The two key trends will guide the marketplace in the next few years among listed companies in Asia-Pacific will be that conglomerates will consolidate their businesses and more companies will exit the public market, an executive with an industry body said.
Prof Dr Christopher Kummer, president of the Institute of Mergers, Acquisitions and Alliances (IMAA), said it was a matter of time before more Asia-Pacific companies seek to de-conglomerate or privatise, as they choose to focus on select growth opportunities and bigger capital.
According to him, many region-based companies had diversified into unrelated businesses when they saw an opportunity to make money. Depending on the growth of each business division, conglomerates will restructure their businesses to focus on selective growth.
“There comes a time where a corporate has to choose between achieving a critical size (of a business) within the country; or to continue expanding the company. One has to make this choice because the company does not have all the resources to manage growth,” he said talking about the the growing trend of privatisation to DealStreetAsia on the sidelines of the International M&A Conference 2014.
“Privatisations in Asia-Pacific has been slower in the past few years but it will come back,” he said, explaining that companies are realising that they can do more privately than from the public market.
According to him, several companies feel that they should not have listed. “You have to ask the question of why you want to be listed? A founder may want to cash in from the initial public offering (IPO) proceeds and that is alright, but it is difficult to continue to expand if the market capitalisation is not large enough,” he said, “Some companies list and only have 10% of free float, what is the point then, to be a listed company?”
He noted that the listed companies did have the advantage of using shares as currency, in merging or acquiring other companies and for arbitrage.
Ideally, Kummer informed, companies should operate like a listed entity for a year before they go for the actual IPO, as it was “not merely an exercise of appointing the investment bank and getting the numbers”.
Kummer opined that more companies will also delist as stock exchanges across the region become more sophisticated. “The sophistication of many stock exchanges is rising and the companies, which should not have listed, are being shaken down,” he said.
Among the other trends IMAA has analysed is that the “hostile M&A is dead”, as the number of hostile deals done per year have come down to barely three or less (in the past five years).
The M&As in Asia-Pacific have been and will be driven by leverage buyouts, spin-offs, privatisations, merger of equals and, most popularly, joint ventures, he added.