Rise in M&A as companies steer COVID -19
The COVID-19 pandemic has exacerbated previous market threats with the already ravaged industries in 2020 increasingly looking to exit.
This black swan event has plummeted fundraising which in turn has witnessed an increase in Mergers and Acquisitions (M&A) deal activity.
Senaka Kakiriwaragodage, Managing Director of NDB Zephyr Partners Lanka (Pvt) Ltd, with over 10 years of experience in investment banking activities such as IPOs, debt and equity placements and M&A, told the Business Times that his company is working on several such transactions. He noted that certain business owners are looking to rationalise their portfolios and are entering into M&A.
Cheap loan rates was another reason firms were looking into good buys through M&A, according to him.
The monetary policy measures implemented to combat the economic crisis mean that low interest rates will persist, which supports deal making on the buy side. “Availability of credit in the market has increased the borrowing capacity of stronger companies. This has enabled them to look at multiple transactions with a view to grow inorganically,” Mr. Kakiriwaragodage added. Another industry analyst noted that certain firms are exiting their businesses rapidly which has seen lucrative gains for firms with good cash flow.
In this backdrop, companies that want to continue growing will need to do so through inorganic measures, including M&A, joint ventures, and minority investments, analysts say. Divestitures continue to be an important feature of M&A propelled both by organisations seeking to cash in on high valuations and those targeting to reposition assets in advance of a downturn. If the economy fails further, divestitures could become even more active, analysts predict. Change in strategy fits with the emerging business model, fits with the emerging business mode, financing needs etc, were some reasons cited by firms that sold parts in their businesses.
There were four major M&A in the last four months.
In August, Watawala Tea Ceylon Ltd, a fully-owned subsidiary of Estate Management Services Ltd., of Sunshine Holdings Group, got into a share sale and purchase agreement with Daintee Ltd. to purchase a 100 per cent shareholding for Rs. 1.7 billion.
On December 5, Lanka Realty Investments PLC, formerly known as Ascot Holdings PLC, purchased 50.8 per cent of Unity Plaza with Renuka Capital PLC, selling its entire stake of 43.8 per cent.
On 15 December, LOLC’s investment arm, Brown Investment bought Serendib Hotels from Hemas Holdings for Rs.792 million with Hemas saying was exiting to focus on core business.
Most recently on December 17, Sunshine Holdings PLC announced the merger of its healthcare business consisting of Sunshine Healthcare Lanka and Healthguard Pharmacy with the healthcare arm of Akbar Brothers.