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Tech firms, industrial Reits to ride on M&A wave sweeping Singapore: DBS

14 M&A, privatisations YTD already ahead of full-year figures for 2017, 2018

Mergers and acquisitions (M&A) and privatisations are heating up in Singapore, with 14 companies being taken private or bought out just half-way into the year.


MERGERS and acquisitions (M&A) and privatisations are heating up in Singapore, with 14 companies being taken private or bought out just half-way into the year.

In a report released this week identifying more possible deals in the space, DBS Group Research analyst Ling Lee Keng said the year-to-date total is already higher than that for the whole of last year, and also exceeds the deals done in 2017, when the M&A and privatisation theme was in focus as well.

Data compiled by DBS showed about eight key privatisation and takeover offers announced in 2018, and an estimated 14 announced in 2017, including four that did not go through.

Mergermarket also said on Wednesday that Singapore bucked the regional M&A downtrend by recording US$17.1 billion in deals in the first half of this year, up 154 per cent from a year ago.

Recent premiums offered on M&A and privatisations here have been attractive, DBS's Ms Ling said.

Companies that were privatised or delisted in the last three years were transacted at an average premium of 15 per cent over their last transacted prices before the deals were announced. The premium for 2019 year-to-date is the highest at 20 per cent, compared to 10 per cent in 2018 and 12 per cent in 2017.

This gives shareholders an opportunity to liquidate and realise their entire investment, often at a premium to the prevailing market price, an option which may not otherwise materialise, Ms Ling noted.

Real estate investment trusts (Reits) and firms in the technology, food and beverage (F&B) and healthcare sectors are likely to ride on this M&A and privatisation wave, she said.

Separately, SIA Engineering's share price spiked on Friday, which two other DBS analysts said could be due to the possibility of Singapore Airlines moving to privatise the firm.

In the Reits space, the merger of OUE Commercial Reit and OUE Hospitality Trust is a sign that managers are taking strategic steps to increase their assets under management and market capitalisation to gain visibility among investors, according to Ms Ling.

DBS expects this trend of mergers to continue - especially for mid-cap industrial Reits such as AIMS APAC Reit, Cache Logistics Trust and Soilbuild Business Space Reit. These three are trading at attractive yields in excess of 7 per cent to 8.5 per cent, which prohibits them from pursuing accretive acquisitions, given the high cost of capital, Ms Ling said.

For tech firms, there is a need to relook strategies to survive in the challenging environment, given that margins have been hit and visibility remains low amid the cloudy outlook from the trade war. Ms Ling predicted that Hi-P International, Fu Yu, Spindex and Sunningdale will be potential targets in the tech sector.

F&B companies with strong brand equity are also highly sought-after. Fruits distributor SunMoon Food, bread manufacturer QAF Ltd and chocolate maker Delfi Ltd may be on the radar screen of potential buyers for this reason, according to DBS.

In the healthcare sector, smaller-listed players could consolidate to address key-man risk and offer a wider range of better services. Ms Ling noted that companies fitting this bill include Singapore O&G which runs women's clinics, eye-care provider ISEC, oncology and stem-cell firm Talkmed, and Asian Healthcare Specialists (AHS), which specialises in orthopaedic and sports medicine.

Days after Ms Ling's report, AHS said on Friday that it plans to buy a 51 per cent stake in Cornerstone Asia Health, which runs specialist and family medicine clinics. Ms Ling also expects mm2 Asia, Vicom, SBS Transit, and United Engineers to optimise their structures to maximise returns.

DBS Group Research's previous speculation on M&A deals have held true for Courts Asia, Nobel Design and PCI, which it identified in 2017 as potential targets.