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SINGAPORE: Mergers and acquisitions activity has taken a hit since the start of the current financial crisis.
M&A investors appear to be staying on the sidelines, despite valuations coming down to what some industry observers have described as "realistic levels".
Chaly Mah, regional managing partner & CEO, Deloitte Asia Pacific, said: "What we are seeing is that the size of transactions by private equity investors has actually reduced significantly. We are no longer seeing the mega billion-dollar transactions that private equity investors used to get themselves in."
Market watchers said this is due to the current credit crunch, which has limited financing options.
According to some estimates, private equity investors are now only able to fund up to 40 per cent of their deals with bank financing – half of what they used to get before the financial crisis.
With liquidity remaining tight, experts said investors now have to ensure they have the necessary finances lined up at the onset. But experts said the crisis will also present opportunities, such as an increasing number of distressed companies becoming available, for sale.
However, there are considerations for investors entering the M&A market.
Mr Mah said: "Cash is going to be king. They would need to look at the debt profile and the maturity profile of the debt sitting on the balance sheet. If share prices start to drop significantly, and if the underlying value of the company far exceeds the market valuation, then you may see some of the controlling shareholders embarking on exercises to privatise those companies."
Industry watchers said the recent efforts by central banks around the world to stabilise financial markets are likely to help boost the much-needed confidence in global banking systems. This will, in turn, help jump-start the M&A market.
With valuations coming off their highs, experts see new players coming into the M&A market.
"You will certainly see a lot of buyers coming out of India and China from the emerging markets, making acquisitions in the West where valuations have dropped. There are opportunities for them to make acquisitions in those countries," said Mr Mah.
The opportunities appear to be many when investors finally regain some degree of confidence in financial markets. Industry watchers said cash-rich investors are likely to be in a good position to make strategic acquisitions.
They said there could be attractive options in financial, food and beverage, and resource-related companies.
- CNA/so
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