Valuation mismatch slows PE, M&A deals in Thailand but local investors said to be active

The city of Bangkok. Photo from Pixabay.

Asset valuation mismatch seems to have taken the wind out of the sails of private equity transactions and merger and acquisition activity in Thailand.

The buyer-seller side valuation differences have led to stalling of many deals during the last 12 months even as overseas private equity investors go slow on investments, according to multiple market participants.

In this backdrop, local private equity players are seen to be cashing in on the exclusive access to the pipeline of opportunities and enjoying an edge over price negotiations as global investors wait for asset prices to cool down.

Thai businesses are said to have seen a decline in the valuation across the board in the last year as a result of the pandemic-induced slowdown in the economy.

In real estate, for instance, there has been a 30-50% discount in asset prices while the impact in other sectors is at least in the range of 10-15%, according to a local PE firm 9Basil managing partner Kris Panijpan.

For M&A transactions, in general, buyers, on average, paid 13 times EBITDA in 2019, but that value dropped to 11x last year, according to DC Advisory Thailand executive director Jirasee Kasuwan.

The median M&A transaction value in Q1/2021 dropped to $19.4 million compared to $31.4 million in Q4/2020 amid volatile market conditions due to continued uncertainties from COVID-19, according to KPMG’s quarterly reports on M&As in Thailand. Deals collected in the reports include acquisitions by strategic corporates, financial investors and real estate investment trusts.

“We had a hard time finding assets to invest in last year as well,” Panijpan told DealStreetAsia in a recent interview. He revealed that 9Basil only recently scored a deal after three quarters due to valuation mismatch issues.

“Companies were still expecting the same valuation at the pre-COVID-19 level, while as a buyer, we couldn’t accept that [same value],” he added.

Even pandemic-battered sectors like hotel and hospitality, where it might appear easy to snap up an asset, there was not much activity, noted Siam Commercial Bank investment banking head Veena Lertnimitr.

“It would depend on how bankers and companies can articulate a clear business plan and deliverables to drive the company, to deserve premium valuations,” she opined.

“I think that the situation [of valuation mismatch] will still hold this year, and we will see more PE activity in Thailand only next year onwards,” Kasuwan predicted.

However, the sell-side is anticipated to be more active as financing alternatives become in short supply, he added. “As subsidies dry up and loan deferment programmes are stopped, small and mid-sized companies will need to tap outside investors and partners. This will result in more deals later this year.”

Panijpan revealed that 9Basil is having four active deals in the pipeline, and he is targeting to close at least one investment every quarter this year.

“A lot of sellers have come to terms with the fact that their financial situation is getting to the point where they have to seriously consider selling. We are seeing more closable deals,” he continued.

“We will probably see more structured deals, those in the form of earn-out and linked to future cash flows,” predicted Kasuwan.

Local firms seen to be active

Bangkok-based Lakeshore Capital and Morgan Stanley IM’s North Haven Thai Private Equity Fund had closed a number of new deals in the last year that remain publicly unannounced, DealStreetAsia has learnt.

Lakeshore Capital and Morgan Stanley IM have yet to respond to emails seeking their comments.

Despite the disparity in valuation expectation, Panjipan said he was aware of several local PE-led transactions in the last 12 months. Most local PE deals in Thailand are often publicly unannounced.

Thailand represents PE opportunities but these have been very hard to access “unless you have truly strong local connections,” Panjipan said, on the nature of the opaque investment landscape.

Offering another perspective, Kasuwan said, “deal sizes in Thailand are not big enough to attract large PE firms and the major deals tend to go to the local family offices and big corporations.”

Local PE players, or those with a local office like Navis Capital Partners and Morgan Stanley IM, have better access to small to mid-range deals through their networks.

Some of the deals closed by overseas PE players in Thailand hover in single digits. Sample some of the major deals: Northstar Group invested in Thai Credit Retail Bank in 2012 and exited to Olympus Capital Asia in 2019; Actis invested in book retailer Distri-Thai in 2005, merged the business with Asia Books and later exited to Berli Jucker in 2011; and KKR-backed Emerald Media and Indies Capital Partners invested in aCommerce in 2019.

PE investors in Thailand

Expand Table

PE firmCompany (Sector)Year of investmentHolding statusReturn multiple
Lakeshore CapitalSanta Fe (Restaurant)2015Exited2.75x
Devakam Apothecary Hall (Pharma)
2018----
Rojukiss (Wellness)
--Current--
Panpuri (Wellness)2018Current--
Humanica (HR management)2016----
ReadyPlanet (Digital marketing)2016----
Lombard InvestmentsPomelo (Fashion e-commerce)2017Current--
Syn Mun Kong Insurance (Finance)2014----
Nok Air (Aviation)------
Mega Lifesciences (Healthcare)------
S&P Syndicate (Restaurant)2005Exited2.5x
Central Pattana (Retail)2003Exited7.1x
Asia Books (Retail)2006Exited--
Somboon Advance Technology (Automotive parts)2004Exited3.5x
North Haven Thai PEJKN Global Media (Media)2019----
Do Day Dream (Healthcare)2017----
Safe Fertility Centre (Healthcare)2019----
Navis Capital PartnersSrithai Daily Foods (F&B)2019Current--
dzcard (Technology)2018Current--
Nitipon Clinic (Healthcare)2015Current--
RPS Technologies (Automotive parts)2004Exited--
Golden Foods Siam (F&B)2009Exited--
NorthstarThai Credit Retail Bank (Finance)2012Exited--
ActisDistri-Thai (Asia Books)2005Exited--
KKRaCommerce (E-commerce)2019Current--
Indies Capital PartnersaCommerce2020Current--

More IPO exits for PE

The outlook for private equity activity in Thailand looks promising in the post-pandemic recovery phase given the buoyant public markets, which offer a viable exit route for risk capital investors.

Panjipan predicted: “A lot of PE exits are going to be IPO-based as this year has been a success story. PE exits in Thailand have historically been more focused on trade sales. But now that the IPO market is becoming a genuine credible exit path, it opens the door to the type of assets that PE funds can look to acquire.”

Since the beginning of 2021, the market has seen two IPOs by PE-backed companies. Financial services firm Ngern Tid Lor’s over $1-billion debut earlier this month became the second-largest IPO in Thailand and the largest in the country’s financial services industry. The microfinance player is backed by 9Basil and CVC Capital Partners.

Meanwhile, in February, Lakeshore Capital-backed cosmetics distribution firm Rojukiss International (KISS) offered nearly 1.4 billion baht ($44.6 million) worth of IPO shares and witnessed a 75.6% jump in share price on debut day.

“We’re starting to see a large-scale private equity exit [on the stock market],” Panjipan observed, and noted that Thai deals have traditionally seen the free float ratio at around 15% (the minimum ratio per Stock Exchange of Thailand rules), but in a PE exit through IPO, it would be 30-40%.

Ample liquidity in the Thai capital market is assured as domestic investors favour market investments, according to Lertnimitr.

Her team at Siam Commercial Bank acted as the advisor for the IPOs of NTL, KISS as well as other companies such as SCG packaging and Kerry Express.

In fact, there has been a conventional fear of a share overhang post IPO transactions, Lertnimitr said. “However, having seasoned PE investors push the potential of having strategic investors or block trades that can mitigate the impact on the share price pressure,” she pointed out.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.