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Business deals

Thailand leads M&A push in Southeast Asia to fight slow economy

Indonesian and Vietnamese companies become targets as deals within region soar

Buyers from Thailand account for 38% of Southeast Asia's regional M&A deals by value between 2010 and 2019, followed by Singapore and Malaysia. (Nikkei montage/source photos from Reuters)

SINGAPORE/BANGKOK -- Southeast Asian companies are rushing to make acquisitions in neighboring markets, with Thai players leading the way amid the nation's slowing economy.

U.K.-based Dealogic counts 67 cross-border acquisitions within Southeast Asia announced this year through Dec. 16. Deal values total $9.6 billion, nearly triple the $3.5 billion in 2018, the financial information provider said. Average deal size hit $144 million, the highest in the past 10 years.

As economic growth rates vary among the region's countries and global political troubles continue, businesses in Southeast Asia's more mature economies are using M&A deals to respond to the challenges.

Bangkok Bank reached a deal with Standard Chartered in December to buy Indonesia's Bank Permata. The Thai lender beat Japan's Sumitomo Mitsui Banking Corp. and Singaporean contenders DBS Group Holdings and Oversea-Chinese Banking Corp.

The bank agreed to invest $2.67 billion for an 89% stake in Permata, the largest foreign bank acquisition ever by a Thai commercial lender. Chartsiri Sophonpanich, the executive director and president, hailed "this major strategic direct investment outside of Thailand" as a "landmark" for the financial institution.

Bangkok Bank specifically cited the opportunity to enhance its services for Thai companies expanding internationally as a reason for the deal.

Southeast Asia's regional mergers and acquisitions have been led by companies from the more advanced economies. Buyers from Thailand account for 38% of the deals by value between 2010 and 2019, followed by Singapore at 32% and Malaysia with 23%.

But this appetite among Thai businesses grew sharply in 2019, with their overall deal value reaching $6.4 billion -- 67% of the region's total. State oil producer PTT Exploration and Production acquired the Malaysian business of U.S.-based Murphy Oil for $2.1 billion earlier this year, while Siam Cement bought a 55% stake in Indonesian paper packaging company Fajar Surya Wisesa in May.

Thailand's more mature economy naturally delivers a slower growth rate, said Pavida Pananond, associate professor of international business at Thammasat Business School in Bangkok.

But macroeconomic factors such as "the ongoing political uncertainty, saturating domestic demand, more aggressive government policy to promote outward foreign direct investment, and the strong Thai baht" could accelerate moves by Thai companies to invest overseas, she told the Nikkei Asian Review.

Thailand's gross domestic product rose 2.4% on the year for the quarter ended in September, trailing most regional peers. GDP growth totaled 7.3% in Vietnam, 6.2% in the Philippines, 5% in Indonesia and 4.4% in Malaysia. Singapore, another more advanced economy in the region, recorded growth of 0.5%.

While Thai entities lead the regional acquisitions, companies based in Vietnam and Indonesia were the top targets in 2018 and 2019, respectively, Dealogic data shows. The two countries have attracted more such investment since the mid-2010s, boasting fast growth and huge domestic markets.

Philippine conglomerate Ayala Corp.'s $237.5 million investment in Myanmar's Yoma Group, announced in November, illustrates this pattern. The tie-up, though not a majority acquisition, lets Ayala pursue growth in a less-developed but fast-growing economy. The company is keen to replicate such deals in other markets.

Southeast Asia's big startups, having received plenty of investment, are starting to participate in regional acquisitions. Indonesian unicorn Gojek acquired Philippine payments startup Coins.ph for $72 million in January as part of its regional expansion.

Like Gojek, which competes with Singapore-based "superapp" Grab, more Southeast Asian startups want to swiftly acquire markets or technologies as competition intensifies.

"Intraregional M&A means that acquiring companies stick to their region of expertise, which generally has similar corporate cultures, with a chance of extracting greater synergies," Justin Tang, head of Asian research at United First Partners in Singapore, told Nikkei.

"The activity curve for Southeast Asia M&A will steepen in 2020, given that it was in the doldrums since mid-2016," Tang said. "Executives are now starting to live with the prospect of a long-drawn U.S.-China trade war, prolonged Brexit, etc. They cannot idly sit by to wait for a resolution before making managerial decisions. We are already seeing a lot of corporates playing catch-up to strike while valuations are reasonable and the cost of funding remains low."

Additional reporting by Shotaro Tani in Jakarta.

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