Morgan Stanley is expecting a few mergers and acquisition (M&A) deals involving Singapore-based companies that are worth US$1 billion in the second half of 2010, according to a senior banker.
There could also be six IPOs of Singapore firms streaming in by end-2010, said Arthur Lang, co-head of investment banking in Southeast Asia.
“There will be at least a couple of transactions above the US$1 billion mark that may complete,” said Mr. Lang. He added that these would involve Singapore firms targeting Asian companies for M&A.
Mr. Lang stressed that these deals would generally be in the services sector, though they should exclude those in the technology and manufacturing sectors. These reflect how the country has been strengthening its position in the services sector, he noted.
“If you want to be a serious player in the services space, you need scale and may consider expanding across Asia,” he said.
However, the volatility of the market over the coming six to 18 months could push the deals into the first half of next year, even if opportunities for M&A come and close quite quickly, he added.
“During the first half of the year, there have been several times when market windows shut due to a variety of factors. When these windows open, we see active capital markets issuances with companies tapping the markets. I expect this trend to continue as the rest of the year will be volatile,” said Mr. Lang. Given the market volatility, many cash-rich Singapore companies eyeing for M&A deals are not in a hurry to seal them.
“Many companies have, in the last two years, gone out to issue equity and bonds. They have built up a good war chest of cash, but I see Singapore companies being more careful with the use of the cash,” said Mr. Lang.
“They’ve realised in the last two years that having access to liquidity is very important. If there’s an interesting M&A opportunity, they may do it. But I don’t think it would be an ‘M&A boom-time’ that we saw before the financial crisis.”
With the exception of Sembcorp Industries, which is targeting Dutch company Casca, Singapore firms are likely to target Asian businesses instead of those in the US and Europe, he said.
“They would be more wary about going into US and Europe, although the valuations for some of them are quite attractive.”
“This is due to market unfamiliarity and uncertainty, lower growth prospects and it’s hard to manage different management and work cultures,” said Mr. Lang.