THAILAND S M&A ACTIVITIES: Positive growth trend despite political uncertainty and tight credit conditions

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1 THAILAND S M&A ACTIVITIES: Positive growth trend despite political uncertainty and tight credit conditions June 218

2 Page 2 Thailand s service companies and manufacturers have shifted investment from new fixed assets to M&As - domestically and internationally - to boost their productivity, addressable markets, customer base, increase top line as well as enjoy lower interest rates in other foreign countries. Thailand s economy has strengthened and improved over the past 3 years, led by manufacturing exports and tourism, with an estimated GDP growth of 3.9% in 217 and reaching an approximate value of USD 423 billion - the highest since 212. According to the Bank of Thailand, this trend is expected to continue in 218 with a GDP growth forecast of 4.2% fuelled by several factors including solid growth in the major economies, the global uptrend in IT spending and moves by many Asian companies shifting manufacturing operations to Thailand. Thailand is known as a manufacturing-driven economy contributing to 27% of GDP in 217, followed by household consumption (16%) and agriculture (8%), respectively. Macroeconomic performance has shown positive signs of recovery with strong growth in agriculture and exports in the past years despite the fact there has been political uncertainty, especially now as the Government is pushing back elections from November 218 to February 219. Volume Thailand M&A Overview, Value With strong historical economic performance, increase in Volume (Deal) Value (USD Billion) private investment, and higher government expenditure in major infrastructure development, most domestic and foreign companies in Thailand have continued growing their business through M&A to improve productivity and maintain business growth. reason being is that it mainly contributes to the transfer of ownership of stocks or assets without significant spending on new assets. Additionally, this trend is expected to carry on with a bigger value of deals over time from 218 onwards However, this type of private investment has less impact to GDP compared with investments in new fixed assets. The to seize domestic and overseas business expansion opportunities.

3 Page 3 216: THAILAND S PRIME YEAR FOR M&A DEALS In 217, Thailand s M&A activities were valued at USD 12.7 billion and comprised of 357 deals in total, representing a 19% decrease from 216 which had a value of USD 15 billion. Notice that closed deals in 216 were significantly higher when compared to 215 (USD 7.9 billion) and 217 (USD 3.8 billion). The sharp rise in 216 s transaction value was partly the result Thailand M&A Deal Size by Value, Thailand M&A Value by Status, % USD >=.4 Billion USD <.4 Billion 8% 6% 4% 2% % Announced Closed Cancelled of the USD 6.2 billion mega-deal between Casino Group and Beri Jucker to acquire Big C Supercenter. It was the biggest deal in Thailand and Southeast Asia in that year. Over the same period, average transaction size increased by 21% from USD 39.7 million in 215 to USD 48.2 million in 217. Meanwhile, value transactions larger than USD 4 million increased by CAGR 5.5%. The significant rise in share of capital spending on M&As over the past decade has indicated growing appetite of Thai firms to secure more Business Sentiment Index (BSI) deals - although the number of transactions were seen to decrease in this period. According to Business Sentiment Index (BSI), business confidence in Thailand has been volatile since 215 but is slowly recovering in 217. Hence, the M&A volume and value could have been higher with regard to expected BSI BSI Expected BSI 1/215 3/215 5/215 7/215 9/215 11/215 1/216 3/216 5/216 7/216 9/216 11/216 1/217 3/217 5/217 7/217 9/217 11/217 Index = 5 indicates that business sentiment remains stable. Source: Bank of Thailand (BOT)

4 Page 4 CONSUMER SECTOR TO DRIVE MORE M&A ACTIVITY IN THE FUTURE Looking forward, Thailand s outward investment through aggressive merger and acquisition is on the rise. Heavyweight Thai companies such as Thai Beverage (ThaiBev), Indorama Ventures and Thai Union Group, have all allocated their budgets in M&A overseas despite the fact that traditionally the Thai M&A market has been more inclined towards domestic and inbound investments. WE EXPECT WITH THE FURTHER INTEGRATION OF THE ASEAN ECONOMIC COMMUNITY (AEC), THERE WILL BE A WIDER RANGE OF ACCESSIBLE TARGETS STIMULATING BOTH INBOUND AND OUTBOUND INTRAREGIONAL CROSS-BORDER ACQUISITIONS. Long-term Capital Spending of Thai listed companies USD Billion Investment through M&A Investment in new fixed assets Source: Bloomberg Note: USD 1 = THB 35 Strategically, outward investment makes sense for companies facing a slower consumption growth, but in the case of Thai companies, we also see those having a critical mass and know-how of recognized brands trying to take market share in the region to benefit from ASEAN emerging economies. Taking this approach not only allows the Thai heavyweight companies to diversify their risks, but also enable the companies to leverage the skills and resources obtained overseas to improve their overall operations as well as to stimulate technological and managerial capabilities.

