Wednesday 3 December 2014

Tey Por Yee's Nexgram, the path towards growth by merger & acquisition, the 118 years old formula since 1897

Refers Economy Watch

Tey Por Yee, Malaysian, better known as Larry Tey, is owner of Nexgram Group. The entrepreneur turn venture capitalist has managed to serve investors from Australia, Hong Kong, Singapore, China and Indonesia, including business advisory, deal structuring and funding facilitation. In year 2012, Larry brought his investors to Malaysia, instigated by International banker for "a call of duty to his nation".

The experience and services Larry learn from International clients especially in corporate dealing such as merger & acquisition, have made an entry mark on a small market with mere 26 million population called Malaysia. The emergence of Larry into the corporate scene, although is a fly in the ocean especially compared to the deals size he arranged for his clients in China and Indonesia, have made a small name for himself as fresh blood to the aging Bursa Malaysia, the Malaysia stock market.

Larry's principle of business is not new in corporate world - invest in small companies, restructure, turnaround or acquires complement or new growth businesses or companies, and create value for stakeholders, including general investors, major shareholders, employees, clients and suppliers, and the country. Capital raised were invested into growing businesses, eventually shall provide jobs, wealth and taxes. The aging company called Nexgram was an example many corporate leaders grow their business in the 70's, 80's and 90's. The company was restructured to diversify from telecom services into full fledged player in surveillance, telecom engineering, property and investments.

History of Merger & Acquisition

Tracing back to history, merger and acquisitions have evolved in five stages and each of these are discussed here. As seen from past experience mergers and acquisitions are triggered by economic factors. The macroeconomic environment, which includes the growth in GDP, interest rates and monetary policies play a key role in designing the process of mergers or acquisitions between companies or organizations.

First Wave Mergers

The first wave mergers commenced from 1897 to 1904. During this phase merger occurred between companies, which enjoyed monopoly over their lines of production like railroads, electricity etc. the first wave mergers that occurred during the aforesaid time period were mostly horizontal mergers that took place between heavy manufacturing industries.

End Of 1st Wave Merger

Majority of the mergers that were conceived during the 1st phase ended in failure since they could not achieve the desired efficiency. The failure was fuelled by the slowdown of the economy in 1903 followed by the stock market crash of 1904. The legal framework was not supportive either. The Supreme Court passed the mandate that the anticompetitive mergers could be halted using the Sherman Act.

Second Wave Mergers

The second wave mergers that took place from 1916 to 1929 focused on the mergers between oligopolies, rather than monopolies as in the previous phase. The economic boom that followed the post world war I gave rise to these mergers. Technological developments like the development of railroads and transportation by motor vehicles provided the necessary infrastructure for such mergers or acquisitions to take place. The government policy encouraged firms to work in unison. This policy was implemented in the 1920s.

The 2nd wave mergers that took place were mainly horizontal or conglomerate in nature. Te industries that went for merger during this phase were producers of primary metals, food products, petroleum products, transportation equipments and chemicals. The investments banks played a pivotal role in facilitating the mergers and acquisitions.

End Of 2nd Wave Mergers

The 2nd wave mergers ended with the stock market crash in 1929 and the great depression. The tax relief that was provided inspired mergers in the 1940s.

Third Wave Mergers

The mergers that took place during this period (1965-69) were mainly conglomerate mergers. Mergers were inspired by high stock prices, interest rates and strict enforcement of antitrust laws. The bidder firms in the 3rd wave merger were smaller than the Target Firm. Mergers were financed from equities; the investment banks no longer played an important role.

End Of The 3rd Wave Merger

The 3rd wave merger ended with the plan of the Attorney General to split conglomerates in 1968. It was also due to the poor performance of the conglomerates.Some mergers in the 1970s have set precedence. The most prominent ones were the INCO-ESB merger; United Technologies and OTIS Elevator Merger are the merger between Colt Industries and Garlock Industries.

Fourth Wave Merger

The 4th wave merger that started from 1981 and ended by 1989 was characterized by acquisition targets that wren much larger in size as compared to the 3rd wave mergers. Mergers took place between the oil and gas industries, pharmaceutical industries, banking and airline industries. Foreign takeovers became common with most of them being hostile takeovers. The 4th Wave mergers ended with anti takeover laws, Financial Institutions Reform and the Gulf War.

Fifth Wave Merger

The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom and deregulation. The 5th Wave Merger took place mainly in the banking and telecommunications industries. They were mostly equity financed rather than debt financed. The mergers were driven long term rather than short term profit motives. The 5th Wave Merger ended with the burst in the stock market bubble.

Hence we may conclude that the evolution of mergers and acquisitions has been long drawn. Many economic factors have contributed its development. There are several other factors that have impeded their growth. As long as economic units of production exist mergers and acquisitions would continue for an ever-expanding economy.

Malaysia as a growing economy is at the cross road between regulation and deregulation, to stimulate growth. An obvious result of shrinking number of public listed company and extreme concentration of wealth towards the top 5% of entity at the cost of 95% majority in the bottom would tell the story if the country is at the right path. Perhaps the dead end would cause more "privatization", equivalent to the death of capital market. The market hass evolved so awkward, that general investors are questioning why empty company such as special purpose acquisition company (SPAC) are allowed to list and stays "empty", while small suffering companies are regulated to the death in the search of conceiving value for investors, especially minorities.

Without nurturing and facilitating growth by encouraging merger & acquisition, the aged capital is moving towards a dead end. Like many fore bears, young entrepreneur are leaning to adapt the market condition, or perhaps when time comes, might be game changer and rule setters to shape the future. Right now is still too early to tell if they could drive through the hurdlers and bring the country to the next level.

History repeats, the direction is clear. Matter of time, evolution shall plays its role, or else revolution shall takes its place. Perhaps for Larry Tey's Nexgram, it's still a first step toward building an International company like Cisco, Oracle, or even Berkshire Hathaway.

References:

http://us.practicallaw.com/0-502-1894?q=&qp=&qo=&qe=

http://www.bakermckenzie.com/files/Uploads/Documents/MA_Guide_.pdf

http://www.thestar.com.my/Business/Business-News/2013/04/16/Bursa-attracting-special-purpose-acquisition-companies/?style=biz

Seasoned players of M&A:

http://en.wikipedia.org/wiki/Li_Ka-shing

http://www.biography.com/people/warren-buffett-9230729

Fortune 500 growth by M&A:

https://www.cbinsights.com/blog/oracle-mergers-acquisitions-2008-2014/

http://en.wikipedia.org/wiki/List_of_acquisitions_by_Oracle

http://www.cisco.com/web/about/doing_business/corporate_development/acquisitions/ac_year/about_cisco_acquisition_years_list.html