This article first appeared in The Edge Malaysia Weekly on December 26, 2022 - January 1, 2023

AFFIN Bank Bhd’s strategic move to divest its 63% stake in its asset management firm, Affin Hwang Asset Management Bhd (AHAM), is our pick as the best M&A this year because it proved to be a sweet deal for all — the bank, its shareholders and even the buyer.

The deal, unveiled on Feb 28 and completed five months later, involved Affin Bank disposing of its entire stake — or seven million shares — in AHAM to global private equity group CVC Capital Partners for RM1.42 billion. AHAM was the country’s third-largest asset manager.

Affin Bank certainly fetched a good price for what many saw as the jewel of the group. The transaction valued AHAM in its entirety at RM2.25 billion, which translated into a price-to-AUM (assets under management) of 3.08%, above the average of 2.64% for past M&A transactions involving asset management companies since 2014. On a price-earnings ratio (PER) basis, the deal was valued at a multiple of 19.7 times compared with the past average of 15.2 times.

As it turned out, the deal was also timed right. According to Affin Hwang Investment Bank Bhd (AHIB), the group’s principal adviser, Affin Bank was able to unlock the value of its stake in AHAM at “the top range” of valuation, just prior to a global equity sell-off in March.

The divestment did not come as a huge surprise to analysts as Affin Bank was widely known at the time to have been exploring various options, including asset sales, to improve its capital ratios.

While there were concerns among analysts about how Affin Bank would plug the earnings hole left by AHAM — the latter accounted for 20% to 30% of group earnings — it was nevertheless seen as a deal too good to be passed up.

The offer from CVC came at a time when the group urgently needed funds to feed its fast-growing Islamic banking business.

“We felt if we didn’t take the offer, we might never get another offer with similar valuations,” president and group CEO Datuk Wan Razly Abdullah Wan Ali said in a recent interview with The Edge.

The divestment, which was completed on July 29, enabled Affin Bank to recognise a net gain of RM1.063 billion, the bulk of which will be used to fund its core banking activities and for working capital.

It also helped lift its common Equity Tier-1 ratio, a key indicator of capital strength, to 16.3% as at end-September, from 13.4% three months earlier, well above the industry’s 15.1%.

Affin Bank was then able, in the third quarter, to strengthen its loan loss coverage ratio to 112.25%, from a mere 80% three months earlier, putting it more in line with the industry.

Notably, shareholders, including minorities, get to enjoy some of the divestment gains as the bank, in mid-October, declared a special dividend per share of 18.09 sen — amounting to RM400.2 million — as well as an interim dividend of 4.53 sen for the financial year ending Dec 31, 2022. They have an option to reinvest 7.24 sen of the special dividend in new shares.

Investors also benefited from the bank’s strong share price appreciation over the year, fuelled in part by the expectation of a bumper dividend. As at the Dec 9 closing price of RM2.06, the stock had gained a solid 39% year to date — among the highest of the banks — giving the company a market capitalisation of RM4.56 billion.

CVC, as the acquirer of AHAM, now holds a controlling 68.35% stake in the fastest-growing independent investment management house, while Nikko Asset Management International Ltd remains a 27% shareholder. (Apart from Affin Bank’s stake in AHAM, CVC had also bought a 5.35% stake from key senior management of AHAM, including its founder and managing director Datuk Teng Chee Wai, for RM120 million.)

AHAM, now rebranded as AHAM Asset Management Bhd, will benefit from its new shareholder as it looks to expand regionally next year, leveraging CVC’s established network in Southeast Asia.

CIMB Investment Bank Bhd was the financial adviser to CVC in the deal, while UBS AG Hong Kong was the financial adviser to AHIB. (Affin Bank’s 63% shareholding in AHAM had been via AHIB.)

Sunway Bhd gets a nod from us for the sale of a 16% stake in its healthcare arm, Sunway Healthcare Holdings Sdn Bhd (SHH), to Singapore sovereign wealth fund GIC Pte Ltd, for RM750 million

The deal, for which Sunway secured premium valuations, is a win-win for both parties. It enables Sunway to accelerate the expansion of its healthcare business and GIC to secure long-term returns from its investment.

Announced in June 2021, the deal closed in December last year, falling within our 12-month period of review for the best deals.

The transaction valued SHH, which owns two hospitals and several ancillary health services, at RM4.69 billion, implying a last-12-months enterprise value over earnings before interest, taxes, depreciation and amortisation (Ebitda) of about 31.3 times — almost double the average valuation multiple of listed peers such as IHH Healthcare Bhd. The valuation was based on SHH’s growth plans.

According to Maybank Investment Bank, the principal adviser to Sunway, the valuation was arrived at after evaluating proposals from various other parties, including blue-chip private equity funds, pension funds and other conglomerates. The entire process, carried out during Covid-19 movement restrictions, was completed remotely without a single site visit or in-person meeting between the company and the investors, which bears testament to Sunway’s solid reputation.

SHH will draw from GIC’s investment as and when it needs to, with the RM750 million to be spread over four tranches over about three years. The first official tranche, involving some RM200 million, closed in March this year.

The money from GIC will be used to partly fund SHH’s aggressive expansion plans, which include the building of six more hospitals. Sunway also intends to undertake an initial public offering of the healthcare business a few years down the road.  

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