Serial article regarding M&A on NNA (vol.88)

In the 85th issue, we introduced 14 M&A deals were announced externally, of which 13 were investments and acquisition, 8 were majority investments, and 5 were 100% buyouts. This time, we would like to analyze these cases and examine the future trend of M&A areas that are expected to increase.

1. From Manufacturing to Service Industry

In 2021, we had 12 M&A cases excepting 2 share transfer cases (withdrawal), and 5 were investment in manufacturing and 7 in service industry out of 12. 1 investment case in manufacturing industry out of 5 was acquisition of 100% ownership of the major-owned subsidiary. Therefore, new investment cases were 4. On the other hand, in the service industry, all 7 were new investment cases.   

There are approximately 1,500 Japanese companies in Malaysia (according to JETRO), 600 companies belong to JACTIM, and half of them are manufacturers. Thus far, Japanese manufacturers had expanded their business in Malaysia via M&A seeking relatively cheap labor. However, more and more service industries have recently expanded their business focusing on Malaysia’s market potential as Malaysia’s GDP per capita, wage and purchasing power grow. M&A cases in 2021 indicates a similar tendency.

2. M&A during the COVID-19 Pandemic

COVID-19 pandemic had a huge impact on cross-border M&A. Iin 2020, the growth of M&A cases slowed down, and in 2021, M&A declined, especially from May to July, due to the movement restriction order. under the circumstances, we have seen many M&A restructurings that can be completed domestically. The main reasons for this are, unlike a new investment, restructuring is less uncertainties, and while it is difficult to travel to Malaysia and consider new investment due to the current situation with COVID-19, it is possible to encourages existing organizations to build a strong foundation for their business, we have supported organization restructuring such as subsidiary acquisition, establishment of a holding company and integration of subsidiaries.

Next, we also saw a lot of M&A withdrawals. The pandemic and the restriction of movement order prevented Malaysian people from getting involved in social activities and going abroad and urged companies to introduce remote work. These lifestyle changes had a great influence on economic activities by Japanese companies in Malaysia (At the time of writing, it is still forbidden for Malaysians to travel outside the country for tourism or other purposes.). We have supported several M&A withdrawals.

3. Prospects

In this quarter, we focus on ①health care, ②fintech, ③IT, ④retails such as a restaurant and drugstore, ⑤cold chain and logistics, based on the latest trend. Moreover, we think there will a certain amount of demands for hotel development and real estate investment, packaging manufacturers and wholesalers of Japanese food. Majority or minority investments will be more required rather than 100% buyouts, and the trend of M&A withdrawals is likely to continue mainly by manufacturers.

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