Many local firms make deals for divestitures, acquisitions in the short run
View(s):Many local firms are consolidating their positions in their core areas or expanding into high-growth areas, showing large potential for growth in the Sri Lankan market, making way for divestitures and acquisitions in the short term, analysts said. Firms like Hemas divesting their non-core garment business, Hela Clothing to former MAS Holdings director Dian Gomes and the Nawaloka Group entering the FMCG sector through its recent acquisition of East West Marketing (EWM), a distribution company with local and foreign partners are the most recent examples – both done last month. Hemas sold its power business, Hemas Power to a consortium of investors last year.
The Cassim family members sold 30 per cent in Expolanka Holdings last May in a deal worth Rs. 6.27 billion to SG Holdings (Pvt) Ltd (or Sagawa), a leading logistics company in Japan. Some firms are eyeing opportunities in IT and education while, tourist hotels are still ‘hot property’, according to analysts. The trend has intensified in the past 10 months after the present government, widely regarded as being friendly towards the private sector, came into power.
The Softlogic Group has followed on the heels of the Hemas Group’s announcement on its interest in buying shares in Lanka Hospitals Corporation PLC (LHCL), should the government decide to divest these shares, which both announced to the Colombo Stock Exchange (CSE) early this month. “We have been in the healthcare sector for a number of years as an innovative leader and have won the hearts and minds of our customers. We are confident of our ability to contribute significantly to the Sri Lankan healthcare services, the Hemas announcement added.
LAUGFS Gas PLC, a Liquefied Petroleum Gas (LPG) distribution company through its new subsidiary LAUGFS Maritime Services Private Limited (LMS) wrapped up the purchase its second vessel to transport downstream Liquefied Petroleum Gas a few months ago to control their logistics.
Meanwhile, LAUGFS Power has invested some Rs.6 billion to acquire and construct projects in this sector during the past two years, according to company officials. Access Engineering invested in 100 per cent and 50 per cent of Horizon Holdings Ventures (Pvt) Ltd and Horizon Holdings (Pvt) Ltd for Rs. 273.6 million and Rs. 250 million in June. Access acquired these firms that are into education and are also developing property in Malabe over an extent of 12.5 acres.
Ravi Abeysuriya, President Colombo Stock brokers Association observed that most local firms are active as they are seeing the local economy taking off. “If the budget proposals (such as exiting partially or fully from those non-strategic investments in Lanka Hospitals, Hotel Developers PLC, Hyatt Residencies, Waters Edge, Grand Oriental Hotel, Ceylinco Hospital and Mobitel by listing such investments in the Colombo Stock Exchange during next year) are implemented , there will be more activity in terms of acquisitions,” he said.
Purasisi Jinadasa, Chief Strategy Officer Capital Alliance Holdings Limited noted that the majority of the businesses that sold out (Hemas, Expo) did so to realign their core competencies. “They went into unrelated areas during the war. At the time they wanted to mitigate their risks, but now they can earn a higher Return on Investment (ROE) by concentrating on their core business,” he said. An analyst pointed out that Access’s decision to get into a non-core business (education) would have stemmed from the low Gross Profit (GP) margins in their core construction sector the company is witnessing now.
“On average this sector yields 10 per cent, but Access used to post around 25 per cent. Their recent earnings show that this figure has fallen. Over the course of the next two years it will fall to 13 per cent. It’s better for them to diversify into the education business which yields about 50 per cent GP margins,” he said. Mr. Jinadasa added that more and more firms will re align their core competencies, paving the way for more divestitures and acquisitions by next year.