Is the Lao Market Ripe for Mergers & Acquisitions Activities?
At a firm level, mergers & acquisitions (M&A) is a tried and tested mechanism to create new growth opportunities.
The most common rationale for firms to engage in a merger and acquisitions deal is to merge their resources and gain control over markets. This would enable the acquiring firm to realize synergies that enhance the value of the firm in the form of cost savings, enhanced revenues and increased market share. Furthermore, economies of scale can also be attained through the sharing of resources and services. Hence, the union of two or more firms leads to overall cost reduction, giving the merged firm a competitive advantage that is a result of increased buying power and longer production runs. Another reason why a firm would consider a M&A strategy is to acquire new technologies or patents that the firm does not own which can also contribute to generating a competitive edge.
In Laos, given the size and scale of the economy, one might opine that there is limited scope for M&A activities compared with other countries in the region. While M&A culture is a rather fledgling phenomenon, the country appears to be on the cusp of a mini-boom in such activities, albeit on a limited scale.
In 2010, Laos witnessed a major acquisitions deal in the form of the Sepon gold mine being acquired by Chinese-owned MMG for over $560 million, possibly the largest M&A deal in Laos’ history.
In 2016, state-owned telecom ETL sold a 51% stake to China’s Comba Telecom for $91.8 million.
2017 saw quite a number of M&A deals: Russian telecom giant Vimpelcom’s 78% shares of Beeline were wholly acquired by the Lao government for $22 million; ITECC, one of the most popular exhibition venue brands, was recently acquired by TK Group, a large Lao business conglomerate.
In the digital space, Yula.la, a general classifieds website, was acquired in March earlier this year by Australian-based Digital Classifieds Group.
Book Delivery, a popular online book delivery service startup, was also partially acquired by seasoned angel investors from the Lao Angel Investor Network (LAIN).
Don Chan Palace Hotel, one of the best known hotels in Laos, was acquired by the Krittaphong Group, a Chinese affiliated group also involved in construction and investment.
Veteran financial and emerging markets analyst, Connor Kindersen, Partner at Kindersen Raleigh & Associates notes that the aforementioned cases are testament to the validity of the M&A as a strategy as being able to add value for shareholders of the acquiring and selling/merging firm.
“With the rapid development and growth of the private sector, many state-owned ‘crown jewels’ or ‘blue chip’ firms appear to have fallen behind in terms of performance and responsiveness to their customers. This appears to have created an urgent impetus for the Lao government to review the bloated state-owned sector to seek out ways to improve efficiency and boost overall competitiveness,” Kindersen adds.
Victor Rattanavong, Director of Hong Kong-based boutique financial advisory firm Eastern Century Capital, discusses the potential for Lao SOEs (state-owned enterprises) to undergo M&A, in an online interview with The Laotian Times.
“State-owned firms such as Lao Airlines, for example, are ripe for internal restructuring similar along the efforts of the government to reform the state-owned utility, EDL, which has met with some success in the partial privatization of EDL-Gen on the Lao Stock Exchange.”
“In the grand scheme of things on a macro-level, M&A transactions accords an economy the chance for industrial renewal and the resulting consolidation is bound to yield much-needed competitive strength against the backdrop of regional and global integration. For Laos, M&A is a natural course of action and compelling option for firms in the country to be able to compete effectively against other ASEAN nations,” Rattanavong points out.
Nevertheless, firms contemplating M&A transactions should take a strategic approach to the transaction process and apply a rigorous analytical framework in executing the divestment or acquisition process. This usually entails the assistance of professional services firms that specialize in M&A deals, so called ‘investment banks’ or advisory firms that are best positioned to help clients navigate the myriad of potential challenges and opportunities associated with the M&A process.
For more information on utilizing mergers & acquisitions for your company, contact Kindersen Raleigh & Associates at firstname.lastname@example.org.
By: Laotian Times Reporters