Introduction

In 2006, while conducting a study on foreign direct investment in the South Asian countries (a major driving force for growth in the M&A sector in developing countries), Sahoo noted that “South Asian countries have many advantages to offer to potential investors, including high and steady economic growth, single-digit inflation, vast domestic markets, a growing number of skilled personnel, an increasing entrepreneurial class and constantly improving financial systems, including expanding capital markets”.

Bangladesh has been no exception to this. Over the last 30 to 35 years, the frequency and magnitude of transactions completed through mergers and acquisitions (M&A) have experienced a notable augmentation. While the energy, telecommunications, banking and pharmaceutical sectors experienced the majority of M&A in the first decade of the 21st century, there was a further shift towards this practice in the second decade. Between the years 2010 and 2019, there was notable transformation in investment patterns, which inclined more towards industries such as telecommunications, fintech, e-commerce and tobacco. The principal factor contributing to this transformation was the expansion within the technology sector, especially the fintech industry.

Surprisingly, Bangladesh did not experience a dramatic fall in M&A transactions at the advent of the COVID-19 pandemic. However, similar to any other country or system, Bangladesh faces its own distinct set of challenges with the expansion in M&A transactions, some of which include the current legal and regulatory framework, and the difficulties in assessing the value of a target company, etc. Nonetheless, the foundation for M&A transactions has been strengthened by the recognition provided to restructuring through the newly enacted Income Tax Act, 2023. In the authors’ view, the technology M&A market shall experience significant growth in the upcoming years.

Early Days of Investment and M&A

To grasp and evaluate the patterns and advancements in M&A, particularly in the area of technology, it is essential to delve into the background of private investment in Bangladesh. According to a paper published by the Chief Economist’s Unit of Bangladesh Bank (Khan Md Saidjada, Syeda Ishrat Jahan, Public and Private Investment Nexus in Bangladesh: Crowding-in or out?) the deregulation of private investment gained momentum after 1975. During the period between 1975–1978, the government denationalised 116 enterprises, and in 1976 established the Investment Corporation of Bangladesh and reopened the stock exchange.

Finally, in 1978, the restriction on private investment was completely abolished. According to a paper by the Bangladesh Bank, the adoption of the New Industrial Policy in June 1982 was the most important move towards increasing the role of the private sector. Moreover, through the industrial policy of 1991 and its revision in 1992, several restrictions on private investment were relaxed (such as abolition of licence requirements for private investment, and opening up of telecommunications and domestic air transport to the private sector). The study by the Bangladesh Bank also suggests that “trade liberalization helped to boost export that led to an increase in investment demand in the export-oriented sectors. On the other hand, reduction of tariff and removal of quantitative restrictions helped to ease the import of machinery, raw materials and intermediate goods that also expedited the private sector”.

Historically, investment into an entity through acquisition of shares by way of sale and purchase has long been taking place in Bangladesh. Despite the more traditional approach to the transfer of shares being prevalent, Bangladesh experienced its first M&A deal through a scheme of arrangement in the early 1990s. Thereafter, mergers, bifurcation and amalgamations through various schemes of reconstructions were recognised through the enactment of the Companies Act, 1994, which made provisions for the Hon’ble High Court Division of the Supreme Court of Bangladesh to sanction the compromise or scheme of arrangement proposed between two or more companies. However, information and data regarding M&A that may have taken place during the 1990s in Bangladesh remains limited.

M&A in the Early 2000s (2000–2009)

In contrast to the previous decade, there was a noteworthy increase in both the number and the value of M&A transactions in Bangladesh between 2000–2009. The primary catalyst for this upward trend can be attributed to the exponential progress within the telecommunications sector, coupled with the widespread adoption of the internet. Additional factors contributing to this boom include:

• the evolution of corporate ethos;
• the emergence of diligently organised and robust investment prospects;
• a heightened necessity for diversification; and
• a need to amplify revenue streams.

According to a study conducted by Roger YW Tang and Ali M Metwalli, between 2000–2009, “non-Bangladeshi firms acquiring Bangladeshi companies accounted for 99% of all M&A transaction value”.The largest M&A transaction of the decade was the acquisition of 100% of the ownership interests in two generation businesses of AES Corp in Bangladesh – ie, AES Haripur Private Ltd (a 360 MW gas-fired combined-cycle power plant) and AES Meghnaghat Ltd (a 450 MW gas-fired combined-cycle power plant). Said transaction was valued at USD437 million, which included cash and assumed project debt of USD310 million. According to Power Grid International, the transaction equated to an equity purchase price of USD127 million.

