Issue 99

July 2012
PP 9741/10/2012
(031262)
www.pwc.com/my
PwC Alert
Challenges of todays
businesses: M&A - Is now
Malaysias window of
opportunity?
Spanning from Myanmar in the west to the Philippines in
the east, Southeast Asias (SEA) rebound from the global
financial crisis was fuelled by its mostly young, dynamic
and increasingly affluent population of 600 million.
With a cumulative gross domestic
product (GDP) of US$2 trillion in 2011,
average growth in SEAs six largest
economies are forecast to grow further
by 4.5% to 6.7% compounded annually
through to 2015. SEA has emerged as
an attractive playground for investors
eager to diversify their holdings away
from the US, EU and China.
Interest in SEA has grown for
several reasons. Firstly, the
regions sizeable population of
scale companies, particularly in
Singapore, Malaysia and to a lesser
extent, Indonesia. The region has
also traditionally been a growth
capital investment market, offering
investors more opportunities to
create value freely as opposed to
being restrained by minority stakes
in Chinese and Indian companies.
Also, more attractive opportunities
abound in the region on the back
of a slowdown in China and India,
largely due to their looming
economic uncertainties.
Strong domestic demand spurred
on by a giant consumer market has
made SEA less reliant on exports to
Europe and other affluent nations.
Multinationals have clearly taken
note - just recently, US carmaker
Ford opened a US$450 million
plant in Thailand to expand its
export hub to meet rising demand in
neighbouring SEA countries.
2 An overview of the Income Tax (APA) Rules 2012 PwC Alert Issue 95, May 2012 2 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? PwC Alert Issue 99, July 2012
Malaysia as a window to SEA
The World Economic Forums 2011
Global Competitiveness Report ranked
Malaysia the 21st most competitive
country among 142 countries surveyed.
Up five positions from the previous
year, we proved to be significantly more
competitive than Thailand, Indonesia,
Vietnam and the Philippines, which
ranked No. 39, No. 46, No. 65 and No.
75 respectively.
Supported by a market-oriented
economy and progressive government
policies, Malaysia offers investors
a dynamic and robust business
environment with the ideal
prerequisites for growth and profits.
Today, Malaysia is a highly competitive
manufacturing and export base.
The governments progressive policies
have helped create a conducive
legal and regulatory framework for
business. We have an efficient and
sound financial sector, which is among
the worlds most developed (just
behind Singapore and Hong Kong),
and a highly efficient goods market.
Comparatively, regulations and legal
issues in neighbouring countries are
not always as straightforward as in
developed markets.
The governments current push for
the implementation of the Economic
Transformation Programme and the
development of the five economic
corridors in Malaysia has certainly
attracted the attention of global
investors.
Businesses can benefit from common
resources, knowledge sharing and
labour market matching to further
propel the countrys economic
growth.
The importance of entrepreneurship
in the Malaysian economy is
emphasised by the various existing
supporting mechanisms and policies,
including finance, infrastructure and
business advisory services. Malaysia
has thus produced a string of highly
successful entrepreneurs in the past
decade, alongside good Malaysian
family owned companies that are well
managed and now poised for the next
level of growth.
PwC Alert Issue 95, May 2012 An overview of the Income Tax (APA) Rules 2012 3 PwC Alert Issue 99, July 2012 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? 3
SEAs population is about half that
of India, but it enjoys a higher GDP
per capita at purchasing power
parity of US$ 5,500, compared with
Indias US$ 3,700. The unlocking
of SEAs burgeoning middle-class
spending power has spurred domestic
consumption in economies that have
long inclined towards high savings
and dependent on export-driven
growth.
Set in the heart of SEA, Malaysia is a
gateway to the region, offering easy
access to neighbouring countries.
Aided by such connectivity, over
5,000 multinationals from 40
countries, including Shell, Nestle,
Intel, Kuwait Finance House
and HSBC, have made Malaysia
their regional hub. The success
of Malaysias very own AirAsia,
CIMB and YTL is further proof of
how this connectivity has enabled
home-grown companies to flourish
regionally and internationally.
Also, Malaysia has positioned
itself as the prime location to
pursue opportunities within the
halal industry. Malaysias halal
certification, considered premium, is
acknowledged as the most advanced
type of certification offered,
including certification for halal
logistics in the services sector.
Several food and beverage
companies from the Philippines and
Indonesia have already expressed
interest in joint ventures to leverage
Malaysias internationally recognised
halal certification. Even Kazakhstan
is keen to beef up its export of halal
products to Malaysia to capitalise on
our strategic location within SEA.
Malaysia as a window to SEA (cont'd)
4 An overview of the Income Tax (APA) Rules 2012 PwC Alert Issue 95, May 2012 4 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? PwC Alert Issue 99, July 2012
Business minds today are
increasingly thinking in terms of
Asia, reflecting Asias increasingly
important role as one of the
worlds economic growth engines.
