Bankers chase more M&A in Malaysia as deal volume nearly doubles

KUALA LUMPUR - In a tough year for deal-making in the Asia-Pacific, Malaysia is proving to be a bright spot.

The volume of mergers and acquisitions (M&A) has surged 87 per cent from a year ago to US$8.3 billion (S$11.2 billion), while the Asia-Pacific as a whole is down 15 per cent, data compiled by Bloomberg shows.

Top of the pile is a RM12 billion (S$3.45 billion) buyout of Malaysia Airports Holdings involving Global Infrastructure Partners (GIP) and Abu Dhabi Investment Authority, though the deal has faced opposition in Muslim-majority Malaysia due to BlackRock’s ties to Israel. BlackRock agreed to buy GIP in January.

Senior investment bankers expect deal activity to be elevated as both local and international buyers pounce on opportunities.

Tech is alluring. Big names including Alphabet-owned Google, Microsoft and Nvidia have announced plans to invest billions into helping Malaysia’s ambitions in artificial intelligence. And the government has pledged at least RM25 billion for the semiconductor industry.

“We are seeing a lot of inbound interest from regional and international clients wanting to discuss opportunities in Malaysia,” said Mr Harry Naysmith, a managing director at Citigroup’s investment banking unit.

Malaysia has drawn interest as investors consider alternatives to China. The country attracted RM83.7 billion of approved investment in the first quarter, up 13 per cent from a year earlier. More should come, helped by an agreement with Singapore to develop South-east Asia’s first cross-border special economic zone.

Chinese companies are also branching out and eyeing acquisitions, said Ms Tan Ai Chin, a managing director and head of investment banking for OCBC in Malaysia. Strong links between the two countries make Malaysia a good hunting ground for deals by Chinese companies, particularly in areas such as advanced manufacturing, renewable energy and electric vehicles, she said.

“Malaysia has prospered through the proliferation of many entrepreneurs who own small- to mid-sized firms, as well as larger companies and conglomerates, presenting good opportunities for M&A,” Ms Tan said.

Mr Naysmith, who is based in Singapore and focuses on clients in Asean, said now is a favourable time thanks to Malaysia’s recently achieved political stability and the strong performance of local equities. The FTSE Bursa Malaysia KLCI Index has risen 12 per cent in 2024, outperforming the MSCI Emerging Markets Index, which is up 9.7 per cent.

“Sponsors have been looking for the right window to exit companies, and with the current economic and political stability, the timing is ripe,” said Mr Naysmith.

Some other countries are still grabbing more international attention due to their size and depth of markets, including India and Japan, where deal-making activity is booming. South Korea is another busy market, while transactions in Singapore have recently picked up too. Then there is the ringgit, which is closely watched by investors and deal-makers as volatility in the local currency impacts transactions. Still, the currency has been resilient recently and is near its strongest in six months.

The government plans to build advanced manufacturing capabilities and increase the country’s renewable energy capacity.

While initial public offerings are muted globally, share sales in Malaysia in 2024 have risen 35 per cent from a year ago, led by Johor Plantations Group, according to data compiled by Bloomberg.

“There is a growing pipeline of activity in the country and we should begin to see bigger IPO deals from Malaysia in the next 12-18 months, particularly around government-owned entities and sectors such as consumer, healthcare, telecoms infrastructure and technology,” Mr Naysmith said.

Meanwhile, tycoon Vincent Tan is considering taking private Kuala Lumpur-listed Berjaya Food, the owner of Starbucks’ Malaysian business, Bloomberg has reported.

Malaysia has attracted private equity companies including CVC Capital Partners, which has invested in areas such as financial services and retail, and TPG in healthcare and education.

“With a more stable macroeconomic environment, including interest rates and improving financing conditions, we do expect to see M&A activity remaining strong,” said Ms Tammi Yong, JPMorgan Chase & Co’s head of investment banking for Malaysia.

Malaysia is the world’s second-biggest palm oil producer after Indonesia and home to companies including Petronas and other industry leaders such as Top Glove, Axiata Group and sovereign wealth fund Khazanah Nasional.

Digital infrastructure assets, particularly data centres, have attracted interest.

GDS Holdings agreed to sell a stake in its data centre business outside of China, which includes assets in Malaysia, to alternative asset managers Hillhouse Investment and Boyu Capital for US$587 million.

In 2023, DigitalBridge Group bought a controlling stake in Aims Group from Time Dotcom.

“This is likely going to remain a hot topic in the coming years due to Malaysia’s proximity to Singapore and because it has the resources needed to run data centres, including water and electricity,” said Ms Roe Seann Chong, an executive director at Deutsche Bank’s investment arm in Malaysia.

“Malaysian corporates with existing diversified operations are also reevaluating their strategy,” Ms Chong said. “Some that have expanded across many countries and sectors may want to re-optimise their operations, creating market leaders in more focused businesses.”

Axiata plans to merge its telecoms operations in Indonesia with conglomerate Sinar Mas Group, Bloomberg has reported.

AirAsia in April announced a RM6.8 billion deal to create a listed entity that will combine its airline units, with long-haul carrier AirAsia X acquiring AirAsia Aviation Group and AirAsia Bhd from sister company Capital A.

Malaysian companies are also keen to expand abroad via M&A, according to Ms Hsu Jen Chin, who leads investment banking in Malaysia for CLSA.

“A lot of the corporates that we talk to have overseas expansion aspirations,” she said. “They want to be at the same level as all the other international players and they’re always looking for opportunities to grow.” BLOOMBERG