M&A activity in Thailand has risen consistently over recent years. As an established destination for inbound FDI, Thailand’s M&A will remain strong due to a number of tailwinds including the government’s “Thailand 4.0 Economic Plan”, the ongoing integration of the Asean Economic Community and the country’s continued development from an emerging economy to a stronger regional and global player. The significant increase in outbound M&A by a variety of Thai conglomerates is further testament to the strength of businesses in Thailand, which remain attractive to multinational corporations from developed economies seeking growth, along with Private Equity funds who see South-East Asia as an increasingly attractive destination.

The underlying macro-economic fundamentals are relatively healthy; supported by low inflation, strong current account position, healthy international reserves and low external debt. The banking system is well capitalised, unemployment rate remains very low although there are shortages of skilled labour in some sectors especially as we move towards Thailand 4.0, and public infrastructure investment and government spending are also accelerating.

KPMG in Thailand drew valuable insights from many leading domestic and international clients who have recently undertaken M&A projects in Thailand – both successful and unsuccessful – who shared their insights on the process, challenges and opportunities via a survey and interviews. Some of the key takeaways bolster our belief of a fast developing, increasingly active and sophisticated M&A market.

88% of the survey respondents expected to make at least one more acquisition in Thailand within the next five years, with 65% expecting to do at least two, and almost a quarter expecting to do more than six.  Food & beverages, FMCG and industrial products were the key sectors of interest.

Based on the survey, Thailand appears to be more attractive than three of the ‘CLMV’ countries (Cambodia, Laos and Myanmar), with Vietnam the only emerging ASEAN country seeming to compete with Thailand on overall attractiveness.

“We expect to see continued strong deal flows in financial services (driven by consolidation in the banking and insurance sectors and increased adoption of FinTech), consumer and retail, technology, industrial markets and infrastructure,” says Ian Thornhill, Partner, Head of Deal Advisory, KPMG in Thailand. “Inbound investments are likely to continue to be driven by Private Equity and Venture Capital funds, along with strategic corporates and other global initiatives such as China’s ‘Belt & Road’ initiative.”

Financing for deals in Thailand is driven by 31 commercial banks, including domestic institutions, subsidiaries of foreign banks and foreign bank branches. Together, these entities account for 50% of the total assets of the financial sector and have been a key source of funds in acquisitions. Larger listed corporates have also tapped the public debenture markets to raise capital for large deals, usually converting bridging funds to debentures which are lower cost.

Over 45% of respondents cited that due diligence findings also created issues and delays in completing successful deals. Willingness to negotiate, finalising the SPA and other contractual arrangements and aligning expectations around business plans were also identified as key factors impacting the closure of completed deals. Similarly, a lack of willingness to negotiate and issues around communication were cited as key reasons for failure on unsuccessful deals.

“Due diligence, in many areas, should be done carefully,” says a Senior Vice President of an upstream oil and gas company that was interviewed as part of the survey.

For the vast majority of respondents, it took six months to one year to convert an investment idea to a completed deal. While the detailed execution phase of many transactions in Thailand (as in any emerging market) can be a drawn out and frustrating process, overall deal timeframes are not prohibitive and in our view will only improve over time. Patience and understanding are nonetheless critical to negotiating any deal in Thailand.

Cultural differences (71%) and lack of strategic alignment (54%) made up almost half of the main post-deal challenges identfied by respondents. Followed by change management and the realisation of synergies, this highlights the importance of thinking about and planning for Day One and integration plans earlier in the process. More than half of acquirers either did no integration planning or took only a very light touch approach.

For a more in-depth analysis on Doing Deals in Thailand, please visit home.kpmg/th.