The Star Online (02/01/2021) - IN the last several years, the Malaysian plantation industry has been buzzing with robust merger and acquisition (M&A) deals against the backdrop of weak crude palm oil (CPO) prices.
With land scarcity also playing a role, the momentum for M&A activities in the plantation sector picked up in 2020 after slowing down slightly a year earlier.
Companies with excess estates sought to dispose of the assets as they had to deal with depressed earnings and unproductive land usage.
On the contrary, companies with excess cash have been buying over these lands at attractive valuations, considering that soft CPO prices have limited the sellers’ ability to bargain for higher land sale prices.
However, times have now changed as CPO prices have been touching new multi-year highs in recent months, hence putting the yet-to-be-completed deals under the microscope.
Would these deals fall through, given that there might be less incentive for the plantation owners to sell their estates at a low valuation similar to two years ago?
An analyst who spoke with StarBizWeek says that some of these deals are not likely to happen, with the strong CPO prices being the main factor.
“As a seller, you would be seeking higher prices for your assets, now that you can earn more from the estates thanks to the stronger CPO prices.
“But, on the other hand, the question is whether the buyers would be able to digest the new increased land prices? The finalisation of the M&A deals depends on the valuation and how long the high CPO prices can sustain, ” he says.
However, the analyst adds that some of the deals would continue, albeit at a tweaked selling price, if the relevant plantation companies intend to reduce their exposure in the plantation business.
“In the case of TH Plantations Bhd