Business

Monday December 22, 2008

M&As in region expected to peak

By EILEEN HEE


More people with Corporate Finance qualification needed

MERGERS and acquisitions (M&As) activities are going to peak over the next two to three years in this part of the world and there is going to be a need for more people who are better qualified in corporate finance to execute deals that create value.

Securities Industry Development Corp chief executive officer John Zinkin pointed out that research done by McKinsey and Co indicated that more than 60% of M&A deals destroyed shareholder value of the acquiring company.

“One of the reasons is that many of the M&A dealmakers do not have the qualification like the Corporate Finance qualification (CFq),” he told StarBiz.

According to Zinkin, M&A deals are paramount to business and that the skills of corporate financiers are crucial to any economy through the role they play in the investment chain.

John Zinkin

“Therefore, giving people skills and formally assessing them are crucial to the industry, as M&A deals need to be done properly,” he said, adding that corporate finance was an area which was largely unregulated from the deal perspective.

“The CFq would provide a specialisation in an area that is significant,” he said.

“It is important for dealmakers to understand not to overpay and not to get overexcited about the dynamics of the deal. Once people get involved in the deal, and egos get on the line, especially that of the acquirer; it’s difficult for the acquirer to say it is paying too high a premium for a deal. Therefore, there is a need for corporate finance practitioners to be better qualified,” he said.

Zinkin noted that defensive M&As were expected to increase when industries were threatened with eroding profit margins or forced to merge as a result of the ripple effect of the subprime crisis.

“We have seen and continue to expect to see consolidation not just in the finance industry like Bear Stearns and the airlines industry like Delta and Northwest and the failed Alitalia merger with Air France, but in the primary industries as well like the creation of the new Sime Darby,” he said.

He added that the rise of sovereign wealth funds with money to invest in major strategic stakes would also mean the “premium on having the highest level of competence in corporate finance has never been higher.”

“Chief financial officers (CFOs) of target companies need to know how to extract the best defensive deals from sovereign wealth funds and the CFq will provide them with the necessary skills and knowledge,” he said.

The CFq would also help CFOs create offensive corporate strategies as companies ventured abroad and entered new markets via acquisitions, Zinkin said.

The Securities Industry Development Corp (SIDC) is collaborating with the Chartered Accountants in England and Wales (ICAEW) and the Canadian Institute of Chartered Accountants (CICA) to offer the first corporate finance programme in Malaysia, which combines comprehensive technical knowledge and skills with practical application and high-level strategy.

It was a niche programme that would satisfy a local demand of 25 to 30 people a year, Zinkin said.

The diploma level will cost RM20,000 and the advance diploma RM20,000.

Asked to comment on the corporate finance industry in Malaysia, Zinkin said: “Many of the deals that have been done here have not destroyed value, like in the US. That is because the deals have been much more framed in terms of a government strategy of what is right in Malaysia as opposed to what is right for the ego of the CEO, which is where value gets destroyed.”

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