M’sian companies need to turn to outbound M&A to boost growth

KUALA LUMPUR: Malaysian companies should be looking externally for merger and acquisition (M&A) to boost growth and drive returns to shareholders, said global consulting firm Bain & Company.

Asia Pacific Head of Financial Investors Practice Suvir Varma said there were not many local companies executing outbound M&A compared with the other regional peers.

“What we have not seen (in Malaysia) compared to the other countries is enough outbound M&A. We have seen great domestic M&A and inbound M&A by foreign strategic and private equities, as well as other sovereign funds.

“If you look at the data, Malaysian corporates have a lot of cash on their balance sheet that we refer to the term as lazy balance sheet,” he told reporters during a roundtable session titled “M&Aled Growth: Opportunity or Threat?” here yesterday.

Bain & Company Kuala Lumpur Managing Partner Francesco

What we have not seen (in Malaysia) compared to the other countries is enough outbound M&A. We have seen great domestic M&A and inbound M&A by foreign strategic and private equities, as well as other sovereign funds. Suvir Varma, Asia Pacific Head of Financial Investors Practice

Cigala was present.

As at Dec 31, 2016, Malaysian listed companies were sitting on US$71.9 billion cash pile.

“Ultimately, serial acquirers, who are regularly using M&A as a growth factor, over time would have a higher total shareholder returns than those who don’t.

“You’ve got to be out there finding growth and if you can’t find it domestically, as we know, domestic growth rate is modest right now, then you’ve got to go where the growth is,” he added.

Commenting on whether the weakening of ringgit has hindered local companies from expanding offshore, Suvir noted that a lot of Malaysian companies had a decent amount of earnings in the US dollar. “When I look at other countries like India and Indonesia, they have very similar currency volatility that has happened here but I see their corporates going outbound a lot more,” he added.

On consolidation of the banking sector, Suvir pointed out that it was not easy for universal banks, of which Malaysia has many, on its own decide to merge.

“Invariably, you will have some customers sharing, capability sharing and cost sharing. And if you draw from global lessons in doing this, the result and impact will be retrenchments, some cost cutting and so on.

“Frankly, there is not so much appetite for that at the moment. It happens most acutely in moments of crisis,” he said.