The second largest M&A transaction between 2000–2008 was the acquisition of a 30% stake of Telecom Malaysia International (Bangladesh) Ltd, which at the time was trading under the brand name AKTEL and was the third largest mobile operator in Bangladesh by Japan’s largest telecommunications operator (NTT DoCoMo). The transaction was valued at USD350 million.

Another notable acquisition was Singapore Telecommunications Ltd (“Singtel”), investing USD118 million for a 45% equity stake in Pacific Bangladesh Telecom Ltd.

However, the merger which provoked the most intrigue in that decade was that between Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha, yielding into Bangladesh Development Bank Ltd. Moreover, the renowned bank Standard Chartered inherited its presence in Bangladesh through the acquisition of Grindlays Bank in August 2000.

Other notable M&A transactions between 2000–2009 included the raising of capital by Beximco Pharmaceuticals Ltd through issuing shares or warrants to GEM Global Yield Fund Ltd, and the acquisition of 100% of the mobile network operator Sheba Telecom by Egyptian telecommunications service provider Orascom Telecom Holding. Interestingly, the deal acquiring Sheba Telecom also included the repayment of USD10 million of financial debt.

M&A in 2010–2019 and the Surge in Technology M&A

Compared to the previous ten years, the field of M&A experienced a notable change from 2010 to 2019. During this period, there was a clear increase in M&A, particularly in the technology and telecommunications sectors. The upswing was incentivised by the transformative emergence of financial technology (“fintech”). Bangladesh is a land of abundant populace, where a significant majority grapples with economic adversity, dwelling beneath the poverty line. As such, a significant portion of the population faces challenges in accessing conventional banking services, which prompted the emergence and development of mobile financial technology in Bangladesh.

bKash Ltd (“bKash”) is a leading mobile financial service provider which revolutionised the way financial transactions are conducted in Bangladesh. Established in 2010, bKash has rapidly gained prominence as a platform for convenient and accessible banking services. Although bKash embarked upon its journey with merely two shareholders (BRAC Bank and Money in Motion), in no time it attracted investors such as International Financial Corporation in 2013, the esteemed Bill and Melinda Gates Foundation in 2014 and Ant Financials in 2018. According to an article of The Business Standard (14 November 2021), when Ant Financials acquired a 20% stake in bKash, it was valued at USD880 million; and it took bKash less than four years to more than double its valuation. The latest investment in bKash was Japan’s Softbank, acquiring a 20% stake. Through onboarding these esteemed investors as shareholders, bKash has not only secured global acclaim but has also strengthened its position in the field of ever-advancing technology.

Moreover, the largest merger in the telecommunications and technology industry in Bangladesh was the merger of Robi Axiata Ltd, a unit of Axiata Group Berhard and Airtel Bangladesh Ltd (a subsidiary of Bharti Airtel Ltd) in 2016. Following the merger, Axiata holds 68.7% and Bharti Airtel Ltd holds 25% of the controlling stake in the combined entity, Robi Axiata Ltd. With the telecommunications industry swiftly advancing due to multiple aspects of technological progress, the merger of these entities aspired to form a mightier and more enduring enterprise.

In 2018, Alibaba, the formidable Chinese technological giant, broadened its presence in Bangladesh through the acquisition of the e-commerce platform known as Daraz. This acquisition can rightly be termed as a transformative catalyst for the ever-evolving landscape of Bangladesh’s e-commerce industry. The investment was estimated to be approximately BDT10.5 billion.

In additional to these remarkable technological M&A, several other M&A took place across multiple areas. In 2015, the Hon’ble High Court Division of Bangladesh permitted the merger of Lafarge Holcim Bangladesh Ltd with its subsidiary company Holcim Cement Bangladesh Ltd. In this transaction, Lafarge Holcim Bangladesh Ltd (erstwhile Lafarge Surma Cement) acquired all the shares of Holcim Bangladesh. In 2016, Siam City Cement, one of Thailand’s largest cement producers, acquired Cemex Cement Bangladesh Ltd.

Moreover, in 2018, Akij Group signed an agreement with Japan Tobacco Inc for the sale of Akij Group’s tobacco business for USD1.5 billion. At the time, this transaction was one of the biggest cross-border M&A in Bangladesh, and Akij held a 20% share of the cigarette market in the country through United Dhaka Tobacco Co.

