PETALING JAYA: As global private equity (PE) deals gather pace due to the merger and acquisition (M&A) momentum, Malaysia is set to see a surge in PE investments over the coming months.

The surge in PE activities is expected to be buoyed by the nation’s strong economic fundamentals and policies and access to attractive financing, among others, that would garner stronger investor confidence.

Malayan Banking Bhd (Maybank) managing director for client coverage, sector specialist and private equity Rajiv Vijendran told StarBiz a backdrop of a healthy global M&A market would definitely be a tailwind for overall M&A sentiment in Malaysia, in addition to a number of key factors that are likely to spur PE activity over the coming 12 to 18 months.

“Stronger domestic and international investor confidence, stronger economic growth forecast for Malaysia between 4% and 5% for this year, coupled with various government policies and initiatives to attract foreign direct investment (FDI), as well as access to bank financing at a reasonable interest rate as ringgit borrowing costs are lower than US dollar borrowing costs all bode well for the domestic PE market,” he added.

Furthermore, Rajiv said PE firms continued to hold record “dry powder” and coupled with new funds raised, had significant capital to be deployed. Dry powder refers to cash reserves that corporations and PE funds have available to deploy when an attractive investment opportunity arises.

He said Malaysia has been a “happy hunting ground” for PE firms over the years and due to strong investor confidence, stable outlook for economic growth and the various government initiatives and policies are spurring investment in the country and will continue to provide plenty of PE opportunities going forward.

Rajiv said last year was a phenomenal year for PE activity for Malaysia, with deals valued at over US$2bil being closed. This was led by the acquisition of IMU Healthcare, Ramsay Sime Darby Healthcare, Asia Pacific University and AIMS Asia Group, all transactions that the Maybank Group were involved with, he noted.

“We are working very closely with our clients to make 2024 PE and M&A activity reach similar levels of 2023,” he said.

Rajiv said engagement with PE firms continues to be focused on the traditional sectors like healthcare, consumer, data centres and industrials. “We have seen over the past 12 months a significant ramp up in investments in greenfield data centre development, focused initially in Johor.

“Johor is probably one of the hottest data centre development geographies in the world currently as we are likely to see significantly increased investment in this space in Malaysia from PE, infrastructure and strategic investors over the coming 24 to 36 months,” he said.

With the Johor-Singapore Special Economic Zone agreement to be finalised between the Malaysian and Singapore governments in September, this is expected to further attract venture capital and PE-driven industries.

On the global front, Bloomberg early this month reported that PE firms had clinched more than US$30bil worth of deals around the world, raising hopes for a recovery (in M&As) following a slow first half of the year. While overall M&A deal volumes are up around 14% at the midway point of 2024, they still lag the 10-year average for a first half by more than US$300bil, according to data compiled by Bloomberg.

OCBC Bank (M) Bhd managing director, senior banker and head of investment banking Tan Ai Chin

OCBC Bank (M) Bhd managing director, senior banker and head of investment banking Tan Ai Chin said the bank continues to see good prospects for PE-led investments and buyouts, as Malaysia has prospered through the proliferation of many entrepreneurs that own small-to-mid-sized firms, as well as larger companies and conglomerates, presenting good opportunities for M&A.

“PE will continue to be a rich pool of potential buyers of good companies. From our observation, PE will be continuing to be actively looking for good targets to acquire, given that many of the PEs are still sitting on substantial amount of “dry powder” for deployment, with several regional private equity successfully closing (or having their first close) for new fund raises, which will only increase their urgency to deploy capital,” she said.

According to data collected by Preqin, Global private equity dry powder had soared to an unprecedented US$2.59 trillion in 2023 on the back of a slow 2023 year in dealmaking. The dry powder total as of December 2023 represented an approximately 8% increase over the December 2022 total of US$2.39 trillion, according to S&P Global Market Intelligence and Preqin data.

“We continue to see strong interest in high growth and or defensive sectors such as healthcare and healthcare related, as well as technology and advanced manufacturing.

“Digital infrastructure and data centre deals seems to be a “flavour” now for PE, especially infrastructure related PE funds, given the steady recurring income. We expect to see an increasingly high volume of deal activity within this space as strong macro trends, including cloud computing and artificial intelligence (AI), continue to fuel growth in this sector, “ Tan noted.

Furthermore, she said Malaysia, through the facilitative inbound investment drive by government bodies, especially the Investment, Trade and Industry Ministry, has been able to attract increasing interest from foreign investors and stands to benefit from the ongoing geopolitical tensions.

In the first quarter of 2024, the Malaysia Investment Development Authority approved RM83.7bil of FDI, out of which half are in the manufacturing sector and of which, 80% of that was for the investment in electrical and electronics sub sectors.

Deloitte Malaysia financial advisory executive director for corporate finance advisory Yap Kong Meng

Deloitte Malaysia financial advisory executive director for corporate finance advisory Yap Kong Meng said the firm is currently seeing an uptake of PE activity in the first half of this calendar year. He said the growth drivers for the local PE market for this year would be the stabilising market conditions from post-Covid-19 and more PE interests in specific sectors like the semiconductor industry.

“Evergreen sectors like consumer and healthcare will always be in the radar. Manufacturing sectors including semiconductor should see greater interest, especially those who stand to benefit from the current geopolitical environment, which many expect will continue to persist for the longer term,” Yap added.

As to measures to further fuel the Malaysian PE business, he said: “Malaysia can look to Singapore and learn from their efforts in attracting PE funds to be set up in Malaysia (for example, more favourable tax regime, etc), given that Singapore has been the most successful in South-East Asian region in attracting PE funds,” he said.