Agility, purpose key to staying competitive in acquisitions market

Due diligence, transparency, and proper transition to boost the success of M&A, says KPMG in Malaysia’s Executive Director.

Ngu Heng Sing, Executive Director - Transaction Services at KPMG in Malaysia, began his career at KPMG in the Assurance division in 2007 and moved to the Transaction Services division in 2011.

His experience encompasses audits of publicly listed companies and multinationals from the manufacturing, construction, plantation, automotive, poultry, and financial industries. He has also worked on due diligence engagements covering financial, commercial and operational for private equity firms, corporate investors, government agencies, and government-linked companies.

He also leads projects for global and local clients in their acquisition, divestment, market study and assessment, and process improvement activities.   

As a judge in the Malaysia Management Excellence Awards, Singapore Business Review sat with Ngu to trade insights on how the acquisitions sector is managing during the Covid crisis, and the importance of keeping employee interest in sight. 

This year, were there unique challenges in acquisitions brought on by the pandemic? How were these challenges resolved?

When Covid-19 first came into play, business and M&A activities slowed down significantly. Many were unprepared for the economic and social disruptions, and uncertain how serious and how long the pandemic would last. Lockdowns and travel restrictions were imposed, supply chains were disrupted, and stricter controls and operating limitations were observed particularly at the start of the pandemic. There were many deals that were aborted or put on hold.

Fast forward to year 2021, what seemed to be challenges in 2020 has now become a norm. Businesses have learned to adapt in new ways, while investors and buyers are more open when evaluating deals. Instead of taking the “wait and see” approach, investors and buyers are resorting to alternative ways to complete the deal process. Most of the activities are now carried out virtually and remotely, which even include stock takes and site visits.

With the gradual ease in Covid-19 restrictions and increase in Malaysia’s fully vaccinated population, the challenges brought on by the pandemic are also expected to lessen over time.

So much in business has changed in these short two years. How can leaders/management steer their companies toward continued success amid these changes?

It is interesting to see how many have ventured into new horizons and adopted new ways of doing business in response to the changes wrought by this pandemic. There are many examples and leadership qualities that come to mind – two leadership qualities which I personally thought were very relevant.

Agility: Key decision makers are constantly battling against time to evaluate and decide what is best for their company. Leaders / management must be able to decide, adapt and adopt quickly so their companies remain resilient and relevant. Leaders must accept that initiatives that were proven successful in the past may no longer be effective under current conditions. They must learn to be flexible, open to accept changes, and decide or respond quickly when presented with opportunities and challenges.

Purpose: It is also extremely important for leaders / management to maintain a positive mindset and stay focused amid all the challenges and setbacks faced. With optimism and clear vision, employees will have a stronger sense of security and will trust that their leaders / management are able to weather any storm that comes along the way. This will lead to a high performance culture that will allow employees to work effectively to achieve the company’s goals and create sustainable value.

During an acquisition, many changes are often implemented affecting the startup/acquired company. What strategies can leaders/management implement to protect employee interests during the acquisition process?

It is often said that employees are a company’s greatest asset, and this should not change even during a merger/acquisition process.

Employees who have stayed and contributed many years into the company would have grown together with the company and have a strong sense of belonging. While any merger/acquisition activity is expected to yield positive results for the acquiring company and/or its shareholders, this is not necessarily the case for employees. At times, it is inevitable that some may lose their jobs due to a headcount rationalisation exercise. Some may even decide to leave due to the change in leaders and culture. 

It is always important for vendors to initiate early discussions with investors to align expectations for the company’s workforce, including retrenchment and retention plans. The experience and know-how built over the years cannot be under-estimated and investors should hold an objective view when evaluating their strategies.

Vendors should be open and transparent when communicating to employees on the transaction, to the extent possible. A fair compensation package should also be drawn up for those who will be replaced, and ample notice period should be provided to allow affected employees to plan for next steps. 

Some acquisitions or deals don’t bring the desired results. What do you recommend to management to ensure that the acquisitions or mergers are successful?

It is not always a happy ending for all M&As. In fact, there is never a 100% guarantee that the deal will be successful and yield the expected results.

I cannot stress enough how crucial it is to carry out proper due diligence. A scope of work with the right amount of coverage should be first crafted together with your advisors, targeting the areas of concern with the aim to uncover potential risk areas or deal breakers from the early stages. Through a proper due diligence, investors are able to gather additional insights on the target company, or different perspectives which may not have been considered previously.

Investors and vendors should also be transparent throughout the due diligence and negotiation process to avoid any disputes or distrust. It is also important to understand the motivations of investors and vendors. A lot of deals fail in the later stages simply because of misinterpretation, omissions or poor representations.

The deal process does not end at signing. The real work only begins after the companies have merged. Proper integration planning should be carried out to minimise disruptions to the company’s operations and address any cultural /operational differences. Investors should also consider if an M&A integration expert should be hired to facilitate the process.

Investors should also not rush into taking control of the company but consider the need for vendor/management involvement and support. Although at times the vendors are out of the equation, a proper transition should be planned from the onset. 

The planning for any M&A deal, regardless of size, should not be taken lightly. Although the process is extremely tedious, this can help avoid potential pitfalls and failures for investors, target companies and vendors.

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The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG Deal Advisory Sdn. Bhd.

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