Singapore To See A Bumper Year Of Mergers Acquisitions
CS, KKR, GDPKF
Analysts have been forecasting increasing MA (mergers and acquisitions activities), as a global theme this year,. But, it is Singapore that is the focus of these corporate activities now, and analysts now expect more deals to close here for the rest of the year.
In the latest deal, a unit of Chinese e-commerce giant Alibaba Group Holdings Limited will buy a minority stake in Singapore Post for 312.5-M Singapore dollars (1 USD = 1.26 Sing. Dollars) to help set up an international e-Commerce logistics business.
CIMB Research described Alibaba’s latest buy as a prelude to more future deals and Key catalysts for growth of e-Commerce, saying that “Singapore Post’s strategic partnership with Alibaba opens doors via access to funds for larger-scale mergers and acquisitions and the opportunity to leverage on Alibaba’s customer base to scale up its regional e-Commerce logistics operations.”
Beyond e-Commerce, Credit Suisse Research (NYSE:CS) also believed that continued MA action are expected in the city-state as there are a couple more companies reportedly in discussions with potential buyers.
There has been a slew of corporate M A action in Singapore recently, such as UIC’s bid to privatize Singapore Land on February, Singapore sovereign investor Temasek’s bid to purchase shares in a major agri-commodity company in March, and Southeast Asia’s largest developer CapitaLand’s bid to privatize its listed China malls subsidiary in April.
This week, global private equity firm KKR (NYSE:KKR) announced it will buy Goodpack (PINK:GDPKF), the world’s largest maker of intermediate bulk containers in a deal that values the company at 1.39-B Sing. Dollars after months of talks. To date, the MA deals announced in Singapore are already worth over 19-B Sing. Dollars.
The increased corporate activity in Singapore so far can be attributed to a few drivers. More and more Singapore listed companies have struggled to deliver robust earnings growth for some time. Consensus forecasts among analysts are also for muted growth over the next 2-3 yrs. Perhaps due to anticipation of slower growth, Credit Suisse Research said Singapore listed companies are exploring ways liked M A to enhance earnings.
Such desire for growth through corporate activity is in particular applicable to larger companies with stable and even declining net debt to equity and net debt-to-earnings ratios.
According to Credit Suisse, many smaller companies in Singapore have instead increased debt levels, with net debt-to-earning currently at all-time high levels. Such divergence in leverage sets up a situation where larger companies in Singapore may be tempted to acquire smaller and more leveraged ones as they are trying to find uses for their surplus cash for earnings accretion.
Other drivers for increased merger and acquisition activities have much to do with macro factors. Confidence among listed companies has grown as there is reduced global policy uncertainty, improving developed market performance and a lack of major macro ‘ crises’. More important, low-interest rates allow acquirers to be more comfortable in borrowing to buy stakes or assets of other companies.
As for the likely targets of MA action in coming months, Credit Suisse said “we think asset-heavy sectors like real estate and offshore marine, companies with stable earnings such as consumer staples and mid-capitalized companies are especially amenable to a degree of mergers and acquisitions re-rating.”
By Tan Shih Ming
Editor, Paul Ebeling
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Singapore To See A Bumper Year Of Mergers & Acquisitions