THE number of global cross-border mergers and acquisitions (M&A) fell 15% year on year in the first nine months of the year, according to the United Nations Conference on Trade and Development.
However, a report by Oxford Business Group shows a contrasting trend in Asia, with comparable M&A activity in the region rising 60% y-o-y in that period with much of the activity focused on virus-resilient industries such as information and communications technology (ICT) and healthcare.
In Malaysia, however, the best M&A of 2020 among the submissions to The Edge is not from the ICT or healthcare sector. Instead, it is from the real estate industry — more specifically, property developer Paramount Corp Bhd’s disposal of an 80% stake in its pre-tertiary education business to Prestigion Education Sdn Bhd for RM540.5 million cash.
The deal deserves the accolade for best M&A of the year because of the hefty returns that it brought Paramount, especially when most property developers were going through a tough time due to the Covid-19 pandemic. The company’s shareholders were able to unlock gains with a special dividend that was declared as a result of the transaction.
First announced in June 2019 and completed on Feb 20 this year, the deal left Paramount with a strong cash buffer, putting the group in a good financial position. To put things into perspective, the group’s cash position as at March 31, 2020 — a month after the deal was completed — stood at RM479.88 million compared with RM42.24 million a year ago. This gave the group a strong war chest to withstand the impact of the Movement Control Order, which began on March 18 and proved to be a dampener on business activities.
The deal also allowed the group to reward its shareholders as it allocated RM177 million of the disposal proceeds to paying a special cash dividend of 29 sen per share, which was paid on April 23.
The group recognised a gain on disposal of RM460.6 million in its first financial quarter ended March 31 (1QFY2020), which helped to boost its net profit to RM466.95 million from RM6.17 million a year ago.
Paramount’s pre-tertiary education business is the largest integrated private K-12 and pre-K education platform in Malaysia, operating under the Sri KDU, R.E.A.L Schools, R.E.A.L Kids and Cambridge English For Life brands.
As Paramount’s pre-tertiary education business is Malaysia’s largest K-12 education provider, this deal is the largest to hit the market in recent times and is one of the largest education funding deals in the Malaysia loan market.
The acquirer, Prestigion Education, is funded by TPG Asia VI SF Pte Ltd, a member of the TPG Group — a global private investment firm founded in 1992 with a global network spanning across 17 offices and assets under management of more than US$100 billion (RM406 billion).
Prestigion Education is jointly owned by Tunku Ali Redhauddin Tuanku Muhriz, who is senior adviser to TPG Group, and Ganen Sarvananthan, managing partner of TPG Capital Asia. The corporate exercise will enhance the brand visibility of the pre-tertiary education business regionally as Tunku Ali and Ganen have extensive business networks in the region through their involvement in TPG.
For Paramount, the disposal of the majority stake in its pre-tertiary education business will allow it to focus its resources on driving growth in its core property development business as well as maintain synergies between its property and pre-tertiary education business via its minority stake of 20%.
Credit Suisse acted as buy-side adviser to Prestigion Education for the deal. Previously, Credit Suisse had acted as adviser to Paramount on its acquisition of a 66% stake in R.E.A.L Education Group in 2017.
Meanwhile, Maybank Investment Bank Bhd (Maybank IB) acted as co-adviser to TPG and was the sole mandated lead arranger and lender to the investors.
Another deal that deserves notable mention this year is conglomerate DRB-Hicom Bhd’s disposal of a 97.37% stake in waste disposal management company Alam Flora Sdn Bhd to Malakoff Corp Bhd for RM944.61 million cash.
The deal was first announced in August 2018 and completed on Dec 5 last year, but with a lower price tag of RM869 million, after taking into consideration the revised independent discounted cash flow valuation range of RM796 million to RM893 million.
DRB-Hicom committed to cover a shortfall of up to RM140 million over a two-year period if, among others, the profit before tax of Alam Flora falls below RM70 million.
The disposal provides an opportunity to unlock the value and monetise DRB-Hicom’s investment in the Alam Flora group. It is expected to give rise to an estimated net gain on disposal of about RM735.4 million
Part of the proceeds was utilised for Proton Holdings Bhd’s turnaround plan, which proved to be fruitful as the automotive group has recorded a stellar sales performance, thanks to its best-selling SUV, the X70.
Maybank IB acted as the financial adviser for the deal while MIDF Amanah Investment Bank Bhd was its independent adviser.
Bankers were invited to submit deals that were completed between December 2019 and November 2020.