Sri Lanka is expected to witness a major wave of mergers and acquisitions exceeding last years record value of US100 million mainly led by foreign investors in the second half of this year, investment bankers said.
“Currently there are several such deals under negotiation in tourism and financial services which probably be closed by end of the year said the CEO and co-founder of Frontier Capital Partners Limited, Nishan Sumanadeera.
He declined to name the companies involved due to the sensitive nature of the information but said that perhaps within the next three weeks the country would hear about a major transaction. “Sri Lanka is a country blessed with a strategic location and it is the very reason we have a competitive advantage over the peers in the region. So I think we can expect a new surge of mergers and takeovers in hub based businesses related to ports, airports, finance, shopping and tourism” he said.
Meanwhile the Vice President and Head of Capital Markets at NDB Investment Bank, Senaka Kekiriwaragoda expressing similar sentiments said that they were currently working on some deals which involve both the foreign and local buyers and opined positively on surpassing last year’s value.
According to Sumanadeera the foreign investors increasingly seek for acquisition opportunities via Colombo Stock Exchange (CSE) because they see the potential created by the depreciation of the rupee and the bearish sentiments. Therefore they are vying for acquisition opportunities in the local market which unfortunately the local investors fail to capitalize on, he said.
“Due to dull sentiments local investors don’t buy, whereas more financially savvy foreign counterparts make hay. Now they know this is the ideal time to buy when they have to pay 20% less mainly because of the rupee depreciation. So it is likely that we could see a new surge in cash rich foreigners seeking to capture relatively undervalued local companies,” he observed.
He said Chinese and Indian investors have been looking at opportunities in Sri Lankan companies for controlling stakes unlike Americans and the Europeans who only seek to make short term capital gains.
A report launched last week by Acuity Stockbrokers on economy and strategy titled ‘Lions Leads Frontier’ says Sri Lankan market equities provide higher diversification benefits due to the low correlation to major equity markets. Sri Lanka is less correlated to major global markets than most other competitor frontier markets whilst Sri Lanka also has a sound Price Earning ratio of 10.69 which makes the country attractive to most foreign equity investors, the report said,
However CEO of Acuity Stock Brokers Prashan Fernando said that although the time is ripe to buy, foreigners are yet to show sufficient enthusiasm for acquiring companies in a widespread way. He said there is a lot of room for both foreigners as well as locals citing the recent acquisitions of Delmege Forsyth Group by Dhammika Perera and George Steuart & Company Ltd. by Dilith Jyaweera. Foreign investments into CSE during the first six months of this year amounted to US dollars 23.2