Global credit crunch provides opportunity for firms to consolidate positions
By Timothy Ouyang, Channel NewsAsia | Posted: 12 November 2008 1709 hrs

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SINGAPORE : The mergers and acquisitions (M&A) market is almost at a standstill amid the global credit crunch.

Although there are concerns over the global economic outlook, some market watchers said this may be a good time for companies to consolidate their positions, as market valuations have dropped significantly over the past year.

They said businesses can use this period of slowdown to re-structure their balance sheets and consider strategic acquisitions.

"While there's a lot of doom and gloom out there, I think this current crisis presents a lot of opportunities for big corporates that have accumulated significant wealth over the last few years to pick up some strategic assets that will help them in their underlying core business," said Chaly Mah, Regional MD & CEO (Asia Pacific), Deloitte.

Speaking at a regional forum organised by CPA Australia, M&A experts said they expect more clarity in the market in the next six months.

For those seeking to make strategic acquisitions, the advice is to focus on their core businesses.

Teo Yi-Dar, investment director at SEAVI Advent Private Equity, said: "I think this is not the time to acquire businesses that... the company is not familiar with because that would really stretch the management resources, (especially)... in such turbulent times.

"And moving into core businesses - businesses that they are familiar with - would allow them to reap potential synergies when we move out of this crisis."

Sectors that are likely to see M&A activity include the healthcare, pharmaceutical and energy markets.

Industry experts, however, said investors should hold off from entering the financial sector, which saw valuations dropping significantly in recent months.

Some market watchers said they expect financial institutions to continue writing-off more subprime-related assets from their balance sheets.

"In poor economic times, the number of non-performing loans is going to increase. And in most economies, we are only just starting to enter in to the recessionary phase... The incidence of non-performing loans is going to continue to increase over the next year or two," said Mah.

And that is likely to push valuations of financial institutions even lower. - CNA /ls