In addition, in 2019, Heidelberg Cement Bangladesh successfully completed acquisition of the entire shareholding of Emirates Cement Bangladesh Ltd and Emirates Power Company Ltd from UltraTech Cement Middle East Investments Ltd, making Emirates Cement Bangladesh Ltd and Emirates Power Company Ltd wholly owned subsidiaries of Heidelberg. The estimated consideration for the deal was USD21.5 million.

Notable M&A During the COVID-19 Pandemic

At this point, it is imperative to underscore that the significant, grand-scale M&A consummated during the COVID-19 pandemic were initiated before the advent of the pandemic. However, amidst the global ebb in M&A brought about by the COVID-19 pandemic, Bangladesh, in striking contrast, did not experience a fall in the number of M&A. This can, perhaps be attributed to the ever-evolving economy of the country as a whole.

Just before the advent of COVID-19 pandemic in March 2020, Evercare and CDC Group announced a deal to acquire a controlling interest in STS Holdings Ltd. The investment was made through the Evercare Health Fund, including finance from the CDC Group and development financial institutions, and support from The Rise Fund. Thereafter, Apollo Hospitals Dhaka was rebranded as Evercare Hospital Dhaka. Following the acquisition and the rebranding, the hospital had joined the Evercare Group’s network of hospitals operating across South Asia and Africa.

At the height of the pandemic in June 2020, Akij Group, one of the largest industrial conglomerates in Bangladesh (which conducted its business in textiles, tobacco, food and beverages, cement, ceramics, printing, packaging, pharmaceuticals and consumer products) acquired both Janata Jute Mills Ltd and Sadat Jute Industries Ltd – combined together, one of the largest businesses of jute products. Akij Group had to pay a staggering BDT700 crore for the acquisition of the entities.

Another notable M&A during the COVID-19 pandemic was Unilever Overseas Holdings BV becoming the new owner of GlaxoSmithKline (GSK) Bangladesh Ltd, by acquiring 82% shares in the pharmaceutical giant. As per the Dhaka Stock Exchange, Unilever bought around BDT98.75 lakh in shares from Setfirst Ltd, a sister concern of GSK, through a block market transaction. The total value of the transaction stood at BDT2,020.75 crore. Moreover, during the pandemic, Anchorless Bangladesh, a US-headquartered venture capital, also made its debut investment in a local logistics start-up, Loop Freight. The value of the investment was USD600,000.

Post-COVID-19, M&A activity in data centre businesses is on the rise, indicating growth of technology-based businesses as well as readiness for the new data protection regime to be entered into by Bangladesh.

Technology in M&A

Needless to say, the tremendous surge in M&A in Bangladesh has resulted from the ongoing wave of technological advancement, specifically for attracting foreign investors. The most crucial step in M&A is assessing the value of a target entity, achieved through conducting rigorous and comprehensive due diligence. For example, the due diligence of a technology company will almost invariably entail the inspection of its:

• intellectual property (including its patents, copyrights, etc);
• software;
• corporate records;
• commercial agreements; and
• financing documents entered into.

Through the advancement of technology, it has now become possible to make such documents available and access them through a virtual data room. Technology has also invariably contributed to the ease of navigating through electronic databases.

Moreover, the advancement in technology has enabled people to seamlessly collaborate and engage in real time across the globe, which fosters easy decision-making and higher levels of transparency. Furthermore, technologies such as encryption assist the confidential information which may be exchanged during M&A. The Bangladeshi government is also now embracing the digital realm for regulation. Citizens now enjoy the privilege of submitting a variety of applications online, alleviating the necessity for in-person visits to government offices.

Legal Framework Surrounding M&A in Bangladesh

Currently, there is no specific set of laws or rules which regulate M&A in Bangladesh. Transactions are largely regulated by:

• the Contract Act, 1872;
• the Companies Act, 1994;
• the Competition Act, 2012; and
• any industry-specific laws.

As already indicated, the Companies Act, 1994 makes provisions for various schemes of arrangement being approved by the Hon’ble High Court Division of the Supreme Court of Bangladesh. One interesting feature of obtaining such approval from the Hon’ble High Court Division is that the court often directs the parties engaged in the transaction to make a donation to charitable organisations.

In addition, if the companies participating in the M&A are public listed companies, the security laws will come into play. The key pieces of legislation in this regard would be:

• the Securities and Exchange Ordinance, 1969;
• the Securities and Exchange Commission Act, 1993; and
• the Securities and Exchange Commission (Substantial Acquisition of Shares and Takeover) Rules, 2018.

