Boom in M&A, outright sales in biz
Sri Lankan firms are seeing many mergers and acquisitions (M&A), in part and outright sales across many industries.
In a period of disorder and paralysis rooted by the COVID-19 crisis, which sent stock markets reeling and slammed debt markets shut, these transactions are already being done vigorously. “Many are starting to do strategic revenue growth deals similar to their core acquisition strategy,” an analyst said.
A strong reality check has sent certain businesses re-evaluating their businesses, and firms are now pricing themselves correctly, according to some businessmen. This means, they have gauged the correct value for their companies, which has resulted in them seeing the ‘true’ future of the businesses.
As such, now they realise the need to infuse capital due to the ongoing crisis to go on with the business or sell/part sell their businesses. Companies are assessing their internal organisations, will divest of non-core units, and acquire local competitors, stockbrokers said. For companies that have built a healthy balance sheet during the economic boom of the past decade, waning valuations form opportunities to hunt deals that create long-term value.
“Certain finance companies are for sale. There will be a net capital increase by Central Bank (CB) soon. Some companies in the sector will not be able to meet this and they are discussing with parties for mergers or to sell,” a stockbroker told the Business Times.
Another stockbroker confirmed this noting that certain plantations and some hotels are also in the market. “No one in these sectors is doing well. And many want to get out of the businesses,” he said adding that this sector has big cashflow issues.
Many construction and small garment firms are also in the market. “There is a lot of stress in the market and in the banking system concerning these companies. This is forcing many owners/shareholders to sell their stakes,” an analyst in the sector noted. He added that companies want to refocus to what they do best, selling what does not make sense keeping, and capture the moment to acquire companies that will accelerate growth with a reduced capital expenditure.
A top cold chain operator is also in the market for a part sale, sources said.
However, manufacturing firms seem to be getting a lot of interest from both local and foreign buyers. Some investors are using the moment of a low stock market to identify and capture opportunities. They want to leverage their position using the low interest rates to their advantage.
“We have seen continued buying interest from companies with cash and those who have access to low interest debt; especially those looking to use this opportunity to consolidate within their own sectors,” Deshan Pushparajah, Managing Director – Global Markets and Investment Banking, Capital Alliance Ltd told the Business Times. However, with economic conditions improving in the past three months, they are yet to see ‘significant selling interest’, he added.
The number one reason for selling businesses still remains, which is family transition. A recent example of this is when Watawala Tea Ceylon Ltd., a fully-owned subsidiary of Estate Management Services Ltd., of Sunshine Holdings Group, entered into a share sale and purchase agreement with the shareholders of Daintee Ltd. to purchase a 100 per cent shareholding for Rs. 1.7 billion, in which Capital Alliance advised Sunshine Holdings on the transaction.