Monday, December 13, 2010

Merger and acquisition to fuel our market?

News and speculation of privatization, merger and acquisition across many industries looks like a "new normal" in our market. It is hard not to notice these activities if you are in the stock market. Whether it will deliver the kind of M&A it promises, only time will tell.

I made a list here based on rumors and announced deals with no particular chronology order(just based on what I can recalled here)

(1) Sunrise-UM Land (Property)
(2) IJM-MRCB(Property)
(3) Sunway-Suncity(Property)
(4) OSK-Maybank(Finance)Unconfirmed
(5) QSR, KFC - Kulim, Carlyle(Consumer).
(6) Petra Perdana - SapuraCrest(Oil and Gas). Unconfirmed
(7) Pan Malaysia Pool - Olympia(Consumer, gaming)
(8) Perodua - Proton ??(automotive). Unconfirmed
(9) Pacific and Orient - Prudential (Insurance)
(10) Manulife - Manulife Century (Insurance)
(11) Tanjong - taken private (Power, Gaming)
(12) DRB Hicom - privatise? (Conglomerate)
(13) Plus - EPF & UEM Group(Infrastructure)
(14) Puncak - Gamuda (Water, concessionaire)
(15) PT Niaga - CIMB (Bank). Cross borders
(16) PT BII - Maybank (Bank). Cross borders
(17) Eon Capital - Hong Leong(Bank). Cross borders
(18) PT Bank Ina Perdana - Affin(Bank). Cross borders
(19) Indon Bank - RHB Captial(Bank). Cross borders
(20) Borsig - KNM(Industrial). Cross borders
(21) Herlitz - Pelikan(Industrial). Cross borders
(22) Lay Hong - QL Resources(Industrial)
(23) Astro - Privatized(Media)
(24) NSTP - Privatized(Media)
(25) NV Multi -Privatize

The list is getting long. The common themes running through these news are to get bigger in size, regional expansion, restructuring assets, unlocking hidden values and growth. Will these kind of activities peaking soon or are we just warming up? Do they still have a lot of cash to acquire? Can they still leverage their balance sheet?

Here is an article for your reference.

M&A promise sparks shift in hedge fund strategy demand
Harriet Agnew

02 Mar 2010

Hedge funds that capitalise on share price fluctuation as a result of specific events have topped a list of strategies ranked by investors, who are expecting an increase in mergers and acquisitions.
The strategy type, known as ‘event-driven’, knocked global macro off its 12-month perch as the most sought after strategy globally, topping rankings of 15 core strategies produced by Credit Suisse Capital Services, the Swiss bank's prime brokerage unit.

Event-driven strategies typically take a position in a number of companies with special situations or impending events that are likely to impact on its share price. These situations include mergers, takeovers or big news stories.

Michael Browne, a portfolio manager at Sofaer Global Research in London, said that event-driven strategies suit investors who are reluctant to call the direction of the markets: "Nobody has any faith in the macro environment in any way or other. There's a lack of confidence in the economic outlook for the next 12 to 24 months".

On the investment side, economic fundamentals are showing a fertile environment for event-driven managers. Browne said that European companies have the lowest level of debt and the highest level of return on capital employed as the region emerges from recession.

Cyril Armleder, a partner at Limestone Advisors which manages the Northlight European fundamental credit fund, pointed out that the area where the events are occurring is changing. He said that most of the opportunities are in traditional M&A activity, as there are lots of cash rich companies looking to buy smaller companies.

Morten Spenner, chief executive at fund of funds firm International Asset Management, said he favours multi-strategy, event-driven funds rather than managers that exclusively play M&A or distressed trades.

Event-driven funds have enjoyed a marked turnaround from being at the bottom of Credit Suisse's ranking in early 2009. Global macro is now in second place, after a year at the top.

Spenner said: "I expect macro will stay up there for a while still". Economic uncertainty fuels the profit potential for global macro managers and investors are also attracted to its liquidity.

Event-driven funds have enjoyed strong performance, returning 20.38% last year, ahead of the average hedge fund which was up 18.57%, according to the Credit Suisse/Tremont hedge fund index. The strategy was up 1.39% on average in January.

Armleder expressed caution that investor interest may be a function of this good performance. He said: "Investors run the risk of buying into what has been performing in the past. Event driven may fall into that group and so manager selection is important".

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