Thailand: A banner year for M&A deals

• Dec 25, 2020

Merger and acquisition (M&A) activity looked strong at the beginning of 2020 with numerous transactions, including the acquisition of the Ninth Towers office building and Unilever House office building projects (US$186 million and $50.4 million, respectively) by CPN Retail Growth Leasehold REIT.

In the first quarter of 2020, according to international consulting firm KPMG, the real estate, infrastructure and construction sectors contributed 83.5% of the $1.36 billion M&A transaction value.

This was largely driven by Asset World Corp Plc’s acquisition of 12 hotels and mixed-use projects from the family’s TCC Group as part of an internal reorganisation ($870 million), the largest deal in the first quarter of 2020.

In March, Charoen Pokphand Group, the country’s biggest agribusiness conglomerate, also won the competitive auction for the acquisition of Tesco’s Asian operations in Thailand and Malaysia for roughly $10.6 billion, resulting in one of Thailand’s largest acquisitions.

However, in the second quarter, according to KPMG, the general pace of new M&A activities slowed as expected, and deal flow decelerated because of the economic uncertainty around Covid-19.

With the economy easing out of Covid-19 restrictions, investor sentiment appeared to be recovering in the third quarter as the number of deals approached pre-Covid levels.

Not surprisingly, the majority of investors in the third quarter were local, according to KPMG, although foreign investors are cautiously looking to deploy capital by cooperating with local partners to execute deals.

However, until border restrictions are eased it is unlikely inbound foreign investment will gain much momentum, said the consulting firm.

The Bangkok Post covered some of the notable deals secured in 2020.

CP Group-Tesco deal

The battle between Thailand’s retail titans for UK-based Tesco’s Asia business reached an end on March 9, with CP Group submitting the winning bid for a deal worth more than $10 billion.

CP Group beat beer tycoon Charoen Sirivadhanabhakdi’s TCC Group Co and the Chirathivat family’s Central Group, Thailand’s biggest retailer by market cap.

Despite the auction win, the deal still needed to pass muster with the Office of the Trade Competition Commission (OTCC) on whether the acquisition is a monopoly, given that CP already owns 7-Eleven convenience stores and Makro cash-and-carry business.

The deal took almost nine months for the commission to vet, before ruling on Nov 6 in favour of the deal. Yet the OTCC imposed certain conditions in a bid to cushion any impact the transaction may cause.

Somsak Kiatchailak, secretary-general of the OTCC, said the acquisition by CP Group will increase its market dominance, but the deal will not constitute a monopoly.

A commission majority also thought the deal could significantly reduce competition in the sector, but would not cause adverse impacts to the economy or the interests of consumers at large.

Under a 2017 law, proposed mergers that could lead to market dominance or a monopoly must be reviewed by the OTCC. Dominance is defined as having a market share of more than 50%, or 75% when combined with two peers.

The commission has imposed seven measures and conditions for CP to follow to lessen any harm to competition.

Among them is a three-year ban on another acquisition in the modern trade sector, excluding e-commerce.

CP All, the retail subsidiary of CP, and Ek-Chai Distribution System, which operates Tesco Lotus Express, are also required to increase sales volumes of agricultural and community products supplied by small and medium-sized enterprises or Otop products by at least 10% of the previous year for five consecutive years.

Given the mega-deal and its impact on the retail market, notably on suppliers, small-scale business operators, competitors and consumers, the House Committee on Commerce and Intellectual Property earlier this month called for related companies to justify the CP-Tesco deal in parliament.

Representatives of Tesco and CP Group should disclose details of the acquisition at the committee’s invitation, according to Sirikanya Tansakun, chairwoman of the committee.

Earlier the committee invited Mr Somsak to testify about the matter and formed a panel to monitor the impact of the deal.

The committee said the Trade Competition Act, despite having been revised, was flawed and suggested it be amended, particularly in the composition of the panel that selects OTCC members.

According to Ms Sirikanya, the selection panel is full of bureaucrats and representatives of the chambers of commerce and industry councils. However, it lacks commissioners with a working background in consumer protection.

Expanding footprint

In December 2019, Bangkok Bank (BBL) announced it was entering into a conditional share purchase agreement to buy an 89.12% stake in Indonesia’s PT Bank Permata in a deal worth $2.7 billion (81.3 billion baht) from the UK-based Standard Chartered Bank, making this the largest purchase of an overseas lender by a Thai bank.

The acquisition aligns with its strategy to become a leading regional bank with a larger presence in Southeast Asia.

BBL completed the acquisition deal in October 2020 following completion of the mandatory tender offer agreement.

The bank holds a 98.71% share of the total issued and paid-up shares in Permata and has received a local banking licence from Otoritas Jasa Keuangan, Indonesia’s financial services authority.

“The Indonesian banking sector is poised to continue delivering attractive growth while maintaining healthy margins,” said BBL president Chartsiri Sophonpanich.

A local banking licence allows the Thai bank to offer a full range of financial services in Indonesia.

The deal paves the way for BBL’s international banking business to enter into SME and retail loan segments, with the digital platform selected as the main tool to tap into SME and retail loan businesses in Indonesia.

