Vijian Paramasivam
The rapidly growing Merger and Acquisition (M&A) market in Cambodia is poised for a robust growth trajectory as it draws the attention of international companies seeking to expand their operations into new territories. As the global economic landscape continues to evolve, Cambodia presents an untapped avenue for firms to extend their influence and gain a stronger foothold in new markets.
In an insightful discussion hosted by the American Chamber of Commerce (AmCham) Cambodia Legal Committee’s M&A Masterclass event in Phnom Penh, experts and thought leaders highlighted the potential for Cambodian businesses to attract foreign investments, in order to bolster their financial health and navigate economic uncertainties.
Opportunities for international investors to acquire or invest
Speaking at the event, CamEd Business School President, Casey Barnett emphasized, “Currently, in Cambodia, there is no efficient allocation of capital for businesses to grow and ensure the capital is invested wisely. There are a lot of opportunities for international investors to acquire or invest in local companies because they can bring value to Cambodian businesses.”
Barnett explained that foreign investments could introduce an array of benefits to local businesses including technical resources, advanced management strategies, product innovations, and enhanced human resources, thereby increasing the overall business value.
However, diving into the Cambodian market isn’t without its challenges. Opaque taxation laws, ambiguous capital gain tax rules, and cultural disparities could potentially hamper M&A activities, says Sethalay Law Office Managing Partner Sok Vanseka. “The biggest challenges are confirmation on due diligence, cultural differences, and transfer of capital outflow from their countries,” she noted.
Vanseka asserted that despite these challenges, Cambodia continues to entice investors owing to its stable economic growth, burgeoning middle class, and demographic advantages resulting from its young population.
Prioritize market entry through acquisition
In regulated sectors like banking and microfinance, where the market is already saturated, Vanseka believes foreign investors might prioritize market entry through acquisition. This method offers convenience in terms of regulatory approval and legal procedures, besides providing a ready customer base and well-established human resources.
However, for non-regulated sectors and services less related to consumers, Vanseka recommends opening a new entity before acquiring local businesses provided that the new business may be subject to incentives as to be provided under the new and attractive investment law as well.
AmCham Law Committee Chairman Ruwan Hulugalle underscored the importance of due diligence before finalizing any deal, including checks on regulatory compliance, licensing, labor, environment, and tax compliance.
Highlighting the prevalent risks in M&A, a report by Deloitte revealed that over 90 percent of M&A deals fail to achieve their objectives, often due to inadequate due diligence.
Cambodia’s investor-friendly legal framework
Despite the potential obstacles, Tilleke & Gibbins Partners and Director Jay Cohen asserted that Cambodia’s investor-friendly legal framework, improving logistics, and a growing middle class will stimulate business and M&A growth. He further advised that clarifying uncertainties like tax liabilities and capital gain tax would be pivotal in promoting a favorable business environment.
Reflecting on the potential impact of M&As, Vichet Lor, Vice-President of the Cambodia Chinese Commerce Association, pointed out, “Companies are involved in M&As to improve economies of scale, reduce labor costs, gain financial resources, enhance distribution capacity. In the high-tech digital economy, some patents can only be obtained through M&As. M&As will shape the Cambodian corporate landscape for many years to come.”
While the consensus amongst the panelists was that M&A growth in Cambodia is likely to surge, they stressed the importance of refining key business policies to ensure the success of this corporate development tool.