5 Page 5 Thailand M&A Value by Sector, 215 Thailand M&A Value by Sector, 216 Thailand M&A Value by Sector, % 15% 5% 2% 1% % 5% % USD 12. billion 17% 25% 19% Financials Industrials Consumer Discretionary Consumer Staples Real Estate Utilities Energy 8% 6% 6% 13% 5% 2% 1% 1% % USD 15.1 billion 14% 44% Consumer Staples Industrials Materials Telecommunication Services Consumer Discretionary Real Estate Financials Utilities Energy Healthcare Information Technology 8% 7% 9% 6% 1% % 4% 3% USD 12.7 billion 15% 28% 18% Energy Real Estate Industrials Materials Consumer Staples Consumer Discretionary Utilities Healthcare Information Technology Financials Telecommunication Services Thailand Cumulative M&A Value by Sector, % 8% 1% 2% 1% 4% 3% 24% USD 39.7 billion 16% 11% 11% Consumer Staples Industrials Real Estate Energy Consumer Discretionary Financials Materials Utilities Telecommunication Services Healthcare Information Technology, Solidiance Research and Analysis In terms of industry breakdown, consumer discretionary and staples had represented the largest sector for both deal volume and value, followed by industrial and material sectors. In addition, consumer discretionary and staples had remained relatively stable in terms of volume over the same billion mega-merger to buy its way into Vietnam s USD 6.5 billion beer market, Thaibev chose to use its local Vietnamese unit, Vietnam Beverage, to perform the acquisition. The strategic move was to avoid regulatory hurdles. Thus, the data was not represented in this report. period. In 217, the number of M&A activities in the energy industry TCC Group Holdings led the wave of acquisitions in 217 with total value of USD 1.3 billion through a variety of acquisitions such as: Assets of Thai Hotel Investment Freehold and Leasehold Property Fund for USD million 252 existing KFC stores from Yum! Restaurants International (Thailand) Co. Ltd. for USD million sector had remained relatively constant over the period, whereas the service and manufacturing sectors have increased their focus on greater M&As over the past 3 years despite lower figures in 217. In the same year, the service sector received relatively same amount of M&A activity in terms of volume compared to 216, albeit still not as great as manufacturing. This is primarily because the service sector continued to invest in their fixed assets such as retail Also, despite Thaibev acquiring a 54% stake in Saigon Beer stores. Alcohol Beverage Corporation (SABECO) through a USD 4.8

6 Page 6 USD Billion Thailand M&A Value by Type, Domestic Inbound Outbound WE ANTICIPATE THAT THE CONSUMER SECTOR WILL BE A KEY GROWING SECTOR IN THE THAI M&A MARKET GIVEN THE INCREASING REGIONAL CONSUMPTION SPENDING AND THE RECOVERY OF THAILAND S EXPORTS. In terms of M&A deals geographical origin, despite having an increasing number of inbound/outbound transactions in terms of volume from 215 to 217, the transaction value on inbound / outbound has almost halved in 217 compared to 215 as most M&A transactions in 217 were domestic. The radical change from historical trends is likely to be a result of two large transactions: Thaibev had chosen to perform its USD 4.8 billion mega-merger with SABECO using its local Vietnamese unit, Vietnam Beverage. Therefore, the outbound transaction is not recorded, but rather recorded as a domestic M&A transaction in Vietnam. PTT Public Company Limited (SET:PTT) s USD 3.5 billion M&A transaction in restructuring its oil business unit which included assets and liabilities and shares of relevant companies to be transferred to PTT Oil and Retail Business Company Limited (PTTOR). This was the largest M&A transaction in 217, hence, making the domestic transaction unusually large. If Thaibev s transaction was included, the total M&A transaction value in Thailand would have exceeded the 216 figure and the share of outbound would have been more in line with 216 outbound numbers.

