PETALING JAYA: The Malaysian business community is expected to see active merger and acquisition (M&A) activity in 2025, supported by several factors amid downside risks.
At the same time, certain sectors are expected to attract more mergers and acquisitions, which will be a boon for the local economy despite the uncertainties on the global economic front.
Reza Mohd Zin, head of advisory at Maybank Investment Bank, said dealmaking, including capital raisings and mergers and acquisitions, tends to escalate when business prospects are robust and the economic environment is stable.
Conversely, he says the appetite for transactions is often weak when business prospects are challenging in an uncertain economic environment, i.e. because most parties tend to “avoid a falling knife.”
“In the case of Malaysia, our growth has been encouraging, anchored by business-friendly policies, with gross domestic product growth expected to reach 4.5% to 5% by 2025.
This includes the focus of government-related investment companies in various sectors that will support the realization of the National Industrial Master Plan, the National Energy Transition Roadmap and other socio-economic developments that aim to strengthen the country’s economic base while ensuring broader distribution of benefits to guarantee. for society,” he noted.
Additionally, he said the stable interest rate environment combined with a robust capital market all bodes well for active M&A activity, adding that he believes 2025 would continue to be an active year for M&A activity.
OCBC Bank (M) Bhd senior banker and head of investment banking Tan Ai Chin said recent economic indicators point to a decline in interest rates, which is a major catalyst for mergers and acquisitions.
After a contraction in 2023, she says deal volume has recovered in 2024, paving the way for further growth in 2025.
Tan Ai Chin, managing director of OCBC Bank (M) Bhd, senior banker and head of investment banking
“Private equity (PE) is also expected to play an important role in the M&A landscape, driving middle market transactions.
“Generally speaking, PE tends to hold investments for an average of three to five years and given the increase in PE investments in 2020 and 2021, we expect PE funds to continue their divestment activity in the next one or two years.” and reinvestment plans will begin.” she said.
Increasing volumes
Mergers and acquisitions volume in Malaysia increased by 87% in 2024, reaching US$8.3 billion. This was largely driven by major mergers and acquisitions, such as the acquisition of Malaysia Airports Holdings for RM12 billion
involving Global Infrastructure Partners and Abu Dhabi Investment Authority, indicating a strong upward trend. Notably, this was achieved while the Asia-Pacific region as a whole was down 15%.
Tan expects the healthcare sector to remain a key area of interest for mergers and acquisitions, with transactions valued at high multiples.
She said this indicates strong market interest, driven by strategic business realignments and the sector’s growth potential due to increased concerns about consumer health and wellbeing.
A number of significant deals have been made in the healthcare and pharmaceutical sectors. Island Hospital (acquired by IHH Healthcare Bhd), Ramsay Sime Darby Healthcare (acquired by Columbia Asia), Timberland Medical (acquired by IHH) and Caring Pharmacy (acquired by BIG Pharmacy).
“We also expect infrastructure targets to be a driving force for mergers and acquisitions, particularly environmental and renewable energy assets that deliver stable recurring revenues.
“OCBC also expects an increase in activity in digital-related infrastructure assets such as telecom towers and data centres. This is due to the need for data connectivity and the boom in artificial intelligence would fuel the demand for faster data transfer speeds and the need for ever-increasing processing power,” said Tan.
Reza said that based on the secular trends of a prosperous but aging society, he expects sectors such as private healthcare, private education and consumer retail to continue operating as they have in previous years, given the robust outlook.
“As Malaysia expands its manufacturing base for exports, we also expect to see mergers and acquisitions in the industrial and logistics sectors, especially inward investments in Malaysia.
“Another recurring theme is the need for scale to compete effectively and remain relevant.
“We have seen this in the telecom sector (merger between Celcom and Digi) and financial services through MBSB Bhd, the acquisition of Malaysian Industrial Development Finance Bhd, and it is likely that consolidation will continue in sectors where competition is very fierce and consolidation provides a means to benefit from efficiencies of scale,” he noted.
Deloitte Malaysia mergers and acquisitions partner Yap Kong Meng
Deloitte Malaysia M&A partner Yap Kong Meng said based on the firm’s own observations, he believes 2025 M&A activity will see similar activity to this year, if not at a higher level than 2024 .
He said the usual evergreen industry sectors such as consumer-driven businesses, healthcare and industrials would continue to have good levels of mergers and acquisitions.
Such sectors saw a fair level of mergers and acquisitions in 2024 and are expected to continue into 2025, he said. Other areas of strong growth, such as technology and semiconductor industries, would see a fair amount of M&A activity in 2025.
Active market
He said that on balance, the Malaysian M&A market is quite active, but not the most attractive compared to other countries such as Indonesia.
“This is because Malaysia’s domestic market is smaller than many other ASEAN countries, but the country has, among other things, better adherence to the rule of law, which is ranked second among the ASEAN countries.” have their own vibrant entrepreneurial class, especially those that perform well against foreign competitors in domestic and global markets within niche industry segments,” Yap said.
On the potential challenges of M&A in Malaysia, OCBC’s Tan said a host of factors can influence the success of M&A.
“Because the nature of cross-border deals increases the complexity compared to purely domestic deals, we need to take into account factors such as the different laws and regulations, such as local or bumiputra share requirements and restrictions on foreign ownership in certain sectors, which have a major will have an impact. impact on acquisition and financing structures.
“Some of the challenges typically faced when executing M&A transactions include persistently high interest rates, which make transactions more expensive to finance, and the virtuous cycle of valuation gaps between buyer and seller,” she says.
Yap said that given the worsening geopolitical tension between China and the US, there is an influx of Chinese investors establishing a new presence in Malaysia, which could lead to the local competitive environment further intensifying.
While this will not affect all industries, certain industries will certainly experience such impacts.
“In addition, we also see that local retail is facing declining growth due to slow consumer spending. “The above situations will reduce merger and acquisition activities within the affected industry segment,” he said.
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