Malaysian companies expected to turn to M&A in the next 12 months

According to the 22nd edition of the EY Global Capital Confidence Barometer, Malaysian respondents are anticipating a prolonged and deeper impact on the economy.

As part of their preparation against the impact, the Malaysian respondents are focusing developing resilience in their supply chains, protecting their revenues and managing their margins and profitability as well as re-configuring capital allocation and M&A plans for the post-Covid-19 world.

A majority (Malaysia 94 percent, SEA 88 percent, global 73 percent) of the survey respondents of more than 2,900 C-suite executives globally, including 260 from SEA (covering Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam), expect the Covid-19 pandemic to have a severe impact on the global economy in the form of depressed consumer sentiment, deep decline in consumption and disrupted supply chain.

In Malaysia, 62 percent respondents expect a “U”-shaped recovery period of slower economic activity extending into 2021, while 38 percent see a “V”- shaped recovery and a return to normal economic activity in Q3 this year.

George Koshy, Malaysia Transaction Advisory Services Leader, Ernst & Young PLT says, “The pandemic has accelerated economic slowdown and created business disruption coupled with a liquidity crunch. The general consensus by the Malaysia respondents seems to indicate that there is an imminent risk of a recession, the magnitude of which is anticipated to be large with a prolonged U-shaped recovery. Across all sectors, companies will need to transform, reboot and reshape themselves, which will give rise to both opportunistic and strategic M&As in the post Covid-19 era.”

According to E&Y, executives are maintaining some focus on M&As, and if there is any prolonged downturn due to the current crisis, executives may be bolder in their ambitions and look to acquire those assets that will help them accelerate into an upturn faster.

Even with a decline in market sentiment, 47 percent of the Malaysia respondents say that they intend to pursue M&A transactions in the next 12 months.

“The emergence of Covid-19 underscores the need to assess potential targets more broadly in terms of resilience. Growth in new markets and adjacent sectors is key, but they will also look to acquire new capabilities and protect against disruption of all kinds,” says E&Y.

Almost of half of the Malaysian respondents further expect to do deals that significantly push the dial and transform the business. According to E&Y, this is more aggressive than the global respondents, where the majority of global respondents (42 percent) expect to do bolt-on acquisitions that complement their current business model and only 27 percent expect to do transformative deals.

Furthermore, most companies are expected to no longer see the pandemic as an one-off event, more than half of the respondents are already undertaking a significant transformation programme.



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