expect to see continued strong deal flows in financial services (driven by consolidation in the banking and insurance sectors and increased adoption of fintech), consumer and retail, technology, industrial markets and infrastructure,” said Ian Thornhill, deal advisory partner, KPMG in Thailand.
“Inbound investments are likely to continue to be driven by Private Equity and Venture Capital funds, along with strategic corporates and other global initiatives such as China’s ‘Belt & Road’ initiative.”
Existing cash and new debt raised inside Thailand were the most common methods of financing deals.
Financing for deals in Thailand is driven by 31 commercial banks, including domestic institutions, subsidiaries of foreign banks and foreign bank branches. Together, these entities account for 50 per cent of the total assets of the financial sector and have been a key source of funds in acquisitions. Larger listed corporates have also tapped the public debenture markets to raise capital for large deals, usually converting bridging funds to lower-cost debentures.
One of the main reasons for failed deals was an inability to mitigate and/or negotiate due diligence findings.
Over 45 per cent of respondents cited that due diligence findings also created issues and delays in completing successful deals. Willingness to negotiate, finalising the SPA and other contractual arrangements and aligning expectations around business plans were also identified as key factors impacting the closure of completed deals. Similarly, a lack of willingness to negotiate, and issues around communication, were cited as key reasons for failure on unsuccessful deals.
“Due diligence, in many areas, should be done carefully,” says a senior vice president of an upstream oil and gas company that was interviewed as part of the survey.
Deal times in Thailand may be quicker than expected.
For the vast majority of respondents, it took six months to one year to convert an investment idea to a completed deal. While the detailed execution phase of many transactions in Thailand (as in any emerging market) can be a drawn out and frustrating process, overall deal timeframes are not prohibitive and in our view will only improve over time. Patience and understanding are nonetheless critical to negotiating any deal in Thailand. Advanced planning for integration can mitigate the main post-deal challenges.
Cultural differences (71 per cent) and lack of strategic alignment (54 per cent) made up almost half of the main post-deal challenges identified by respondents. Followed by change management and the realisation of synergies, this highlights the importance of thinking about and planning for Day One and integration plans earlier in the process.
More than half of acquirers either did no integration planning or took only a very light touch approach.
Contributed by KPMG Thailand, www.kpmg.co.th.