Thomas White Global Investing
Thailand
Thailand stamp
December 31, 2012
A Postcard from the Asia Pacific
Thailand: M&A boom a sign of economic resurgence?

A floating market in Thailand

The slow pace of this floating market in Thailand presents an interesting contrast to the unprecedented vitality in Thai merger and acquisition (M&A) activity during 2012

Chaleo Yoovidhya was born in northern Thailand where his immigrant family scraped a living raising ducks and selling fruits. Without any formal education or vocational skills, he had nothing to fall back upon in his youth. But that didn’t stop him from founding his own pharmaceutical company and developing what has turned out to be arguably the world’s most popular energy drink — Red Bull. In March 2012, Yoovidhya died — aged 89 — the third richest Thai and a towering figure in Southeast Asia’s business community.

Thailand’s performance in the merger and acquisition (M&A) space during 2012 is a fitting tribute to this extraordinary businessman. Indeed, in the year gone by, the emerging economy’s M&A activity surged with the vigor promised by the fizzy, caffeine-laden Red Bull drink. Several big-ticket deals were signed and deal values soared to record highs.

The numbers say it all. Quoting a report compiled by global deal tracking firm Dealogic, business-standard.com writes that 2012 was the first time Thailand overtook other Asia Pacific nations in intra-region cross-border acquisitions. At the end of the second week of December, the value of cross-border deals within the Asia Pacific region touched $101.2 billion and Thailand alone accounted for nearly a quarter of this figure.

During 2012, Thailand registered as many as 35 M&A deals worth $23.2 billion, nearly a fivefold increase from $4.8 billion, the total M&A deal volume the country recorded in the corresponding period of 2011. In contrast, Mergermarket data reported by the Financial Times reveal that worldwide M&A deal volumes plunged 5.2% in 2012 compared to 2011. With respect to only outbound deals (those formed with foreign firms), a Reuters article says that Thailand grabbed the No. 3 position in Asia behind Greater China and Japan. The same article points out that Thailand saw more M&A activity in 2012 than Australia, Malaysia, and South Korea combined.

In the world of business, M&A activities are considered an important gauge of economic health. Typically, strong M&A activity in a particular country or region is an indicator of the presence of untapped or under-penetrated markets, a great deal of latent demand, or a fast-growing consumer base, among other things. Similarly, when a country records a significant number of outbound M&A deals, it is a reflection of the relative strength and growth ambition of businesses in that economy. Thailand scores on both these counts.

As such, the Southeast Asian nation has been on the radar screens of investors lately both for its spectacular stock market performance and improved economic conditions. After a dismal 2011, which was marked by devastating floods and near-zero economic growth, the country recovered steadily all through 2012. Domestic consumer demand for cars and energy is on a rebound and banks are lending freely. What’s more, after the July 2011 general elections, the country is enjoying a period of relative political stability after a long interval. Not surprisingly, therefore, Thai equities recorded one of the best performances of 2012, globally.

And now, reports of the record surge in Thai outbound M&A deals, especially in the second half of 2012, highlight the growing confidence of businesses in the country. These deals indicate that Thai firms, many of which are owned by hitherto reclusive tycoons, are finally making a move into overseas markets on the strength of their balance sheets and an abundance of cheap bank loans. A case in point is the $9.7-billion bid launched by self-made Thai beer mogul Charoen Sirivadhanabhakdi for the shares he doesn’t already own in Singaporean conglomerate Fraser & Neave Ltd.

Some of the most high-profile, outbound M&A activities of Thai companies in 2012 included PTT Exploration & Production PCL’s acquisition of London-listed natural gas explorer Cove Energy Plc for $1.95 billion. The fact that the state-owned oil firm beat a giant — Royal Dutch Shell Plc — to snap up Cove Energy made waves. The December purchase of HSBC’s entire stake in Chinese life insurer Ping An Insurance (group) Co. by agriculture conglomerate Charoen Pokphand Group (owned by Thailand’s wealthiest man Dhanin Chearavanont) drew attention for another reason. According to the Wall Street Journal, the $9.4 billion deal involved the “biggest-ever bid by a Southeast Asian company for an overseas asset.”

Ironically, Thailand’s own insurance sector became a magnet for foreign businesses during 2012. In October, Hong Kong tycoon Richard Li bought Dutch financial-services company ING Groep’s Thai insurance operation, and in November, British firm Prudential purchased Thai life insurance company Thanachart Life Assurance for $590 million. CNBC.com has reported that Thailand’s No. 2 life insurer Thai Life Insurance is likely to sell at least a 20% stake to capitalize on growing investor interest in one of Southeast Asia’s most underinsured countries. Only a quarter of Thailand’s population owns a life insurance. Moreover, according to Fitch Ratings, Thailand’s insurance sales to GDP ratio is a paltry 2.7% compared to Malaysia’s 3.3% and Singapore’s 4.3%.

In the early years of its launch, Yoovidhya’s energy tonic was only modestly successful. Then, an Austrian traveling salesman, who had begun to like the product because it cured his jet lags, approached Yoovidhya for a partnership. The two launched the product globally, with the now-iconic advertising slogan: “Red Bull gives you wings.” If this partnership is any cue, it will be interesting to see if Thailand will try its wings in the global M&A space during 2013 too.

 

Image Credit: jay galvin’s photostream on Flickr under a Creative Commons License

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