Privately held businesses eye M&A for strategic growth

A survey said proportion of respondents anticipating making an acquisition in the next three years increased to 29% this year, up 8%.

An increasing number of privately held businesses (PHBs) in Singapore are planning to grow through acquisition according to the Grant Thornton International Business Report (IBR).

In its latest global study conducted at the end of 2010, the proportion of respondents anticipating making an acquisition in the next three years increased to 29% this year, an increase of 8% compared to twelve months ago. The same incremental percentage is also found across 39 economies in this annual survey - 34% this year compared to 26%.

Kon Yin Tong, Managing Partner, Foo Kon Tan Grant Thornton LLP commented, “As Singapore PHBs expressed increased confidence, cash rich companies and as well as companies looking to aggressive growth can look towards M&A as a tool for strategic growth. It was encouraging therefore to see the introduction of tax incentives last year which helped reduce cost of M&A.” Gaining access to new overseas markets, leveraging new technologies and achieving economies of scales are cited as main reasons for acquisitions.

Mike Hughes, global leader - mergers and acquisitions for Grant Thornton International, explains: "At a time of improving economic and financing conditions, businesses are again looking towards acquisitions as a means of growing revenues as they shift their mindset from survival to strategic growth."

Regionally, PHBs in the BRIC economies (Brazil, Russia, India and China) are among those leading the way with 44% of respondents considering an acquisition, compared to 27% in 2010. Driven by the desire to access new markets and acquire new technology or established brands, 45% of businesses in mainland China plan to grow through acquisition, an increase of 19% over 2010.

An increase in planned M&A activity is also reflected in the results from the other major regions (see figure 1). For example, in North America, 41% of the region’s PHBs are planning acquisitions. Kon Yin Tong, added: "After two slow years, with an improving economy and easing credit market, there is considerable pent-up demand for acquisitions."

When asked how businesses plan to finance growth over the next three years based on five funding sources, the findings for Singapore PHBs revealed:

• 57% retained earnings
• 48% bank finance
• 20% private equity
• 17% public listing and
• 1% don’t know.