As it drives global growth, the
general consensus is that Asia,
including SEA, will continue to
enjoy an increase in global merger
and acquisition (M&A) activities.
While dwarfed in size by China
and India, the fast-growing SEA
private equity (PE) market is less
saturated. This naturally leads to
increased deal activities. There
has been a particular interest in
Malaysia (see chart).
Increasing number of global PEs with SEA-centric funds
Private equity deal activity is increasing in Malaysia
2009
14
12
10
8
6
4
2
0
2010 2011
Malaysia Singapore Indonesia Thailand Vietnam Philippines
U
S
D

b
i
l
l
i
o
n
Southeast Asia's Private Equity deal value by country
USD million 2008 2009 2010 2011
Malaysia 1,560 158 2,020 3,090
Singapore 18,430 3,040 2,880 6,790
Indonesia 1,300 n/a 1,510 2,310
Thailand n/a n/a 884 n/a
Vietnam n/a n/a n/a 262
Philippines 14 28 28 102
SEA private equity deal activity
Source: PwC analysis
PwC Alert Issue 95, May 2012 An overview of the Income Tax (APA) Rules 2012 5 PwC Alert Issue 99, July 2012 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? 5
Increasing number of global PEs with SEA-centric funds (cont'd)
In 2010 and 2011, SEA-focused PE
funds attracted nearly US$4 billion
worth of commitments, 40% greater
on average than what was raised in
the previous two years. Currently,
these funds are seeking to raise close
to US$6.4 billion for investment in
the region through investor road
shows and the like. About US$2.5
billion has already been earmarked
for opportunities in Indonesia and
Malaysia.
Even corporate buyers are looking at
strategic M&A. Cash-rich Japanese
and South Korean corporations
have set their sights on SEA to tap
the regions large consumer market.
Malaysia in particular has been
the beneficiary of PE interests to
capitalise on the entrepreneurial
spirit of Malaysians who have
developed home-grown small and
medium enterprises (SMEs), to grow
their regional footprint within SEA.
6 An overview of the Income Tax (APA) Rules 2012 PwC Alert Issue 95, May 2012 6 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? PwC Alert Issue 99, July 2012
Developed financial services market
The Malaysian financial sector has
made significant strides in facilitating
the countrys cross-border linkages
with other economies. To date, six
out of eight local banking groups
have established their presence in 19
countries globally, with significant
overseas operations centred in SEA.
Liberalisation measures have strongly
encouraged foreign players to invest
in Malaysias financial sector and use
Malaysia as a base for their regional
operations. This has helped bolster
the countrys position in the world
of fund management, unit trusts and
stockbroking, enhancing Malaysias
profile as a competitive destination for
fundraising and investments.
Malaysia has also evolved into an
international Islamic financial centre
Malaysia is the largest sukuk (Islamic)
bond market in the world with a 72%
share (US$61 billion) of total issuances
in 2011. Our sukuk market has become
an important avenue for international
fundraising and investment activities.
PwC Alert Issue 95, May 2012 An overview of the Income Tax (APA) Rules 2012 7 PwC Alert Issue 99, July 2012 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? 7
Successful deals are made, not born
Be it PE funds, the capital markets
or foreign investors, the potential of
Malaysia and its companies to tap
into the SEA market is recognised.
This is further augmented by the
current investor sentiments of our
neighbouring countries.
This trend may not last long as these
countries will eventually bounce
back from their current setbacks
and independently offer interesting
investment propositions to investors.
So we should really ask ourselves:
Is now the window of opportunity
for Malaysian companies to tap the
investor market and grow beyond our
shores?
Perhaps Ray Kroc, founder of the
McDonalds empire, put it most aptly
when he said that the two most
important requirements for major
success are: being in the right place at
the right time, and doing something
about it. Successful deals are made not
born, so seize this opportunity to move
your company to the next level today.
This article was first published in The Edge
Malaysia (25 June 1 July, 2012)
8 An overview of the Income Tax (APA) Rules 2012 PwC Alert Issue 95, May 2012 8 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? PwC Alert Issue 99, July 2012
Paran Puvanesan is an executive director in PwCs Corporate Finance
(Mergers & Acquisitions) team. This is the fourth of six fortnightly
articles by PwC Malaysias Advisory practice. The series seeks to
challenge businesses to push back the boundaries and evolve their core
strategic processes to stay relevant.
