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Malaysian Corporations Making Headway in the Global M&A Scene

October 2012 - Corporate & Commercial. Legal Developments by Azmi & Associates.

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Malaysian companies continue to make waves internationally by acquiring large companies abroad. Leveraging on the European debt crisis and the weak dollar, these companies have boldly made their mark on a global scale with impressive deals. Cross-border acquisitions are increasing trend in the Asian economic hot spots, with companies in China and India spearheading it. The consistently strong uptrend in foreign acquisitions and the increasing success of the same by China and India for the past few years has spurred growing interests of Southeast Asian companies to extend their reach to other continents.

Mergers and acquisitions (“M&A”) are typically pursued by companies for a variety of reasons which include strengthening their competitive positions, increase their visibility and establish their presence in high-growth markets. M&As are therefore often utilised as a vehicle for ambitious companies to frog-leap onto the global scene.

Vibrancy of Outbound M&A Activities


The rationale for the recent vibrancy of outbound M&A activities by Asian powerhouses is due to the fact that as the region’s economies mature, industry-leading companies require much bigger playgrounds to chart their growth prospects and export their brands beyond the domestic and regional markets. Going global by exploring viable potentials is hence the natural extension of their corporate ambition.


Analysts attribute the ability of Malaysian conglomerates to acquire large foreign companies mainly to Malaysia’s stable economy amongst others. Weathering the storm of the global recessions with a comparatively solid economy has allowed Malaysian companies to leverage on the weakening of the West economic powers and also the relative stability of the Ringgit in recent times.


Apart from the outward investments by Malaysian companies, Malaysia itself has experienced a rather impressive initial public offering (“IPO”) boom of late, consisting of the world's second and third biggest IPOs this year. One of them, global agro giant, Felda Global Venture Holdings Bhd has its own plans on utilising the capital obtained from the successful IPO amounting to $3.3 billion, to buy agricultural assets world-wide. The IPO boom has helped profoundly in cementing Malaysia’s stability and viability for inflow and outflow of investments in the global scene.


Notable Acquisition Sprees by Malaysian Powerhouses in 2011-2012


Sime Darby Berhad recently finalised the acquisition of London's Battersea Power Station, for USD620 million with another Malaysian company, SP Setia Bhd. The conglomerate deemed as the world's largest oil-palm producer by acreage also has businesses covering the sale and distribution rights of Caterpillar and automotive brands such as BMW, Ford, Rolls-Royce and Peugeot.


Recently Petronas announced that it is in the process of finalising the acquisition of Progress Energy Resources Corporation, a Canadian exploration and production company of natural gas for about USD5.8 billion. This would have rendered it as the second largest cross-border M&A acquisition by Southeast Asian companies in 2011 and 2012 had the deal not been rejected by the Canadian government due to the deal not being of “net benefit” to Canada. At the time of printing of this article, Petronas said it will appeal against the decision, although a final and conclusive outcome is difficult to predict at this stage.


Genting Bhd, a veteran in the regional gambling scene, has also made news in the United States by launching a USD4 billion casino resort at the Aqueduct Racetrack in New York and another big project in Miami. Aviation sensation, AirAsia Berhad made an attempt to acquire Indonesia’s Batavia Air for USD80 million recently, but the plan was aborted due to the parties not having a consensus on certain terms. Alternatively, AirAsia is in the exploring the possibility of listing its Indonesian entity while maintaining cooperation with Batavia Air. If its impressive historical performance is anything to go by, its long-distant unit, AirAsia X has also branched out to other destinations including Japan, Nepal, China and Australia.


CIMB Group Bhd, a banking maverick, continues its stellar performance by acquiring the investment banking assets of Royal Bank of Scotland in Australia, Hong Kong, Indonesia and Thailand markets for USD142 million after closing several other deals in its efforts to supersede other players in being Asia's newest financial powerhouse. It also further expanded in the Philippines in May 2012 after buying a 60% stake in the Bank of Commerce, a privately held entity in the Philippines.


Permodalan Nasional Berhad on the other hand, in diversifying its equity investments, started property acquisitions by buying prime London commercial offices with its purchase of 2 properties, 90 High Holborn and One Exchange Square, bringing to 4 of its portfolio of properties in London. In December last year, PNB bought a 12-storey office space in Milton & Shire House on 1 Silk Street for £350 million from US investor Beacon Capital. In January, it bought Woolgate Exchange, on 25 Basinghall Street, a 9-storey commercial office for £270 million from Irish development and investment company. PNB's first foreign foray was in Australia where it bought Santos Place in Brisbane for A$290 million in August 2010 from Nilson Properties.


Opportunity for Local Legal Law Firms


The high profile cross-border acquisitions above provide strong opportunities and platforms for local legal firms to breakthrough onto the global scene. Local firms need to upskill and equip themselves with sufficient knowledge and expertise to seize such large deals in order to join the ranks of global legal big names such as Herbert Smith-Freehills, Norton Rose and Clifford Chance to name but a few.


Should size and scale be an issue to local legal firms, they can also further broaden their horizons by capitalising on the liberalisation of the legal scene in Malaysia, where foreign lawyers will be allowed to practice in Malaysia with fewer restrictions. With these foreign players being able to penetrate the legal scene, it would be wise for domestic legal firms to hand pick and collaborate with foreign experts to be able to utilise not only their services, but also their reputation in order to net more regional and global transactions.


All in all, we believe that the exponential growth in market strength of Malaysian corporations on the global front sheds an extremely positive light on the Malaysian corporate scene, and we strongly believe that this will be a sustainable phenomenon which may contribute to the strengthening of the Asian economy. We do hope that this upward trend shall provide valuable motivation and impetus for other Malaysian companies to follow suit. In the long run, we also firmly believe that the maturity of Malaysian companies will further enrich the local legal scene and increase the strength and capabilities of local legal firms.


By Norhisham Abd Bahrin, Azmi & Associates

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