Surge in M&As seen on impending end to stock trading commissions, Asean market opening

Mergers and acquisitions could multiply next year as corporations seek a strategy to survive the intense competition brought on by the liberalisation of stock trading commissions next year and the full opening up of the Asean market in three years.

M&A could be another choice for industry players trying to change foes into friends. Strengths could be integrated and weaknesses eliminated. In an open world, those with wider networks and customer bases hold an advantage over competitors due to earlier access to business opportunities. Fiercer fighting for business will come from not only commission liberalisation but also regional rivalry.

 Earlier, financial institutions and companies in several industries merged, entered into takeover deals and joined forces through joint ventures with the same purpose – to build a bigger presence before barriers came tumbling down. 

Vorapol Socatiyanurak, secretary-general of the Securities and Exchange Commission, said that next year's commission liberalisation and the Asean Economic Community in 2015 would likely force securities companies and listed companies to make adjustments to enhance their competitiveness. Liberalisation will prompt competition in the borderless world. 

Optimistically, such higher competition will prompt Thai financial institutions to develop their human resources and study products in foreign markets while investors will have more alternative destinations for their funds.

On the other hand, liberalisation could be lethal for financial institutions especially those ill prepared, as they may not be able to compete with well-endowed foreign entrants to Thailand. No matter whether these companies are securities firms, asset management companies or investment banks, they need to upgrade their management.

"Foreign financial institutions are better equipped than us. Before, financial groups, especially from Malaysia, like Maybank and CIMB Bank, invested in Thai financial institutions. These financial institutions are relatively ready in terms of financing, networks and professionalism. So, we need to be aware and alert. Previously, several companies have come to have M&A discussions," Vorapol said.

Trairak Tengtrirat, managing director and head of investment banking at Phatra Securities, expects to see more M&A. Besides higher competition, current market conditions are favouring M&A deals or takeovers. 

Importantly, both money and capital markets are open for fund mobilisation or borrowing for business acquisition. Thailand's expanding economy also gives a boost to such M&A, as merged or acquired firms could continue to grow after the transaction.

Before this, Prasert Prasarttong-Osoth, group CEO and president of Bangkok Dusit Medical Services Plc, which merged with Prasit Patana Plc, said the merger emerged from the same concept and target, which expects to have the Thai healthcare industry to be competitive in Asean after the 2015 liberalisation.

The AEC consists of 11 member countries with a combined population of 600 million people. Thai healthcare businesses will face a tough time and be gobbled up by foreign companies if they do not join hands. And this is the trend.

Based on a survey by Boston Consulting Group, Thailand's medical tourism market is expected to reach US$15 billion (Bt477 billion), or 25 per cent of the $60-billion global market next year. Major competitors are India, Singapore and Korea.

M&A targets in the securities industry include Kim Eng Securities (Thailand) Plc, which was taken over by Maybank of Malaysia and renamed as Maybank Kim Eng Securities (Thailand) Plc; Finansia Securities Co, which was merged with Syrus Securities Co and renamed Finansia Syrus Securities Plc; and recently Phatra Capital, which was merged with Kiatnakin Bank.

M&A are expected to increase in every industry that is being pressured by commission liberalisation and the AEC. This means business survival and global competition without borders.

Other industries, including mining, sugar and petrochemical, are also engaging in M&A, but all of them are significant to Thai industries’ penetration of overseas markets. 

Banpu, a leading coal miner in the Asia-Pacific region, in March said it would purchase a 12.4-per cent stake worth A$45 million (Bt1.46 billion) in Hunnu Coal, a coal mine located in Mongolia but listed on the Australian stock exchange.

After only six months, the company decided to take over Hunnu for A$375 million. The deal came after Banpu sold the Daning coal mine in China for $669 million, as the company has to seek other coal mines in order to maintain revenue and profit growth.

Mitr Phol Sugar Corporation, which, like Banpu, is owned by the Vongkusolkit family, recently said it would offer to buy the remaining shares in MSF, one of the leading sugar millers in Australia, for A$324 million. It had already acquired a 22-per-cent stake in that company. If Mitr Phol succeeds, it will be the first step and first time for a Thai sugar company to enter this industry in Australia, the world’s top sugar exporter. 

Significant M&A deals also appeared in the petrochemical industry. All are from the country’s leading petrochemical firms – PTT Chemical, which is now PTT Global Chemical (PTTGC), and SCG Chemicals.

PTTGC in October said it would acquire half of NatureWorks for $150 million. NatureWorks is the world’s largest manufacturer of polylactic acid (PLA), which is used to produce bioplastics. It plans to build its second PLA plant in Thailand as part of the strategic alliance. The production capacity and cost are under consideration.

PTTGC went further on the M&A trail by acquiring 51 per cent of Perstorp Holding France, a manufacturer of toluene di-isocyanate (TDI), a chemical used to produce polyurethane, for ¤114.8 million (Bt4.77 billion). The deal is expected to close next year. Again, PTTGC is considering setting up a TDI plant in Asean, with Thailand among the potential sites.

Firms in the food and beverage and retail businesses are expanding this year by ingesting other businesses. 

One of the talk-of-the-town and biggest deals of the year was struck by Thai Beverage (ThaiBev), which spent Bt6.4 billion to buy 41.6 per cent of Serm Suk, the local Pepsi bottler. 

This move follows ThaiBev’s strategy to focus on its non-alcohol business. Serm Suk has build up a strong distribution network, especially for returnable bottles. The company has also established good relationships with eateries throughout the country.

This saga however has yet to enter its final chapter, as PepsiCo needs to seek a way to stay competitive in the soft drink market here. Setting up its own bottling firm or seeking a new partner seems to be difficult for PepsiCo, and one of the best alternatives for them is to maintain close ties with Serm Suk, which have already stretched more than 58 years.

One of this year’s biggest acquisitions by the local retail industry was the acquisition of la Rinascente, the top department store in Italy, for Bt10 billion by Central Retail Corporation (CRC), the largest local retail conglomerate. This was disclosed in May.

The acquisition marked CRC’s mission to become a leading actor on the global retail stage.

Under the strategy, CRC would focus on la Rinascente to spearhead its global expansion, while the Central brand will be used for forays in Southeast Asia and China.

Sub Sri Thai (SST), a warehouse service provider and the producer of Tip vegetable cooking oil, has moved into the vibrant food and beverage business by acquiring ABP Cafe (Thailand) and Golden Donuts (Thailand) for Bt1.32 billion in the hope of accelerating growth.

The two companies are the local licensees for Au Bon Pain and Dunkin' Donuts, respectively.

The company sees the food business as having strong dynamics and robust growth of about 15 per cent per year. Even though competition is stiff, there is also high demand. The food business spins off lots of cash, which would help SST reduce its debt.