PwC Alert Issue 95, May 2012 An overview of the Income Tax (APA) Rules 2012 9 PwC Alert Issue 99, July 2012 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? 9
Full divestment of a
non-core business by
a building materials
group
The client, an Australian-based
regional building materials
group, performed a review of its
business portfolio and identified
a particular business segment
for disposal. PwC was mandated
to manage the divestment
process for its Malaysian
subsidiary. We identified
prospective strategic and
financial investors, managed
due diligence and assisted with
negotiations.
As a result, we were able
to successfully close the
transaction with a sale to a
European building materials
group. The transaction
pricing exceeded our client's
initial value expectations on
the business. The successful
closure of this transaction also
indicated that the client had a
sharper focus on its strategic
growth areas going forward.
How PwC helped
We helped:
Advise the client on potential
transaction structures and issues
they would encounter during the
deal process.
Develop a comprehensive list of
prospective strategic buyers and
financial investors for the business.
Support the client in preparing
transaction-related material
including customised teasers
and information memoranda for
prospective buyers.
Manage approaches to prospective
buyers including receipt and
clarification of offers.
Supervise due diligence performed
by prospective buyers.
Advise the client on key transaction
terms and conditions, and assisted
them in negotiating the final terms
with the preferred buyer.
Benefits to the client
Key benefits to the client included:
Successful closure of the transaction
including full payment of proceeds
upon completion, with no contingent
payments.
An optimal amount of proceeds
repatriated from Malaysia to
Australia, based on the tax
structuring advise PwC provided to
the client.
Here's a taste of some of the M&A work we have done
10 An overview of the Income Tax (APA) Rules 2012 PwC Alert Issue 95, May 2012 10 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? PwC Alert Issue 99, July 2012
Partial divestment of a
fast-growing consumer
products business
to a private equity
consortium
The client was a shareholder of
a Malaysian-based consumer
products business with
operations predominantly in
Malaysia and Singapore. Due
to changes in shareholder
objectives, one shareholder
sought a full exit at a fair
valuation, while the other
shareholder sought to expand
its business growth further.
To accomplish this, PwC
was mandated to manage
the divestment process. We
successfully introduced a
private equity consortium to
the client and assisted with
detailed negotiations to meet
the objectives of the respective
shareholders.
As a result of our efforts, we
successfully concluded the
transaction within 6 months.
Today, the business continues
to flourish with the new
investment by the private
equity consortium, with entry
to regional markets including
Indonesia.
How PwC helped
We helped:
Identify the respective shareholder
objectives and developed a
transaction approach that would best
meet the needs of each shareholder.
Identify and introduce a private
equity consortium that would fit the
recommended transaction approach.
Manage the due diligence process
including pre-completion business
planning exercises between the
remaining shareholder and the
private equity consortium.
Supervise detailed negotiations
between parties over the terms
and conditions of the transaction
including customisation of terms and
conditions for each shareholder.
Benefits to the client
Key benefits to the client included:
Successful closure of the transaction
within 6 months, which optimised
the consideration received by the
shareholders.
Providing the remaining shareholder
with exit options that could be
exercised upon future exit by the
private equity consortium.
PwC Alert Issue 95, May 2012 An overview of the Income Tax (APA) Rules 2012 11 PwC Alert Issue 99, July 2012 Challenges of todays businesses: M&A - Is now Malaysias window of opportunity? 11
www.pwc.com/my
PwC Alert is a digest of topical fnancial and business information for clients and business associates of PwC Malaysia. Whilst every care has been taken in compiling this newsletter, we make
no representations or warranty (expressed or implied) about the accuracy, suitability, reliability or completeness of the information for any purpose. PwC Associates Sdn Bhd, its employees
and agents accept no liability, and disclaim all responsibility, for the consequences of anyone acting, or refraining to act, in reliance on the information contained in this publication or for any
decision based on it. Recipients should not act upon it without seeking specifc professional advice tailored to your circumstances, requirements or needs.
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each of which is a separate and independent legal entity. Please see www.pwc.com/structure for further details.
Publisher: PricewaterhouseCoopers Associates Sdn Bhd (Company No. 464376-X) Level 15, 1 Sentral, Jalan Travers, Kuala Lumpur Sentral, P O Box 10192, 50706 Kuala Lumpur, Malaysia.
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Contact us to explore your corporate finance/M&A strategy:
Paran Puvanesan
Executive Director
PricewaterhouseCoopers Capital Sdn Bhd
Tel: +60(3) 2173 1383 / +60(12) 3733 444
paran.puvanesan@my.pwc.com
Yennie Tan
Executive Director
PricewaterhouseCoopers Capital Sdn Bhd
Tel: +60(3) 2173 0551 / +60(12) 3055 162
yennie.tan@my.pwc.com
Mark Pui
Executive Director
PricewaterhouseCoopers Capital Sdn Bhd
Tel: +60(3) 2173 1378 / +60(16) 3559 551
mark.pui@my.pwc.com
Contacts