MALAYSIA: An Introduction to Corporate/M&A

The Effects of Geopolitical, International, Regional and Domestic Developments on M&A Activity in Malaysia

As 2025 approaches, Malaysia finds itself at the crossroads of several geopolitical, international, regional, and domestic developments that significantly impact its M&A landscape.

Impact of US and China

The US and China, two of Malaysia's biggest trade and investment partners, are locked in an increasingly hostile geopolitical contest. Malaysia sits at the heart of South-East Asia astride one of the most critical arteries of global trade, the Straits of Malacca. Malaysia is an integral part of the global supply chain for semiconductors with Penang responsible for a significant chunk of output through its outsourced semiconductor automation and testing industry.

Malaysia is also a critical manufacturing hub for many global multinational companies offering a competitive cost structure for land, labour and power, abundant natural resources, quality logistics infrastructure and pro-foreign direct investment (FDI) policies.

But it is also at the heart of a region where competition for FDI is fierce. Its neighbours compete head-on for FDI and some offer much larger domestic markets and on certain measures, a deeper pool of talent and lower costs. Malaysia’s M&A landscape as it approaches 2025 reflects a delicate balance between geopolitical complexities, technological advancements and sustainability imperatives.

Malaysian Political Stability

Malaysia has benefited from much-needed political stability after a period of drift and indecision during the COVID-19 era. Following the general elections at the end of 2022, the new unity government has promulgated a number of policies that have sought to provide a more facilitative environment for FDI, including the New Industrial Master Plan 2030 (NIM), the Madani Economic Narrative and most recently the National Semiconductor Strategy (NSS).

The key goals of the NIM include increasing economic complexity; creating high-value job opportunities; extending domestic linkages; developing new and existing clusters; improving inclusivity and enhancing ESG practices.

Addressing key challenges of the semiconductor industry in Malaysia, the NSS has an ambitious plan to attract over USD100 billion in investments through a strategy of training 60,000 highly skilled local engineers and establishing at least ten local semiconductor firms in design and advanced packaging. The government has also committed to investing more than USD5 billion over a five-year period to achieve the aims of the NSS.

Courting FDI

The new government has courted FDI from all corners particularly from the US, China, Japan, the EU and the Middle East. Significant new investments have been secured from major companies including Tesla, Microsoft, Amazon, Nvidia, Google, Infineon and a host of Chinese companies particularly in the data centre industry which forms another significant element of Malaysian participation in the high-growth and transformational cloud computing and artificial intelligence sectors.

The conclusion of negotiations on the Comprehensive Economic Partnership Agreement (CEPA) between Malaysia and the UAE in August 2024 is expected to attract new investments into Malaysia, as the CEPA aims to eliminate or reduce tariffs, lower trade barriers, and foster private-sector collaboration.

Malaysia's sovereign wealth fund Khazanah Nasional Berhad and statutory pension fund board, the Employees Provident Fund (EPF), recently formed a consortium with the global infrastructure fund, Global Infrastructure Partners (GIP) and the UAE sovereign wealth fund Abu Dhabi Investment Authority to delist and privatise its national airport operator company, Malaysia Airports Holdings Berhad, in one of the most significant M&A transactions in 2024.

The transaction underlines the government's determination to not only promote inflows of FDI in its manufacturing and tech industries but also to encourage large, cross-border, transformational M&A transactions to spur new investments and heighten operational excellence in infrastructure services.

The hunger for FDI and the commitment to an open market for M&A activity and post-pandemic economic recovery continue to drive M&A interest in Malaysia. Leading international and regional financial investors and private equity funds including GIP, TPG, CVC, KKR, Navis, Affinity, KV Asia and Creador have continued to show strong appetite for Malaysian companies engaged in a variety of sectors including consumer and retail, healthcare, education and specialist manufacturing services.

The growth of these target companies is driven by the relatively young population, the growing purchasing power of the tech-savvy middle classes supported by relatively developed and inclusive financial services and the ability to scale up by tapping into the 600 million strong ASEAN market.

Government Linked Company (GLC) and Government Linked Investment Company (GLIC) 

The GLC and GLIC sectors have been pushed to be more competitive and value-driven, as part of the government's drive under the Madani Economic Narrative to emphasise inclusivity and national competitiveness to realise a sustainable and resilient economy. The GLCs and GLICs have been given a clearer mandate to be more focused on value creation to deliver sustainable returns to their stakeholders within the context of strategic national objectives.

One consequence, from an M&A perspective, has been the more widespread use of transparent and competitive sale processes with multiple bidders to achieve optimal valuation outcomes.

Venture Capital

The government has conceived a Malaysian Venture Capital Roadmap to increase funding, nurture talent, and work towards streamlining the approval processes for cross-border fund flows, formed a National Fund of Funds to support venture capital firms investing in local start-ups, and established a supportive regulatory framework to attract foreign investment in the venture capital sector. A number of funds are, as a result of these efforts, being established in collaboration with international venture capital firms to spur the growth of start-ups. The EPF and public sector retirement fund KWAP plan to jointly invest RM3 billion to establish the ASEAN Growth Initiative Fund to nurture the start-up ecosystem in Malaysia and regionally.

Capital Gains Tax (CGT)

The government has introduced CGT on the disposal of shares of unlisted companies by non-individuals. Disposals of unlisted company shares for purposes of internal group restructuring or IPOs are exempted from CGT subject to the fulfilment of certain conditions. As the rate of CGT is relatively moderate, the introduction of CGT has not had a demonstrable adverse impact on transactions.

Merger Control Regime

The market is anticipating the introduction of a merger control regime in 2025. This has been in the pipeline for some years but has been delayed for various reasons and Malaysia is currently the only South-East Asian country without such a regime.

It is expected that the regime will draw upon the best practices of leading competition law jurisdictions. It is hoped that the introduction of the regime will provide clarity and streamline the Malaysia Competition Commission's clearance processes to ensure that Malaysia remains an attractive jurisdiction to undertake M&A transactions.

Forest City Special Financial Zone (FCSFZ)

On 20 September 2024, the government launched the FCSFZ in Johor, Malaysia, and announced an attractive list of incentives designed to make the FCSFZ a magnet for international capital. These incentives are expected to attract businesses, financial institutions, and high net worth individuals, further augmenting FCSFZ’s position as a preferred investment destination.

Johor-Singapore Special Economic Zone (JSSEZ)

On 11 January 2024, the governments of Malaysia and Singapore signed a memorandum of understanding to collaborate on the establishment of the JSSEZ in Johor, Malaysia. To foster the development of JSSEZ as a sustainable special economic zone, special incentives designed to attract quality investments and provide high-value job opportunities are targeted to be introduced by the end of 2024.

The establishment of the FCSFZ and JSSEZ presents significant opportunities for businesses seeking to expand in Malaysia.