At present, the wholesale banking business is the main focus of BBL’s foreign networks.

BBL received approval from the Indonesian financial regulator to transfer its three branches in Indonesia to Permata.

Permata has around 300 networks across Indonesia.

After the BBL-Permata share acquisition has been completed, BBL’s international loan portion will represent 25% of the bank’s total outstanding loans, rising from 17%, he said.

BBL, Thailand’s second largest commercial lender by total assets, has the most extensive international banking business network among local banks, with a total 32 offshore branches in 15 countries, including wholly owned subsidiaries in Indonesia, Malaysia and China.

It also has branches in London and New York to complement its Southeast Asian network.

The acquisition deal made BBL’s finances dip in the second quarter of 2020.

As a result, the bank issued adequate tier-one capital (AT1) bonds worth $750 million (23.4 billion baht) in October to strengthen its capital base.

As of September 2020, the BIS ratio of BBL and its subsidiaries stood at 17.6%, of which 15.1% was classified as a tier-one capital base.

The higher capital cushion should also support the bank’s position in handling unexpected situations amid the coronavirus outbreak.

BDMS sheds BH shares

The Thai healthcare industry took the spotlight in November when Bangkok Dusit Medical Services (BDMS), Thailand’s largest private hospital network, announced the sale of all its ordinary shares in Bumrungrad Hospital (BH), representing 22.71% ownership, in an 18.6-billion-baht deal.

The selling price was set at 103 baht per share.

Satit Viddayakorn, managing director and chairman of the executive committee of publicly held Principal Capital Plc, bought all the shares, saying the purchase was personal, deriving mainly from his interest in investment in BH.

Bumrungrad is not only a hospital with a high standard of services, but “it also possesses very high value”, he said during an interview on TV, referring to the array of the hospital’s jobs, especially those in its research centre and anti-ageing business.

Principal Capital has a network of 11 hospital chains in 10 provinces, including Samut Prakan, Nakhon Sawan, Uthai Thani and Phitsanulok. This gives Mr Satit the opportunity to synergise Principal Capital with Bumrungrad.

Principal Capital primarily serves communities at affordable prices, while Bumrungrad is well-known for medical specialists and technologies.

“We can distribute capable doctors and technologies to communities,” said Mr Satit.

BDMS executives could not be reached for comment after concluding the share sale.

Suwat Wattanapraporn, an analyst from Asia Plus Securities (ASP), said earlier the drop in share price might show that BDMS’s investment in BH was not as rewarding as expected, given pressure from new competitors who are also targeting the international medical tourist segment.

BDMS’s new investment plan was announced five months after BDMS founder and majority shareholder Prasert Prasarttong-Osoth said in late June a plan to take over BH had been scrapped.

The global economic recession in the wake of the pandemic and its impact on BH stock prices were cited as the rationale for aborting the move.

Dr Prasert stressed BDMS has no plans to buy shares from BH in the future.

He said the company wanted to focus on other investment projects.

In the same interview on TV, Mr Satit said he was aware the pandemic was blamed for the fall in BH share prices, but generally, BH is in good shape.

He believes a synergy plan will eventually help build value for BH shares.

Bumrungrad has connections with foreign doctors who work with the hospital.

“This is a hidden value in Bumrungrad,” said Mr Satit.

Line Man-Wongnai merger

With the rise of the online food delivery segment and heightened market competition driven by the pandemic, the merger of delivery service app Line Man and restaurant review platform Wongnai in July drew huge attention to the market, as investors speculated how this combined force would fare in a tight field.

Line Man received a capital investment worth $110 million (3.3 billion baht) from growth capital firm BRV Capital Management (BRV) for the merger.

The deal marks the first time any entity in Japan’s Line Group has secured a financial investment of this size for one of its overseas services, Line Man said in its statement.

The move is expected to increase Line Man’s capability to fight against other regional players, such as Grab, Gojek and Foodpanda in the food delivery war.

The new entity, called Line Man Wongnai, is expected to have strength in both online and offline ecosystems. Line Man has 3 million monthly active users, while Wongnai has 10 million users each month and carries the largest restaurant database in Thailand with more than 400,000 eateries.

Line Man engages with 200,000 restaurant partners and Wongnai offers a point-of-sale solution for restaurant management, which is a growing business.

Yod Chinsupakul, chief executive of Line Man Wongnai, said the pandemic accelerated online food delivery adoption by 1-2 years.

With the change in consumer behaviour towards online food ordering in the wake of the pandemic, this provides a substantial opportunity in the segment, which accounts for 5% of the total food and beverage market worth 700 billion baht, Mr Yod said.

The online food delivery segment was valued at 35 billion baht in 2019 and is projected to double in 2020, he said. Line Man Wongnai aims to become a unicorn startup and hold pole position in the country’s end-to-end food platform by 2023. An initial public offering is also on the cards.

By early 2021, the company wants to tap into the food supply chain business by sorting ingredients and sending them to restaurants.

According to industry observers, Thailand is expected to see more consolidation from online food delivery players in the years to come as the segment requires strong financial support such as subsidies.

Source: https://www.bangkokpost.com/business/2040995/a-banner-year-for-ma-deals