M&A deal in Malaysia Part 1_2021

Let’s take a look at an acquisition of a local staffing company and other company by a Japanese company in 2021.

Ability Center, a temporary staffing company headquartered in Niihama City, Ehime Prefecture, in Japan, has acquired shares in CXL Executive and CXL Solutions. These two companies are engaged in the temporary staffing business, and Ability Center bought shares from IA Group, which is a consulting firm in Malaysia and its affiliate company. According to the press release of Ability Center, CXL Executive is one of the largest staffing companies in Malaysia, dispatching about 1,000 temporary workers to major companies including call centers and logistics companies.

On the other hand, CXL Solutions, a payroll outsourcing service provider, offers a cloud‐based attendance management platform.  The combined sales of CXL Executive and CXL Solutions are expected to reach approximately 1.3 billion yen in 2020. 

So far, at least a dozen Japanese recruitment companies, including some of the largest in Japan, have been doing business in Malaysia. There have been actively conducted M&A by Japanese staffing companies because it was difficult to get a license from scratch since i) there were times when the issuance of new licenses for recruitment was frozen, and ii) there are also foreign capital restrictions that limited the foreign capital holding ratio to 49% or less. On the other hand, there are very few Japanese companies in the temporary staffing business (outsourcing and staffing), and as far as I know, Beable, a member of our group, is one of them.

One of the reasons why Japanese companies in the temporary staffing industry have not advanced as much as those in the placement industry is that Malaysia does not have a highly organized temporary staffing business like in Japan. In Malaysia, staffing is usually only for workers, and the utilization rate of white‐collar staffing is low. In white‐collar staffing, once it is arranged, you only need to contact the dispatched employee once in a while basis, but in worker staffing, it is not easy to manage attendance and daily worksite management. In addition, since salaries are paid temporary workers first and staffing fees are paid later, working capital for several months is inevitably required. Furthermore, due to regulations in Malaysia, a recruitment agency can only operate as a staffing agency and must establish a separate company to operate as a staffing agency. I believe that this is one of the reasons why the staffing industry has not been popular among Japanese companies until now in Malaysia. It is very encouraging and bright news that a Japanese  company that is not only listed but located in regional city has acquired two Malaysian companies under these tough circumstances.

According to the owner of Ability Center, although this is the first time for the company to conduct a cross‐border M&A, the target company originally had a system where ownership and management were separated, and even if the ownership of the company (status as a shareholder) was transferred, the management would continue as before. This was one of the factors that supported the decision to conduct M&A, according to the owner. It is true that if ownership and management are separated, the burden of post‐merger integration (PMI) is expected to be reduced, and thus separation of ownership and management can be said to be one of the keywords for success in cross‐border M&A.

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