M&A transactions amounted to at least $2.5b in 18 years

Bangladesh registered at least $2.5 billion in funding from investors for mergers and acquisitions (M&A) of firms since 2005, according to a recent study, which says there is room for growth in terms of M&A in Bangladesh although the volume is modest in comparison with regional counterparts.

Between 2005 and 2023, around 22 deals took place, with the fast-moving consumer goods (FMCG) sector witnessing three deals amounting to $1.5 billion.

The telecom and financial service sectors secured $312 million and $55 million in investment respectively, according to a report titled "Beyond Transactions: Reflecting on 10 Years of M&A in Bangladesh and What Lies Ahead".

EDGE Research and Consulting Ltd and LightCastle Partners jointly prepared the report.

Bijon Islam, chief executive officer of LightCastle, said the report is perhaps the first of its kind in the country.

The organisations prepared the paper in order to attract foreign investment in Bangladesh, which is expected to be the ninth-largest consumer market by 2023, driven by steady economic growth over the two decades.

The country has a growing middle and affluent class while a young, tech-savvy demographic drives consumption, offering opportunities for growth and investment, according to the report.

The study said the pharmaceutical sector attracted approximately $36.89 million through four deals, indicating a strategic focus on healthcare.

Asif Khan, chief executive officer at EDGE Research, said they collected data from various sources and interviewed people involved in the M&A process to understand challenges and barriers.

He said the data was compiled based on deals disclosed in the media. In some cases, they did not disclose the terms, he added.

"Not all transactions are reported and for this, some numbers are not available. So, actual numbers would be higher," Khan said.

The first M&A mentioned in the report was the acquisition of Aromatic Cosmetics by Marico Bangladesh Ltd for an undisclosed amount in 2005.

The report added that the most significant M&A transaction before 2018 involved BRAC Bank, which acquired a 51 percent stake in Equity Partners Ltd and Equity Partners Securities Ltd for $300 million.

It said Bangladesh's M&A investment landscape showcases a dynamic trajectory with an increasing trend in cumulative funds from 2018 onwards, signalling increasing recognition and investor interest.

M&A activities peaked in 2018, bolstered by the acquisition of Akij Group's United Dhaka Tobacco by Japan Tobacco for $1.47 billion, the report said.

This signalled a substantial shift in the ecosystem, the report added.

It said since 2020, the M&A landscape has witnessed noteworthy acquisitions of startups, including investments from Chaldal and Shikho.

"These developments have added a new dimension to the ecosystem," it said.

Going forward, Asif Khan, chief executive officer at EDGE Research, said 2024 would be very interesting as the general elections were over.

"We are seeing foreign interest in Bangladesh. Many global companies are showing an interest for acquisitions in Bangladesh in various sectors," he said citing the readymade garments and service sectors.

"I think investor appetite will persist even after 2024 because the economy of Bangladesh is big. Our market will be attractive as our income rises. Besides, many factories are eager to relocate from China," he said.

He added that many businesses in Bangladesh would face difficulties running their firms because of rising interest rates and tight availability of liquidity. Consequently, they may show interest in selling their entities, Khan.

Islam said many factories were relocating from China because of the US-China trade war.

"Bangladesh might be a potential area, mainly for the garments sector," he added.

Islam also said the country was facing some short-term challenges.

"But for the long-term, it is positive; macro vitals are still there," said Islam of LightCastle, which is partnering in promoting foreign investment in Bangladesh through a platform --Invest Bangladesh – along with Anchorless Bangladesh, Edge Research and The Legal Circle.

The report said M&A investments constituted 0.02 percent of Bangladesh's GDP in 2022, reflecting a developing market with room for growth.

However, in comparison to regional counterparts such as China, India, Thailand and Singapore, Bangladesh's M&A activities were relatively modest, underscoring both the country's potential for expansion and the need for increased strategic investments to align with its economic development goals, it added.

The study said the current economic resurgence offers a compelling environment for new investments, particularly through M&A investments.

CHALLENGES

However, Bangladesh's M&A landscape is not devoid of challenges.

"Investors engaging in M&A grapple with regulatory intricacies, logistical constraints and the imperative need for strategic alignment. Political and economic stability, coupled with potential legal disputes, pose additional hurdles," the report said.

The report, based on responses to challenges faced by investors in terms of M&A investments in Bangladesh, found 83 percent said there were complexities in financial regulations and reporting, and infrastructural and logistical constraints.

Global investors involved in M&A activities in Bangladesh identified currency exchange risks, cross-border due diligence challenges and regulatory complexities, according to the report.

Besides, the paper said foreign companies navigating M&A deals in Bangladesh encounter challenges in repatriating funds due to stringent government restrictions, adding intricacies to the exit process.

"The complexities are heightened by the unpredictable nature of arbitrary pricing decisions made by the Bangladesh Bank, introducing uncertainties and delays for entities seeking to move significant sums of foreign currency out of the country," it added.