Can you give us an overview of The Quant Group?
VALLISUTA: The Quant Group is a pure M&A advisory firm that I co-founded 16 years ago. Essentially, we split the business between strategic M&A, which are people in the same industry merging or acquiring one another, and the other half of the business is the financial sponsors, private equity funds and hedge funds acquiring assets. We operate in the whole of Asia with a big focus on Southeast Asia.
How would you describe the climate for M&A in Southeast Asia today?
VALLISUTA: Firstly, if you look at Asian companies and Asian management versus ownership, it is very difficult to separate management from the owners or the shareholders and that is by and large because they are one in the same people. Due to that reason, M&A only happens when there are catalysts. For example, if there is a financial crisis, or generational issues, or restructuring that can come from de-conglomeration. In that regard, the activities from 2013 have not been much different from 2012 and the levels from the past couple of years have not been as high as pre global financial crisis. Much of it would be driven by leverage and liquidity. Liquidity in the different countries of Southeast Asia is somewhat different. If we are talking about Thailand for example, in the past couple of years, we have had a fair bit of domestic liquidity. In the old days people would borrow Yen very inexpensively to acquire assets abroad known as the yen carry trade. We have almost had a very similar issue with Thailand with what I call the Baht carry trade, except we did not borrow in Baht, we borrowed in US dollars very inexpensively going out to acquire companies. So we have seen very big landmark deals even coming out of Thailand to acquire global companies.
Are you seeing a trend towards internationalization for Thai corporates?
VALLISUTA: I think we may take inspiration from countries such as Japan, Korea, and Taiwan, that have gone through this manufacturing curve before us. Japan for example, has had the ability to focus on manufacturing, driving down the cost, achieving global scale within their markets, but over time, one needs to shift away from being a pure OEM and start investing in brands. If you look at Japan, Korea, and Taiwan, you could name a handful of global brands. I do not think that is the case, by and large, for Southeast Asian companies. As we try to ride up that curve, we cannot just sit on just being an exporter or an OEM exporter because over time you will lose the comparative advantages such as labor costs and having to buy raw materials from elsewhere. Investing in a brand will give you a long-term sustainable competitive advantage because there is customer stickiness.
What are your projections for FDI in Thailand?
VALLISUTA: We need to separate FDI from M&A a little bit. From a green field perspective, we have always been very strong in FDI and we have been a capital importer in that respect. Of course, you see many countries, with the leadership from Japan, that still have a lot of investments in Thailand. From an M&A perspective, it is a different matter. A lot of that would be dependent on whether families and shareholders are prepared to part with their franchises and sell stakes to foreigners or foreign companies. Secondly, I think we need to look at how open the market is because we still have foreign ownership limits. So there are limitations on ownership percentage and that is really dependent upon the different industries in the country and if you can seek waivers or not. So I think that is going to be a key catalyst in terms of the liberalization of markets.
If you look at the current countries and how we all operate now as a block of 10 countries within AEC, we are generating some $3tn worth of GDP. That is a significant number in comparison to the BRIC countries.
How will the ASEAN Economic Community (AEC) impact economies in the region?
VALLISUTA: If you look at the current countries and how we all operate now as a block of 10 countries within AEC, we are generating some $3tn worth of GDP. That is a significant number in comparison to the BRIC countries. For example, the total aggregate GDP is larger than Russia; it is larger than Brazil, which is at about $2.2tn. So in that regard, it is a significant block. How we physically and fiscally integrate is very important and the capital flow must accommodate that. So governments and business leaders need to work together to build that value chain plus supply chain of capital, fiscal goods, and fiscal policies that are amenable to the market behaving in a coordinated fashion.
How can Thailand take a leadership role in the AEC?
VALLISUTA: I think Thailand has some advantages and some disadvantages. We have challenges on the political side of the equation and the other problem is that we are probably not as well endowed as say countries like Indonesia and Malaysia that have a lot of natural resources. However, in that regard, we are better off than say Singapore. So to that extent we need to capitalize on our comparative advantages such as agricultural products, labour, and food processing. We have become somewhat of a hub for auto parts and automobile manufacturing. So if we can focus on some of the sectors where we have a competitive advantage in and we can boost our tourism, I think that is an area where we could do a lot better.
If you look at Disneyland Orlando alone, there are 15.5m people visiting that per year and that is just one unit. So we need to start to think about focusing on marketing different cities in Thailand and different sites, whether it is Sukothai or Phetburi or Chiangmai, beyond Pattaya and Phuket that people tend to go to. I think we have the ability to increase that.