As well as these, the Bangladesh and Securities Exchange Commission (empowered by the Securities and Exchange Ordinance, 1969) formulates and publishes various rules and directives from time to time, in order to facilitate and regulate transactions between the parties.

Furthermore, if the transaction involves foreign direct investors, compliance with the following shall be needed:

• the Foreign Exchange Regulation Act, 1947;
• the Guidelines for Foreign Exchange Transactions, 2018; and
• directions from the Bangladesh Bank with respect to repatriation of profits.

Recent Developments in the Legal Framework Surrounding M&A

Within the legal framework governing M&A in Bangladesh, two remarkable evolutions can be discerned. The first is the prohibition on combination, which may have an adverse effect on competition imposed by the Competition Act, 2012. Acquisition, taking control, amalgamation and merger all fall within the purview of “combination”. However, in this regard, the Bangladesh Competition Commission has been provided with the power to approve any combination which shall not have an adverse effect on competition. Nonetheless, the regulations with respect to such combination are yet to be framed.

A more recent development in this area is the enactment of the Income Tax Act, 2023, which expressly provides that where capital assets are being transferred through a scheme of amalgamation, the capital gain shall not be taxable. A similar provision has also been enacted with respect to schemes of demergers. This piece of legislation should serve as a catalyst in inspiring more investors to invest through M&A, spurring considerable growth, particularly in the technology sector.

Challenges to Technology M&A

Just like any other system in the world, M&A in Bangladesh encounters its unique array of obstacles, demanding meticulous navigation. Although the fintech industry has seen a boom in investment, MFS providers in Bangladesh face a unique challenge – they must be led by scheduled commercial banks or financial institutions (NBFIs) licensed by the Bangladesh Bank. Moreover, if any bank or NBFI wishes to apply for a new licence to provide MFS services, it must form a new subsidiary, with 51% ownership in the subsidiary. This aspect of the current regulation substantially reduces the prospect of foreign direct investment in the fintech industry.

Furthermore, the Bangladesh Bank has asked all to refrain from trading through any kind of virtual coin or cryptocurrency in the country on the grounds that the Foreign Exchange Regulation Act, 1947 of Bangladesh does not recognise virtual currencies as “currency”. Thus, virtual currencies cannot be used to settle foreign transactions or even for the purposes of investments. This presents yet another impediment for M&A in Bangladesh.

Moreover, the e-commerce industry is still grappling primarily with the absence of regulation, or, when present, with its effective implementation. Recently, customers have been targeted by scammers, leading to a decline in the growth of e-commerce platforms. An instance of such scams can be observed in the unfortunate case of the Evaly controversy. In March 2021, the Bangladesh Bank found that the due debts of Evaly amounted to BDT4 billion as of the middle of March, which included BDT2 billion of liabilities to customers. However, it was later found that Evaly’s liabilities to customers and merchants stood at BDT5 billion, as of mid-July 2021, which was 35% higher than the amount found by the Bangladesh Bank (the Daily Star, 20 August 2021). Additional obstacles on the path to growth of the e-commerce industry include the following:

• availability of high-speed internet;
• logistics involving parcel delivery;
• assurance of quality products; and
• a sound transportation system.

Most operations of e-commerce companies take place in Mega cities (the Financial Express, 11 Jan 2020).

As has already been indicated, one of the most crucial steps in technology M&A (as in any M&A) is conducting thorough due diligence of the target company, which enables the investor to rigorously assess the value of such target company. Conducting due diligence of the intellectual property rights and technology assets of the target company is central for a technology M&A. However, as most tech companies in Bangladesh are still in their early stages of development, these companies may not have a strong intellectual portfolio. Furthermore, the technology industry is known for its dynamic and ever-evolving nature, which poses further challenges in accurately determining the value of a company and its future growth.

Conclusion

While the whole globe saw and experienced deceleration in M&A activities due to the formidable COVID-19 pandemic and the threats arising from it, Bangladesh stood as an example of resilience, navigating through those challenging times. Technology is fast evolving all over the world, and Bangladesh is not lagging behind in terms of keeping up with technological advancement. Consequently, business opportunities involving technology (eg, fintech, SAAS, semiconductor chip design, e-commerce, etc) are also on the rise. In the authors’ opinion, if Bangladesh cautiously steers through the obstacles found across the M&A domain, M&A can become a powerful tool for facilitating investment in the future, and can contribute to immense growth in various sectors.