07 February 2017

Staying on top with Targeted Acquisitions

Glove maker intends to stick to a strict regime and a well-oiled acquisition plan to conquer an even greater global market share

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First published on 12 November 2016 on StarBiz and 14 November 2016 on The Edge Weekly

Top Glove, which commands 25% of the global market share for rubber gloves, is willing to raise up to RM1 billion in acquisition funds to fuel growth and elude competition in its bid to stay on top of the game.

"The company must continue to grow. If not, we will be in trouble, and we will not have extra income," says Executive chairman Tan Sri Dr Lim Wee Chai. The never-ending acquisition spree is part of the company's strategy to achieve its 10% annual growth target, and is a move to generate extra income in the wake of heightening expenses and increased production costs. "We need to add value, and we are looking for more businesses and more areas to create such value to cover mounting costs," he says, sitting in the company's offices at the state-of-the-art Top Glove Tower in Shah Alam, Selangor.

Lim says Top Glove, which has a production capacity of 46.6 billion gloves annually, cannot afford a slip down the ranks. And he does not want to see the company fall from its number one spot under his watch. To prevent any slippage, he wants to increase glove production by almost a third by 2020. "When you are at the top, do not be so happy, because you can easily slip down the ranks," he says, cautioning that over the years, growth for Top Glove has become increasingly difficult. "That is the reason why we have to set up a special department, a merger and acquisition department, to acquire companies." say Lim.

This has led the company to acquire some of its competitors, mainly those that are ailing and losing money.
These factories saw a revival of their fortunes after the takeover, which was based on a clearly defined plan to keep competitors far behind. In the past, it purchased loss-making GMP Medicare Sdn. Bhd. and turned it around, making enough in one year to cover the acquisition costs. It also bought over a Singapore-listed glove manufacturer based in Malaysia on the verge of bankruptcy "rescuing them by taking over the (debts to the) bankers, the suppliers and the staff," in what Lim says was a good deal. Going upstream in Thailand, it bought a latex factory that now supplies raw materials for its products.

Top Glove has subsidiary factories in Thailand and China and may consider further overseas expansion. "The government's policy may affect us. "They say, no foreign workers, but with no foreign workers how to run the factory?" asks Lim. The freeze on foreign workers, a hiccup in the company's growth targets, did not stop Top Glove from pursuing its acquisition strategy.

Armed with net cash in excess of RM378.5 million (as at 31 May 2016) and a special mergers and acquisitions department, Lim scoured Malaysia and the rest of the world for glove makers and material suppliers that provide value opportunities. The company plans to make a purchase by the end of December and build as many as seven new factories in the next five years, say reports.

To meet the growing demand for rubber gloves, Top Glove is building optimised facilities with faster, more efficient and technologically-advanced production lines for better profitability. Top Glove's rise in the medical glove making industry has been as unprecedented as its profit growth, posting a 29% profit after tax compounded annual growth rate since it was listed in the Kuala Lumpur Stock Exchange in 2001. For FY2016, Top Glove marked another record year, with historical highs in both full year revenue and profit.

From the Top Glove Tower, Lim runs an empire that spans 2,000 customers in more than 195 countries. Being based in Malaysia, home to the world's four largest glove makers, has helped. Access to high quality infrastructure, electricity, water and talent - as well as supplies of high-quality natural rubber - has pushed Top Glove and its local peers to the forefront of the industry in just under two decades. Four companies started on the same level about 25 years ago but Top Glove has moved up the ladder faster than its competitors, thanks to various initiatives designed to keep improving its quality and growth.

Nevertheless, since gloves are recession proof, the recent financial crisis, and the one in 2008, were business as usual for the company. "To us (the crisis) is okay because the medical product is not very expensive and is a necessity, with demand coming from hospitals," says Lim. Medical gloves are linked to all markets, developing and emerging as well as developed markets, but Lim says being a global market leader depends on the production of quality gloves at low cost. "This is our business direction," says Lim, who adds the company must meet specified requirements for high quality from the US, Japan and European markets. Top Glove has met these requirements.

To achieve this high level of efficiency, the company's chairman says it must have talent that makes a difference. Buying companies are easy, but if you want to sustain and maintain profitability, it is difficult if there is no talent, he says. "We must have talent and recruit talent and this is one more aspect of the strategy," he says. Lim says Top Glove's strict hiring standards - it only "recruits the best" in terms of leadership and talent - has helped the manufacturer surge through the competition. Taking a page from the books of the world's largest firms like IBM and Goldman Sachs, the company scouts for potential hires at university level, offering internships and training. It has a strong emphasis on the health, well-being and discipline of its employees, as well as sporting badges stamped with words like "Be Honest" and "No Cheating" to remind the employees that "in business, honesty and integrity is number one". "Leadership is very important but you must have a good team to support. "Alone you cannot carry the weight and build this tower, but with 10,000 talented people you can," Lim says.

Lim says Toyota and Samsung, which he considers the best manufacturers in the world, taught him a lot about business. "Samsung is where every day is a crisis day. Even though they are doing well, they still consider every day a crisis day, which means they are always prepared for unexpected challenges," he says.

Executive Director Lim Cheong Guan says HSBC has played an important role in Top Glove's formative years and beyond. Lim says the bank became instrumental in connecting Top Glove to potential takeover targets and facilitating their corporate acquisition and expansion roadmap. Leveraging HSBC's global network and on-the ground insights from local market experts, the bank is able to provide relevant and up-to-date market intelligence tailored to nearly every major industry sector necessary to help deliver the client's M&A ambitions whichever direction they choose. "Because of the bank's exposure to a large number of clients, it was easier for them to introduce potential targets. And since for us it will take a longer time to do so ourselves, that is where HSBC comes in," say Lim. "If the introduction, and the target finding is successful, then the funding options will come in as well," he says.

If the matching process is successful, HSBC is also able to facilitate the funding process for the acquisition through a full suite of `one-stop' financing and risk management products across their global network as well the client's home country. Lim says the company is always open for M&A opportunities, especially in this global market and the US, Japan and China is very active in M&A.

"HSBC has played a critical role for the company, and are doing so in China, where the company is still virtually unknown. In China, we could get ignored there, but HSBC's relationship managers have an established knowledge of the network abroad and that is crucial," he says. "It is a global banker and since we export to many countries, we need a banker who understands our needs, and they are there also to secure us in countries with credit risk."

It is a global banker and since we export to many countries, we need a banker who understands our needs, and they are there also to secure us in countries with credit risk.

Lim Cheong Guan, Executive Director of Top Glove Corporation Berhad

Tan Sri Dr Lim Wee Chai, Executive Chairman of Top Glove Corporation Berhad

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