With the continued rise of the business sector, M&A – or Mergers and Acquisitions – have become one of the most discussed topics among investors in Phnom Penh. As small and medium businesses reach the limits of their potential under a current model, savvy operators are increasingly looking to join forces with, takeover, or sell out to other entities in a bid to increase their footprint in the market.
In the business world, mergers and acquisitions can also be referred to as purchase deals and hostile takeovers. Mergers are often labelled purchase deals when the CEOs of both entities have agreed that joining forces is in the best interests of both companies. But when the deal is unfriendly – that is, when the target company does not want to lose its independence – it is regarded as a hostile acquisition. In the case of hostile takeover, the targeted company may look for a friendly partner for a potential merger alternative, known as a “White Knight.” Whether friendly or hostile, the rationale can often be seen in how the transaction is communicated to and received by the target company’s board of directors, employees and shareholders, and in the strategies behind the M&A plan.
The resulting effects include diversification of businesses’ assets, as well as processes, models and human resources. To illustrate the current trend, Management Insider takes a look at two high-profile examples of mergers and acquisitions in Cambodia.
In the telecommunications sector, Axiata, a Malaysian- based company that became a player in Cambodia through its local mobile operator Hello, made headlines in 2012 when it acquired local telecoms giant Smart Mobile for $155 million. Before this, in 2011, Smart Mobile had undergone its own merger with StarCell, the local arm of the Sweden-based TeliaSonera group. This sequence of mergers and acquisitions has made Smart one of the heavyweights in Cambodia’s ever-expanding telecommunications sector.
In the financial sector, the Maruhan Japan Bank in 2012 acquired 95% of the Sathpana Microfinance Institution, allowing the two to expand their reach and customer base, and paving the way for the announcement in January that they would form a new entity, Sathpana Bank, in a consolidation that will allow them to rival the biggest financial institutions in the country. Two formerly separate entities now have the advantage of sharing core competencies, resources and skills, and are operating at international standards in a market where competition is only going to grow.
Some key factors to consider when exploring potential M&As:
Synergy: By merging, companies can benefit from increased efficiency if they avoid redundancies in areas such as operations, accounting, marketing, etc.
Economies of Scale: Because size matters, a bigger company will have a greater ability to negotiate prices with suppliers and save on costs.
New Technology: A merger can give both sides access to greater pools of technology in order to develop or maintain competitive edge.
Improved Market Reach: A merger may expand two companies’ marketing and distribution networks (Economies of Scope) and generate new sales opportunities in previously unexplored markets.
Corporate Identity: A merger can also improve image and reputation in the investment community; bigger firms often have even better credit in raising capital.
In conclusion, M&A and corporate restructuring are a big part of the corporate finance world. Every day, investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they’re not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through “spinoffs” or list the stocks on the financial markets. Not surprisingly, these actions often make the news, as deals can be worth hundreds of millions of dollars. For a CEO and shareholders, a successful M&A can represent the summit of an entire career, in terms of reputation and also in terms of wealth. And the number of operations undergoing these transformations is increasing – a positive leading indicator and a favourable sign for the Cambodian market.
Varabott Ho has more than 18 years’ experience in major European financial institutions such as Credit Suisse (12 years), Aberdeen and AXA. His overall expertise encompasses private banking, asset management, investment banking and bank assurance across Europe and Asia. He holds an MBA from the University of Chicago Booth School of Business and is a Certified EFFAS Financial Analyst.
Contribution by Varabott Ho, Kynn & Cie Cambodia