7 Page ONWARDS THAILAND S M&A ACTIVITY IS EXPECTED TO PEAK IN 2 YEARS TIME As of 1Q18, Thailand M&A transaction reached USD 2.2 million with a total number 57 deals - a figure lower than what Thailand experienced in 1Q17 by almost half in terms of volume and value. There were 4 major M&A deals, valued above USD 4 million, announced in the beginning of 217. While in the beginning of 218, there is one major M&A deal, valued at USD 75 million, which is the acquisition of Bokgkot Project by PTTEP International Limited in the energy sector. Volume Thailand M&A Overview, 1Q17 vs 1Q Value 1Q17 1Q18 Volume (Deal) Value (USD Billion) However, according to The Office of the National Economic and Social Development Board, Thailand s macroeconomic indicators (i.e. GDP growth, private investment, public investment) throughout 218 are expected to grow faster than what Thailand experienced in 217. This is also supported by global economy perceiving Thailand as a global destination for tourism, high-value manufacturing sector, and with public spending in infrastructure that should stimulate FDI. Thus, M&A transactions are anticipated to pick up in the next coming three quarters of 218. M&A Transaction Value by Sector in 1Q18 6% 2% 2% 1% % 4% % Consumer Discretionary Energy 37% Real Estate 14% USD 2.2 billion Industrials Utilities Healthcare Consumer Staples 34% Materials

8 Page 8 M&A Transaction by Type in 1Q18 15% 1% Domestic USD 2.2 billion Outbound Inbound 85% In addition, consumer discretionary and staples, energy and real estate sectors are still also promising and potential sectors to grow in 218. As of 1Q18, 37% of M&A transaction value occurred in consumer discretionary sector, followed by energy (34%) and real estate (14%), respectively. Moreover, 85% of the M&A transaction value was from domestic investments that is a result from a recovery of exports in industrials sector and government commitment to invest and foster a business scheme such as Eastern Economic Corridor. From all reasons mentioned above, we believe that Thailand s deal-making landscape in 218 will soon surge to reach similar levels as 217 or higher. There are promising market opportunities as shown by global and domestic macroeconomic indicators. Thailand will remain an attractive stage for domestic, outbound and inbound M&A deals which should reach its peak in 22.

9 Page 9 MEET THE AUTHORS MICKAEL FEIGE I Partner Mickael Feige is a Partner based in Thailand. He manages large projects for Fortune 5 in various sectors such as automotive, chemicals, construction, energy, heavy industries and healthcare. His expertise lies mostly in market entry, growth strategy, industry and competitive benchmarking, and commercial problems diagnostics. Mickael has advised countless multinational companies in goto market strategy and for M&A projects. Mickael speaks French and conversational Japanese. He holds a Masters Degree from a joint program between Lyon Political Science Institute and Senshu University and attained his MBA from INSEAD. JIRATHIT PHOKAI I Senior Consultant Jirathit is senior consultant based in our Thailand Office. Prior to joining Solidiance, he worked as an associate in global and boutique management consulting firms working across strategic, operational and technological competencies in energy, coal mining, aviation, automotive, and banking industries. His experience involved Corporate Finance & Strategy, Business Development, Investor Relation, and Business Process Improvement. This included market opportunity assessments, feasibility studies, due diligence, M&A support, company valuation and business continuity management. Jirathit is a project manager and has been leading several projects in Thailand. He holds a Master s Degree in Financial Modelling from University of Glasgow, UK and Bachelor s Degree in Aerospace Engineering from Chulalongkorn University, Thailand.

10 Page 1 ABOUT US What We Do Solidiance is a corporate strategy consulting firm with focus on Asia, from Dubai to Shanghai. We advise CEOs on make-or-break deals, define new business models and accelerate Asia growth. Through our 13 offices across Asia, we provide our clients with a better understanding of intrinsic regional issues. To learn more about how Solidiance has helped many Fortune 5 and Asian Conglomerates to succeed in Asia, please visit: What We Focus On Solidiance is a solid partner for successful M&A activities across Asia. We help clients screen their targets based on criteria set by the corporate strategy team. Our goal is to identify, qualify, screen and recommend best targets for successful acquisitions. Our M&A services include complete full due diligence and valuation and negotiation support. We support client's M&A activities in industries such as manufacturing, construction, healthcare, technology and food. Our Footprint Solidiance has offices in Australia, China, India, Indonesia, Lebanon, Malaysia, Myanmar, Philippines, Singapore, Thailand, United Arab Emirates, and Vietnam. We also have a client liaison office in Germany and USA. We are fast expanding and always on the lookout for exceptional people. Connect With Us Solidiance Asia Pacific

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