M&A will be about cau­tious deal-mak­ing

Merg­ers and ac­qui­si­tions ac­tiv­i­ties in Sin­ga­pore staged a late rally last year af­ter a slow mov­ing 2015, but whilst the sec­tor’s out­look for 2017 re­mains gen­er­ally pos­i­tive, ex­perts are telling cautionary tales.

Singapore Business Review - - FINANCIAL INSIGHT: MERGERS & ACQUISITIONS -

The last twelve months saw a rel­a­tive re­vi­tal­i­sa­tion of Sin­ga­pore’s merg­ers and ac­qui­si­tions (M&A) ac­tiv­i­ties as firms en­tered into mul­ti­ple trans­ac­tions in the last quar­ter of 2016 that saw the high­est in­crease in the sec­tor’s ac­tiv­ity since 2014. Fig­ures over the past year have also in­creased on both deal value and vol­ume.

With the rest of the Asia Pa­cific re­gion poised to grow at a steady pace in 2017, deals in­volv­ing Sin­ga­porean com­pa­nies are ex­pected not only to com­prise the bulk of ac­tiv­i­ties but also lead the way in deal­ing with fluc­tu­a­tions as pol­icy changes loom. An­a­lysts share that apart from big-ticket deals, there’s room for op­por­tu­ni­ties for rel­a­tively smaller but more re­al­is­tic trans­ac­tions.

Gain­ing mo­men­tum

Deal-mak­ing ac­tiv­ity in Sin­ga­pore gained mo­men­tum in 2016 when M&A trans­ac­tions hit a record high worth US$93.4B, says Elaine Tan, se­nior an­a­lyst, deals in­tel­li­gence, Thom­son Reuters. She de­scribed 2016 as the “best an­nual pe­riod” of the sec­tor in the last two years with the stream of deals that in­cluded size­able in­crease in ac­qui­si­tions in­volv­ing sov­er­eign wealth funds, amongst oth­ers. This is on top of the in­crease in out­bound and do­mes­tic ac­qui­si­tions.

Over­all M&A ac­tiv­ity in Sin­ga­pore in 2016 grew 14% year-on-year (yoy) com­pared to 2015, reach­ing an over­all value at US$71.3B, ac­cord­ing to a Thom­son Reuters re­port. This is on the back of the surge in deals closed in the fourth quar­ter of 2016 as the value of an­nounced M&A in­volv­ing Sin­ga­porean com­pa­nies reached US$25B, a 38.8% se­quen­tial in­crease from Q3 2016 and 41.5% yoy in­crease from Q4 2015.

Pre­lim­i­nary find­ings from the re­port fur­ther stated that the av­er­age M&A deal size for dis­closed deals in Sin­ga­pore grew to US$126.2M, com­pared to the US$105.6M in

2015, as more trans­ac­tions above US$1B were wit­nessed by Sin­ga­porean com­pa­nies. “In the past year, Sin­ga­pore com­pa­nies and funds were ac­tive in out­bound Sin­ga­pore M&A as com­pared to pre­vi­ous years and this par­tic­u­larly dom­i­nated the mar­ket last year,” says Sheela Moor­thy, part­ner at Nor­ton Rose Ful­bright’s Sin­ga­pore of­fice.

To­tal cross-bor­der deal ac­tiv­ity, mean­while, amounted to US$34.5B in 2016, an 11.3% de­cline from the same pe­riod in 2015 (US$38.9B), ac­cord­ing to the pre­lim­i­nary fig­ures from Thom­son Reuters. Sin­ga­pore’s in­bound

M&A ac­tiv­ity slid 28.3% in deal value com­pared to 2015, although out­bound M&A ac­tiv­ity reached US$19.5B in 2016, up 8.8% in value from the pre­ced­ing year. Do­mes­tic M&A ac­tiv­ity grew to US$10.7B, up 18.3% in deal value from the com­pa­ra­ble pe­riod last year.

Some of the most no­table deals in 2016 that kept Sin­ga­pore’s M&A scene afloat in­cluded ac­tiv­i­ties in­volv­ing gov­ern­ment-owned cor­po­ra­tions, sov­er­eign wealth funds, and pri­vate cor­po­ra­tions. “Sin­ga­pore’s state in­vest­ment

There will be con­tin­ued in­ter­est in M&A deals but val­u­a­tions may be lower as ac­quir­ers need to jus­tify the ac­qui­si­tions in a slow­ing world­wide econ­omy.

Deal #1: In 2016 the Qatar In­vest­ment Au­thor­ity bought Asia Square Tower 1, a world-class com­mer­cial devel­op­ment lo­cated in Sin­ga­pore’s Marina Bay busi­ness and fi­nan­cial district, for S$3.4b. Photo from real es­tate con­sul­tancy JLL.

Deal #2: French ship­ping com­pany CMA CGM as­sumed con­trol of Sin­ga­pore’s Nep­tune Ori­ent Lines Ltd last June 2016. The deal, worth S$3.38b, was the largest ac­qui­si­tion in CMA CGM’S his­tory. Photo from CMA CGM.

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