Cash-Rich MNCs Eye Acquisitions in Southeast Asia and Taiwan in 2024 as Family Business Valuations Ease

Cash-rich multinational corporations (MNCs) are increasingly looking towards Southeast Asia and Taiwan for potential acquisition targets. This shift in focus comes as family-owned businesses in these regions become more open to selling in recent years after COVID-19, with valuation expectations becoming more realistic for M&A.

Previously, unrealistic valuations by family businesses, often steeped in tradition and hesitant to relinquish control, presented a major hurdle for MNCs in the region. Family-owned businesses may also place a high premium on their companies due to a combination of factors, such as the company’s historical success. However, MNCs typically focus on the future potential of the business, using established valuation methods that emphasize growth prospects and the ability to generate future earnings. This difference in perspective, where family businesses consider past achievements and MNCs prioritize future potential, can create a significant gap between seller expectations and buyers’ willingness to pay.

With this shift in perspective, coupled with the impact of COVID-19, younger generations taking over family businesses are increasingly open to outside investment, recognizing the benefits of MNC partnerships. The move away from the traditional “build, enjoy, destroy” as well as “from shirtsleeves to shirtsleeves in three generations” mentality reflects a deep appreciation for the legacy established by previous generations. Instead of simply coasting on past successes, these young leaders are looking to build upon that foundation. They understand the limitations of organic growth and the potential that MNC partnerships offer.

A recent study from The Straits Times suggests this openness is growing, creating a win-win situation for both parties in the transaction. Economic pressures and market maturity in Southeast Asia and Taiwan are also pushing family businesses to consider the advantages of the more professionalized approach and access to resources that large MNCs can offer. This shift in perspective, coupled with the record-breaking amount of dry powder held by MNCs, creates a prime opportunity for acquisitions in the region. The availability of well-established, family-run businesses with valuable local market knowledge can be a significant advantage for these MNCs’ portfolio and global footprint.

Surge in Dry Powder Fuels Acquisition Activity

Adding to this trend is the massive amount of unspent capital, or dry powder, sitting with private equity firms and venture capitalists. According to a report by S&P Global, by the end of 2023, dry powder had hit record numbers, exceeding $2.5 trillion. This pool of capital is fueling a strong appetite for acquisitions, with MNCs looking to deploy these funds into strategic investments. This confluence of factors is creating a window of opportunity for MNCs seeking to expand their presence in Southeast Asia and Taiwan.

While the shift in attitude towards MNC partnerships presents exciting opportunities, navigating the cultural nuances and intricate ownership structures of family businesses remains a significant challenge for acquiring companies. It is necessary to strike the right balance between preserving the legacy of the family business and integrating it into a larger corporate structure, ensuring the success of acquisitions.

In Tractus’ 28 years of experience facilitating mergers and acquisitions (M&A) in Southeast Asia, India and China, one of the consistent challenges we have noticed for MNCs has been navigating the intricate ownership structures of family businesses. These complexities are often uncovered during the crucial due diligence phase.

For instance, a recent case that Tractus handled involved a major snack company in the region. The acquiring MNC discovered that ownership of subsidiaries reporting to the parent company was dispersed among various family members, creating difficulties as there were conflicting priorities among family members, making it challenging to align the company’s future with the MNC’s goal. There were also uncertainties in decision-making as the MNC needed to reconcile the differing viewpoints of family members involved. Further complicating the situation, assets like land and buildings were held in individual family names, with webs of cross-shareholdings among family members. Untangling these interwoven ownership structures and reaching consensus among all family members on a sale price and terms proved to be a lengthy and challenging process. MNCs need to be prepared for extensive negotiations and potentially face delays while the family reaches an agreement.

This case exemplifies the importance of careful due diligence and cultural sensitivity when navigating acquisitions with family businesses. Understanding the family’s values and priorities is crucial to a successful outcome. With extensive experience in the region and deep understanding of family business dynamics, Tractus can help MNCs navigate these complexities and achieve a smooth and successful acquisition.

A wave of M&A activity is expected to sweep Southeast Asia and Taiwan, with cash-rich MNCs seeking to acquire strategically valuable family-owned businesses. This shift has the potential to unlock a new era of growth and innovation for these regions, as family legacies join forces with the resources and expertise of multinational giants.

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Authored by

Pei Wen Ng is a Consultant based in Singapore.