• A seller’s market is set to continue after a big year for M&A

Thai businesses see M&A as a chance to survive in economic stagnation.

Grant Thornton’s survey of international business leaders in 36 economies found that 33% of respondents globally plan to make an acquisition over the next three years. The total value of merger and acquisition (M&A) activity was a very buoyant $3.8trillion in 2015. But the transaction confidence on both buy and sell sides has taken a knock because of global economic instability. However, the regional picture is more varied due to the differing macroeconomic conditions.

ASEAN (Southeast Asian Nation) countries are showing an appetite for acquisition with many affluent investors looking for lucrative overseas deals. The main driver for this was to enter new geographical markets. Whilst businesses in emerging markets are more likely to engage in cross-border M&A activity to leverage new technology or for increased brand recognition, southern European businesses are more likely to engage in acquisitions as a defensive measure against hostile takeovers.

Julaporn Namchaisiri, Managing Director of Corporate Finance at Grant Thornton in Thailand, said, “Cross-border activity increases as the economic recovery gains more traction in developed economies. In Thailand, M&A is still a development shortcut for both listed and non-listed businesses who have purchasing power. It helps them grow rapidly and strengthen their organisation. But in this pessimistic economy, we see M&A trends as a way to reduce business risk by diversifying into other businesses that may not be directly related with the initial core business and are more stable, thus rendering growth in the future.”

Despite cheap sources of funding and increasing propensity to acquire in some regions, vendor confidence slipped 5% globally in 2015, signalling fewer tangible selling opportunities. This sets the stage for increasing valuations as the disparity between supply and demand widens. The recognition that better valuations are ahead may be contributing to the 5% decline in businesses expecting a change in ownership in the near future. As a result, the difference between future acquisition demand and supply is 24%, further signalling favourable market conditions for sellers.

Julaporn continued, “Acquiring new talent or skills is a main driver for businesses across all regions, but it also reflects the fast pace of technological progress and a lack of such skills internally too. For acquirers seeking to buy in depressed economies, there are a range of opportunities. But turnaround for many of these economies is slow and they will continue to face challenges in the near-term. Rather than seek quick returns, acquirers need to take a mid-term view, looking at how an acquisition supports their business strategy.”

“Businesses should consider acquisition as a route to accessing new markets, recruiting new talent and skills into their firm and building scale to grow – as long as those opportunities support their middle and long-term strategic goals rather than a short-term objective of speedy financial return.”