Global M&A snapshot 2015 - Transaction momentum building

Although still less than half the global average

The latest research from the Grant Thornton International Business Report (IBR), a global survey of 5,400+ business leaders in 35 economies, finds strong M&A activity and it’s set to grow further over the next 12 months. Businesses’ merger and acquisition (M&A) plans, both current and forecast, are becoming more focused as the quality of available targets improves and is matched by a five-year high in the willingness of potential vendors to contemplate a sale.

The IBR reveals that 43% of business leaders seriously considered at least one acquisition opportunity over the past 12 months, up from 39% in the previous period. Meanwhile, 33% of businesses are planning to grow through M&A over the next three years, a steady rise from 31% in 2013 and 28% in 2012. North American business leaders remain the most bullish (45%), ahead of Latin America (38%), Europe (32%), ASEAN (28%) and Asia Pacific (22%).

More Thai business leaders plan to grow through acquisition in the next three years – some 16% in fact, double last year’s result. While Thailand’s result is low compared to other Asian countries, it is the highest since the survey began. Regionally this compares with 32% in Singapore, 38% in Malaysia, and even 28% in Indonesia (a rise of 15 points from last year). Also 12% of those interviewed in Thailand anticipate a change in the ownership of their business in the next three years. This is a strong increase from last year (which at 5% was one of the lowest in the world) and compares more favourably regionally; 13% in Singapore, 15% in Malaysia, and 22% in Indonesia.

Julaporn Namchaisiri, Managing Director of Corporate Finance at Grant Thornton in Thailand, commented: “Although Thailand’s result is still low, the increase on last year’s result is a good sign that everyone has started to realise the importance of business growth through M&A strategies, which can help organisations gain an advantage among drastic competition in emerging markets. When compared with companies that expand through starting or setting up new businesses, M&As require less time and allow a quicker commencement of business operations.”

“Normally, there are two formats for M&A; the first being a horizontal merger1. This is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same product or service. Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market shares are much greater for merging firms. The second format is a vertical merger2. This occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations. Often the logic behind the merger is to increase synergies created by merging operations that would be more efficient as one. This is the most common M&A activity we see in Thailand.”

Julaporn continued: “Globally, of all those surveyed, the mining and quarry industry is the most likely to grow through M&A. This contrasts Thailand where we forecast that the service sector will see the most growth through M&A activity this year. However, currency fluctuations and an uncertain economy are still important factors that every business must consider. By not adequately doing so, problems may arise later or the M&A may fail.”

Business leaders are increasingly looking to banks to fund growth according to the IBR. Retained earnings (62%) are still expected to be the largest source of finance, but the proportion of businesses planning to use bank debt to finance deals has risen to 57%, up from 48% this time last year. Meanwhile, confidence is also rising on the vendor side: 14% of business leaders plan to sell up over the next three years, up from 11% in 2013 and 8% in 2012.

Julaporn added: “The results confirm that the M&A market has rediscovered its vigour, with the most dynamic businesses embracing acquisitions as a vital growth tool. Despite some familiar challenges and uncertainties, underlying growth is relatively strong in many developed economies, while other key metrics such as interest rates, employment and availability of funding are also positive.”

“Historically, the transaction market has been relatively cyclical but according to our research, we may well now be at a point where the objectives and valuations of buyers and sellers are broadly aligned. The supply of available targets is clearly key for a successful M&A market but in recent years, vendor confidence in achieving a successful exit has been low, driven by modest financial performance, valuation concerns and perceived transaction risks, such as availability of buyer funding.”

"We have also seen a significant shift in the funding landscape with traditional bank funding more accessible and the rise of the alternative lending sector,” Julaporn concluded.