It’s Not the Buyer; It’s You.
The Deal Could Be Perfect. The Buyer Could Be the Problem.
Introduction
There was one occasion, our Transactions Advisory team was approached by a foreign investor seeking assistance on a potential acquisition of a Malaysian company.
At first glance, the engagement appeared straightforward. The discussion centred around the usual areas associated with mergers and acquisitions, including target assessment, financial due diligence, valuation considerations and transaction structuring.
However, as we learned more about the background of the investor, it became apparent that an entirely different question needed to be addressed first:
Can the investor actually invest in Malaysia and successfully complete the transaction?
Interestingly enough, this question is becoming increasingly relevant in today's geopolitical environment.
While most investors focus on identifying attractive acquisition targets and negotiating the purchase price, certain investors originating from jurisdictions that are subject to heightened international scrutiny may encounter challenges that extend far beyond the commercial merits of the deal.
In such situations, the primary risks may not come from the target company itself, but from the investor's ability to navigate regulatory requirements, banking systems, professional onboarding procedures and post-acquisition business relationships.
Legal Restrictions Are Only the Starting Point
The first step is naturally to determine whether there are any legal restrictions preventing the investment.
Malaysia generally maintains an open foreign investment regime and does not impose blanket nationality-based prohibitions on foreign investors, although sector-specific restrictions, licensing requirements and sanctions-related considerations may still apply. Malaysia primarily implements sanctions mandated under United Nations Security Council resolutions (Strategic Trade Act 2010 and the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA 2001)) rather than adopting extensive unilateral sanctions imposed by individual jurisdictions.
However, certain prohibited or restricted persons, entities and end-users may be subject to restrictions arising from Malaysian laws, including strategic trade controls and anti-money laundering regulations. Malaysia also requires financial institutions to conduct sanctions screening against United Nations and domestic sanctions lists.
As a result, the legal analysis should not simply stop at identifying the investor's country of origin. It should also consider:
- Ultimate beneficial ownership
- Shareholding structure
- Source of funds
- Connection to sanctioned individuals or entities
- Industry sector involved
- Intended transaction structure
In many cases, an investor may discover that there is no direct legal prohibition preventing the acquisition.
Unfortunately, that does not necessarily mean the transaction can proceed smoothly.
The Practical Challenges That May Derail a Transaction
In our experience, practical challenges often present a greater risk than legal restrictions.
1. Banking and Financial Institution Onboarding
Modern banking systems operate under increasingly stringent anti-money laundering, sanctions and compliance requirements.
Even where a transaction is legally permissible, banks may subject investors from higher-risk jurisdictions to enhanced due diligence procedures, resulting in:
- Lengthier account opening processes
- Additional source-of-funds verification
- Increased compliance reviews
- Delays in transaction execution
In some cases, financial institutions may decide that the compliance burden outweighs the commercial benefits of onboarding the customer.
The ability to move money can therefore become a critical deal execution issue.
2. Fund Transfer and Remittance Risks
Cross-border acquisitions ultimately depend on one simple requirement:
The purchase consideration must be able to reach the seller.
Even where a transaction is legally permissible under Malaysian law, international correspondent banks, intermediary financial institutions and overseas payment networks may impose additional compliance reviews that delay or complicate fund transfers. As a result, investors may encounter.
- Delays in wire transfers
- Additional intermediary bank reviews
- Increased compliance documentation requests
- Higher transaction costs
- Uncertainty over settlement timelines
A transaction cannot complete if funds cannot move efficiently through the international banking system.
3. Professional Adviser Acceptance Risk
Another often-overlooked issue is adviser onboarding.
Law firms, accounting firms, corporate service providers, financial institutions and trust companies all maintain their own risk management and client acceptance frameworks.
Where investments involve jurisdictions perceived as higher risk, advisers may undertake enhanced due diligence or, in some circumstances, decline engagements altogether.
Without access to the necessary professional ecosystem, even relatively straightforward transactions can become difficult to execute.
4. Regulatory Approval Complexity
Certain industries in Malaysia may require approvals, licences or notifications to regulators before ownership changes can occur.
Depending on the industry involved and the applicable regulatory framework, regulators may request additional information regarding:
- Beneficial ownership
- Funding sources
- Group structure
- Commercial rationale
The resulting process may extend transaction timelines significantly.
5. Commercial Reputation Risks
Perhaps the most difficult risk to quantify is reputational impact.
Even after successful completion, an acquisition may create concerns among stakeholders including:
- Customers
- Suppliers
- Financial institutions
- Joint venture partners
- International counterparties
The concern is not necessarily whether those concerns are justified.
The reality is that commercial decisions are often influenced by perception as much as by legal analysis.
A target company that historically enjoyed unrestricted access to global customers, suppliers and banking facilities may encounter new questions following a change in ownership.
In extreme cases, the issue is not whether the acquisition can close, but whether the business can continue to operate as before after completion. Key customers may reassess commercial relationships, suppliers may tighten credit terms, banks may revisit banking arrangements and international counterparties may increase compliance requirements. Consequently, transaction feasibility should be assessed not only from a legal perspective, but also from an operational and commercial perspective.
Due Diligence Should Be Performed on the Investor Too
Traditionally, due diligence focuses on the target company.
Yet in certain cross-border transactions, a parallel exercise should be conducted on the investor itself.
Questions worth asking include:
- Are there any legal restrictions affecting the investor?
- Are any shareholders or beneficial owners subject to sanctions?
- Will banks onboard the investor?
- Can acquisition funds be transferred into Malaysia without difficulty?
- Will advisers be able to support the transaction?
- Could customers or suppliers react negatively post-acquisition?
- Could the ownership change undermine the target's business model?
These questions should ideally be addressed before significant resources are committed to financial due diligence, valuation exercises and SPA negotiations.
Final Thoughts
The global investment landscape has become increasingly interconnected, but also increasingly complex.
For some cross-border investors, the biggest challenge is not identifying the right target, negotiating the right valuation or obtaining financing.
It is determining whether the transaction can be completed and operated successfully in practice.
As advisers, we often focus on helping clients answer the question:
"Is this a good acquisition?"
But occasionally, the more important question is:
"Can this acquisition realistically be completed and sustained after completion?"
In today's environment, that question may be the most critical due diligence exercise of all.
Afterthought
We raised these exact questions with the prospective investor at our very first meeting—before any due diligence or valuation work began. The client appreciated the candor, even though it meant pausing the conventional advisory process.
For us, this reinforced a core principle: our job is not just to help clients close deals, but to help them determine whether they should pursue the deal at all—and whether they can actually sustain it afterward.
Looking for M&A Advisory Services in Malaysia?
Stay up-to-date with our newsletter
Our Corporate Advisory experts
