Dynamic and Bustling Malaysia Shows Promise for M&A

As Malaysia continues to post robust economic figures – averaging 5.5% GDP growth from 2000 to 2008 and 4% in the years following the global financial crisis – investors are taking note.

 

Special attention has been focused on the country’s financial services sector, an industry that has been key to the country’s economic and social success. An expanding recognition of the resilience of this sector has led to increasing M&A into the financial services space as regional and international acquirers look to establish a presence in the bustling sub-region of Southeast Asia.

 

“Malaysia is a growing regional financial center with a well-developed anti-money laundering/counter-terrorist financing (AML/CFT) framework,” says Kroll’s Penelope Lepeudry, Managing Director for Southeast Asia. “Compared to the region, its government is seen as more actively combating fraud as it has set up or facilitated the implementation of anti-fraud agencies.”

 

Lepeudry notes that the overall regulatory environment in Malaysia has significantly improved in recent years, creating a more welcoming, conducive environment for foreign investors to conduct business. “This includes a reduction of extensive red tape and the introduction of government online services,” says  Lepeudry. “For example land transfers have been simplified thanks to the introduction of online stamping. These measures, and others, have made it easier to invest in Malaysia.”

 

However, investing in Malaysia is not without its challenges. While existing anti-corruption laws are robust and comprehensive, there is a significant implementation gap between the laws and their enforcement.

 

“Some of the most common issues we see in Malaysia include procurement fraud, where collusion occurs amongst bidders and between employees and suppliers, and corruption, in that there is a widespread acceptance of unethical business practices such as cash payments to win contracts,” says Lepeudry. “There have also been instances of misstated financial statements, theft of intellectual property, and cyber security issues, such as data breaches.”

 

While investors must be mindful of these possibilities, they should not serve as deterrents to exploring business opportunities. With experienced advisors, navigating these obstacles can be easily accomplished to facilitate deal success, notes Kroll in the seventh issue of Spotlight Asia, the firm’s quarterly newsletter for M&A practitioners.

 

Since 2009, inbound deal traffic has increased from 9 transactions worth US$525m to 31 worth US$4.8bn in 2012, and H1 2013 has seen 13 deals worth US$1.15bn.

 

The financial services sector, key to the country’s economic and social success has seen 17 closed deals since 2010 worth US$6bn, transactions highlighted by United Arab Emirates-based Aabar Investments’ acquisition of a 25% stake in RHB Capital Berhad for close to US$2bn.

 

Deals involving insurance companies – similar to the case of Hong Kong’s AIA Group buying ING Management Holdings in Malaysia for US$1.7bn in 2012 – are likely to occur as a growing middle class with disposable income creates a need for financial and insurance related services in the country.

 

M&A in Malaysia’s consumer space has played an important part in the country’s growth story with 19 deals worth US$940m. Investment in the sector will likely see increased activity in the years to come as the country’s growing middle class creates more demand for consumer and retail goods and services.

 

Regionally, Singapore was the largest inbound investor, with 19 transactions completed since 2010 – six of those deals were completed since July 2012.

 

Malaysia has rapidly become an important part of fund managers’ and limited partners’ investment strategies. Since 2010, Malaysia has accounted for almost a quarter of private equity activity in Southeast Asia with 23 deals worth US$5.5bn, nearly equal to total deal value in Singapore.

 

Malaysia’s capital market, Bursa Malaysia, saw US$5.5bn in IPOs in 2012, dwarfing listings in the traditional financial hubs of Singapore and Hong Kong. The IPO frenzy has tapered in 2013 but is likely to see a number of high-profile listing leave the pipeline in the second half of the year and into 2014.

 

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