M&A transactions involving Thai corporations have grown by leaps and bounds from an average of US$3.7 billion per year, hitting a record $18.7 billion last year, according to UBS Research.
Driving the deals were strong financial foundations and cheap financing costs. Despite export woes, listed companies showed combined net profits of 560 billion baht in the first nine months of last year, slightly up from 556.9 billion baht in the same period a year earlier.
Interest rates are kept low almost globally and Thai corporations are positioning themselves for Asean integration in 2015. It was a welcome trend, especially for Thai banks, the research house added.
Panop Ansusinha, head of investment banking at Kasikornbank, said the strong baht was also helping to spur mergers and acquisitions by Thai firms, which see a need to go abroad as the home market is becoming mature.
Te M&A outlook should remain bright this year. Thai Beverage's recent takeover of Fraser & Neave alone is valued at over 300 billion baht, so M&A deals this year must definitely be higher than 2012, he said.
Large conglomerates like PTT, Siam Cement Group and Banpu will continue to be the leaders in acquiring businesses in Asean and beyond while medium-sized companies mostly in consumer products, services and retailing can focus only on Asean.
Local banks will see growing loan demand for M&A activities mainly from medium-sized companies, while foreign banks would play a bigger role in helping large companies in financing bigger deals beyond Asean, he said.
Kittiya Todhanakasem, first senior executive vice president of Krungthai Bank, said local banks were assisting local companies by spotting targets for them, as some do not know what opportunities were out there. It would then depend on the Thai companies if they were interested in pursuing a deal.
"M&A opportunities are vast out there, but the scale may not be as big as the deals involving ThaiBev or Charoen Pokphand Group," she said.
For medium-sized companies the motive was organic growth, which meant strengthening production capacity, rather than "inorganic growth" or diversification.
Limiting Thai banks' capability is their limited experience in overseas M&A. They can get involved only when the deals are not complicated. While they can help advise on financing structure and risk management, it is foreign banks that have the expertise to offer comprehensive services because of their global network.
At Krungthai Bank, M&A deals in the pipeline involve only local companies. Besides M&A, its investment banking unit has to rely on the initial public offering (IPO) business, which is expanding fast thanks to the recent spike in the stock market. Many companies are now planning to seek a listing on the Stock Exchange of Thailand to benefit from inflows to the market.
Kasikornbank's investment banking unit, set up last June to help amplify non-interest income, also focuses on the equity market, particularly IPOs and property fund launches. Fee income from investment banking should grow by 30-35 per cent within three years.
Last year, companies raised 20 billion baht through IPOs but the positive market environment may boost business this year. The bank plans to assist five to six companies in raising about 20 billion baht through IPOs this year. This convinced it that total IPOs this year would surge to 100 billion baht.
"Yet, importantly, the political situation will determine the size of both M&As and IPOs," Panop said.
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