Sunday 3 November 2013

PE, M&A, IB in Singapore

"Banks with strong Balance Sheets tend to dominate deals – you see HSBC and DBS (a local bank) bidding on a lot of deals, as well as Standard Chartered, Citi, and so on.

There are very, very few mega-deals here because most companies are not that big.

If you do see a mega-deal, almost every single bank will be involved – on some larger M&A deals, you’ll see GS, CS, JPM, DB, Citi, DBS, and more, all listed as advisers.

Most companies worth over $300 million USD here are family-owned or state-owned, and most families do not want to divest their companies – so M&A activity above that level is limited (and there are even fewer $1 billion+ USD deals in a given year).

As a result, many bulge bracket banks aim for deals that are “below the bar” and you’ll see the likes of GS competing with HSBC for middle-market deals, which would be unheard of in the US.

Most deals here involve natural resources or shipping, and different countries specialize in different products.

Palm oil is huge in Malaysia, while Indonesia is more about coal. Other countries may specialize in rubber, sugar, and other commodities.

Singapore is a hub for cross-border deals, partially because of the security and stability offered by the government, and partially because of its location.

The most common deal types here are debt and equity issuances. Many bonds are issued here because we’re so “stable”; with ECM, you see a lot of secondary offerings and rights issues.

If you work at a boutique firm here, as I did, there will be even less modeling than at a boutique in the US or UK.

It’s a very sales-oriented job with a ton of pitch books, and boutiques are at a major disadvantage since the bulge brackets tend to be strongest in the debt and equity deals that are the most common here.

Q: So is it safe to say that most companies do deals in Singapore because of the safety and stability over all else?

A: Yes – the rest of Southeast Asia is perceived as “risky,” since you never know when the government will collapse, seize all property, or otherwise do something crazy, but Singapore is all about law and order.

Companies that list here do so because they want stable stock prices; the main downside is that there’s far less liquidity than in Hong Kong, so some choose to list there instead.

In line with this, there’s relatively little in the way of junk bonds, high-yield debt, and so on. That has been changing recently and some companies are now targeting Singapore for issuances that are too small for USD investors, but the volume is still low compared to other countries.

Q: You mentioned before how there are lots of cross-border deals there – does that explain why you don’t see the same language requirements you do in Hong Kong?

A: Sort of, but not really – it’s a little misleading to think that you will be working on tons of cross-border deals if you work here.

Each country here speaks a different language (Indonesian Bahasa vs. Malaysian Bahasa vs. Thai vs. Vietnamese vs. Tagalog…) and most bankers will focus on 1-2 countries because no one can possibly use 5-10 different languages at a professional level.

There isn’t a strict language requirement, but you still do gain a big advantage by knowing the local language – some companies’ filings and documents will be in the local language as well.

Q: Thanks for explaining that. What about on the private equity / venture capital / hedge fund side?

You mentioned that those industries are all relatively new in Singapore.

A: Yeah, I doubt there are even 50 “real” buy-side firms here (NOTE: Our lists show around ~100 firms, but some of those may not be traditional PE funds / HFs).

Various reasons explain this:

For hedge funds, the market here is too “stable” and doesn’t offer the liquidity and volatility that many funds need to make money – so you’ll see more of them in Hong Kong.

With that said, there are still some top-performing hedge funds here, including a well-known Singaporean quant fund… since you don’t have to trade the local market necessarily.

Most of the companies here are too small for the mega-funds to be interested, though that’s starting to change.

Some PE firms have focused on only a specific sector, so they wouldn’t necessarily want to bring in a team of generalists.

On the other hand, Singapore is a great country in terms of light taxes and regulations, and tons of wealthy individuals are moving here – so I think you’ll see more fund activity in the future.

Southeast Asia has a good growth story, but it’s not as good as the China or India growth story; there are also more cultural and language barriers since you’re dealing with multiple different high-growth countries instead of just one.

Q: So do you think it’s easier for foreigners to find work in Singapore compared to other Asian countries?

A: Well, it’s definitely easier to get a job here than in China – as your numerous interviewees in China have pointed out in the past.

There isn’t a strict language requirement and it’s much more multicultural, so they’re not going to turn you away for “not being Chinese enough.”

With that said, it’s still tough to come here and simply network your way into a job. You’d have a better chance by going through headhunters or transferring internally.

Most firms here still prefer local candidates, especially those from the top 3 universities, but people who studied abroad at top schools and then come back here find work as well.

Similar to the system in Mexico, many firms will put you through an extended “probation period” where they see how you perform as an intern for a long time before giving you a real full-time offer.

So you have to be prepared for that if you’re coming here as a fresh graduate with no work experience."

The above from an article in BusinessInsider, the full article can be found here.

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