REITs and tech firms drive Singapore's M&A frenzy

Over 10 companies that have been privatised or in the process of being bought out YTD.

The M&A and privatisation wave is expected to gain further momentum in Singapore with around 14 companies to date already undergoing privatisation or in the process of being bought out, according to DBS.

"Based on data compiled by us, this number is much higher than that for the whole of last year, and is also higher than the deals done in 2017, when the M&A and privatisation angles were also in focus," analyst Lee Keng Ling said in a report. 

The premium offered by joining forces with companies or going private is also attractive. Companies that were privatised or delisted in the last three years were transacted at an average premium of about 15% over their last transacted price before the deal was announced. "This often presents an opportunity for shareholders to liquidate and realise their entire investment, often at a premium to the prevailing market price, an option which may not otherwise materialise," the analyst said. 

Also read: M&A activity down 30.7% to $90.86b in 2018

REITs have been identified as one of the driving forces behind Singapore's consolidation frenzy as firms look to the mega merger of OUE Commercial Trust and OUE Hospitality Trust and the take-over of Viva Industrial Trust in 2018 for inspiration. Smaller scale REITs have not been exempt from the consolidation trend as IREIT Global found a new sponsor in City Development whilst Sabana REIT gained a new sponsor with Vibrant Group selling its stakes in the REIT and REIT manager to a new investor in the logistics space.

Also read: Is bigger always better? OUE's mega-merger fails to soothe investor jitters

"We expect this trend to continue, especially for mid-cap industrial REITs such as AIMS APAC REIT, Cache and Soilbuild REIT – these REITs are trading at attractive yields in excess of 7%-8.5%, which prohibits them from pursuing accretive acquisitions, given its high cost of capital," explained Ling. 

"Looking at the implied yields of the mid-cap industrial REITs ranging 6.5%-7.2%, which is much higher than actual physical transactions, it might just be attractive for Sponsors to consider executing on M&A in the longer term," he added. 

Tech firms are also expected to join forces in an effort to battle a challenging trading environment and achieve economies of scale, with Ling identifying Hi-P, Fu Yu, Spindex and Sunningdale as potential targets. F&B and healthcare businesses are also a prime target for consolidation.