Global economic conditions and an imminent general election mean some industries are in wait-and-see mode, though for most it will be business as usual, regardless of which political party is in power.
Historically, Malaysia has largely been off the PE investors’ radar because of lack of size and suitability. PE activity has focused on manufacturing and services, though in recent years funds have looked at opportunities in oil and gas services and renewable energy projects, but few deals have yet been done due to valuation gaps.
Malaysia has one of the largest stock exchanges in the region, with almost 1,000 listed companies.1 Some listed companies are having second thoughts as to whether public markets are their best source of capital, and could be attractive targets for PE as owners seek finance to expand and grow.
Mergers and acquisitions are well established, with domestic conglomerates trading companies amongst themselves. To date there has been little incentive for these conglomerates to sell operations, but pressure from the tougher commercial environment may trigger divestments, especially of non-core operations.
In the near horizon small to medium sized enterprises (SMEs), which have remained low profile due to the older generation business mindset may open up when the younger generation of the family take over and approach the business with a more professional operating style, including opening up to financial and/or strategic investors for expansion and growth.
As a destination for PE investment, Malaysia has its attractions. High GDP, a well educated workforce, a government that encourages foreign investments and an open and stable political environment mean the business case for using the country as a springboard to build regional champions is often sound.
Malaysia has not been immune to the global recession, with the economy contracting 1.7 percent in 2009, after growing an average 5.8 percent in the five previous years. As quickly as the economy turned down, largely because of a 21.8 percent slowdown in exports, particularly electrical and electronic products that make up 40 percent of exports, it has bounced back, expanding 7.2 percent in 2010 as exports rose 30 percent and private consumption 6.6 percent.2
Early indications are that uncertainties in 2011 will affect growth, but the pain may be softened by the fact that the economy is more closely tied with the region than the wider world. Malaysia’s top five export destinations in 2010 were Singapore, China, Japan, the US and Thailand.3
Aside from the city-states of Hong Kong and Singapore, Malaysia is the one Asian country classified as having “high human development” by the UN.4 GDP per head of US$9,850 is almost twice the Asia average.5 In 2010 Malaysia launched the Economic Transformation Programme (ETP), which aims to turn the country of 28 million into a fully developed nation by 20206. Foreign investors, who are expected to provide 25 percent of the funding for ETP projects, are encouraged by clear processes, documentation and liberalization of foreign ownership laws.
Active private equity investors in Malaysia are a mix of domestic and international funds. Government-controlled Khazanah Nasional is a significant player, with a handful of funds targeting smaller deals, including Navis Capital Partners, Ekuinas, CIMB Private Equity and CapAsia. International funds have come from Asia Pacific, the US, Europe and increasingly the Middle East.
1Bursa Malaysia, October 2011
2Asian Development Bank Malaysia Factsheet & Asian Development Outlook Southeast Asia, 2011
3Asian Development Outlook, Southeast Asia, 2011
4United Nations Human Development Index, October 2011
5Economist Intelligence Unit, July 2011
6Pemandu, October 2011