Inflation, political worries slow M&A

Persistent pain of inflation coupled with political tensions over the upcoming general election created a drought-like situation in mergers and acquisitions deal-making in Bangladesh, say top consultants in the field.
The country had witnessed some of the largest intra-group, private and public mergers and acquisitions (M&A) deals in its history since 2020, before stinging inflation, which reached 9.94 per cent in May, began its bite.
The M&A list includes Unilever's acquisition of GSK Bangladesh on the Dhaka Stock Exchange, with a record trade value of Tk 20.2 billion, Dutch Multinational SHV Energy's acquisition of Petromax LPG Ltd and Petromax Cylinders Ltd for more than Tk 1.0 billion, Akij Group's acquisition of Janata Jute Mills for approximately Tk 7.0 billion and Beximco's acquisition of France-based Sanofi worth 35.5 million British pounds in 2021.
"The higher inflation, national polls in early 2024, and forex-market volatility have created an almost drought-like situation for deals," says Mahmood Sattar, chairman of RSA Advisory Limited, who successfully completed the acquisition of Dutch SHV in August last year.
Inflation can affect cash flows by increasing the cost of goods and services needed by the target company, thus reducing its profits. Besides, margins could deteriorate as not all costs can be passed through to customers.
Bangladesh's inflation has remained stubbornly above the annual target, leading the central bank to announce a contractionary monetary policy for the first six months of the current fiscal year until December.
Mr Sattar, who also served as the CEO of the privately-owned City Bank, told the FE that inflation shocks, especially interest-rate shocks, affect mergers and acquisitions.
This is also slowing down cross-border transactions, he added.
However, Mr Sattar expressed optimism that the market would normalise after the election and a cooling down of inflation.
Bangladesh usually makes around 20 M&A deals on average per year, mostly taking place in the garment and textile sectors.
At the fag-end of 2021, C&A, a listed textile company based in Chattogram, was acquired by Alif Group.
Kay & Que, another listed entity in a diversified group, was recently acquired by Multi-Sourcing Ltd.
Barrister Tanjib-ul Alam, a renowned attorney in M&A in Bangladesh and head of Tanjib Alam & Associates, told the FE that the trend of M&A activities has slowed down in recent times.
He said such activity tends to increase during periods of rapid economic expansion.
He also mentioned that some companies choose to sell stakes during challenging times.
Ershad Hossain, managing director & CEO of City Bank Capital, told the FE that M&A activity has indeed been slower compared to the past year. He attributed this slowdown to the upcoming national elections.
City Capital handles most of the valuation aspects of M&As in Bangladesh and said they have been involved in some valuations of multinational companies, which amounts to almost half of the previous year's workload.

jasimharoon@yahoo.com