Mergers and acquisitions (M&A) though a widely practiced business phenomenon in the developed world is yet to gain ground in many developing countries, including Bangladesh.
There have been a few acquisitions--- mainly foreign bank branches--- but, possibly, not a single case of corporate merger in Bangladesh until now, notwithstanding the fact that some business operations here are strong candidates for M&A.
On issues of competitiveness, profitability and marketing, M&A is a wide open option in the corporate world of the West. That is what was indicated to newsmen by the chief executive officer (CEO) of the country's largest cell phone company, the GrameenPhone (GP), Monday in Dhaka.
When asked about the entry of yet another mobile company--- the UAE-based Warid Telecom-in the local telecom market, he observed that six cell phone companies would be too much for Bangladesh market. In that event, he said, there would be mergers and acquisitions in the sector. The GP CEO, who comes from a developed country, has referred to what is inevitable in a highly competitive market. But many sponsors and chief executives of local companies are not aware of the modern practice of M&A.
If any industrial and business entity finds it difficult to stay in business for financial reasons, attempts are made in vain to keep it afloat by borrowing from different sources, including banks. The practice of M&A could be a viable way of saving such an entity from total closure. The regulatory bodies concerned and the business leaders have never given a serious attention to this issue.
For instance, there are a lot of non-performing listed companies operating in various sectors in which investors' funds worth billions of takas have been stuck up. One possible way of making these companies viable is merger. A financially strong listed company may be encouraged to merge with or acquire another sick company doing the same type of business or producing same goods or products. Such a measure, if taken, is likely to boost the confidence of the investors, on one hand, and help revival of a good number of sick units, on the other.
The Securities and Exchange Commission (SEC) could play the role of a matchmaker in this connection. But that is unlikely to happen since the capital market regulator has neither the necessary motivation nor the skill and manpower to perform that role. Moreover, because of the absence of any kind of pressure from the authorities concerned to meet obligations to their shareholders, the errant listed companies are generally found to be reluctant to take any initiative to improve their performance.
In addition, there are a few strong candidates for M&A in the country's banking and insurance sectors. In spite of strong monitoring and supervision by the central bank, some private banks have problems with their operations. These banks could have done well had they been merged with some other banks having strong fundamentals.
A good number of new generation insurance companies are also finding it difficult to survive a cut-throat competition in the sector. The existence of too many insurers in a small market has given rise to an unhealthy competition and also unethical business practices. The absence of an effective regulatory body for the sector has made the situation worse.
Even under ideal market conditions, such a large number of insurance companies would not be able to operate profitably. The number of insurance companies, particularly those doing general insurance business, needs to be reduced. Here, too, M&A provides the solution to the problem.
The M&A is a difficult process since locating parties willing to sell and buy companies is not that easy. The situation becomes more difficult in the case of privately owned companies. The listed companies are more open in their transactions, financial or otherwise. But the same is not true in the case of private entities. Professionals having the requisite knowledge in M&A could perform the role of matchmakers in such transactions.
However, M&A does not guarantee success in all the cases. There could be failures due to various factors, including mismanagement, concealment of facts and continuation of redundant staff.
The government does need to look into the issue of M&A with all seriousness and make necessary rules and regulations to facilitate the process. The finance minister on a few occasions highlighted the need for M&A but there has not been any meaningful initiative on the part of his ministry to facilitate the same.