Backed by strong macroeconomic fundamentals, the Philippine arena for deal-making is expected to experience an upturn amidst rising interest rates, as government increase spending and companies continue to take seize opportunities to expand and tap a growing market.
Spurred by an uptick on government and consumer spending, the Philippine economy posted a GDP growth of 6.5% in the second quarter of 2017, surpassing markets like Vietnam and Thailand, and trailing right behind China’s 6.9% in the Asia-Pacific region. This development has primarily been attributed to growths in government and household consumption of 7.5% and 5.9% respectively.
In 2016, the country’s completed M&A activities were valued at USD 8.6 billion, comprising 42 deals, compared to USD 2.8 billion from 47 deals in 2015, according to MergerMarket.
The upsurge in deal value was due to the comeback of big-value deals in 2016 in the telecommunication, energy, and construction sectors from a huge dip in 2015. These mammoth deals include the joint acquisition of Vega Telecom, Inc. from San Miguel Corporation by Globe Telecom and PLDT Company, the acquisition of GN Power Mariveles Power Coal Plant by Aboitiz Power Corporation, and the acquisition of Republic Cement from Lafarge Philippines by a joint venture of Aboitiz Equity Ventures and Cement Roadstone Holdings, respectively. These three deals totaled USD 3.7 billion in 2016.
M&A activities in 2015 and 2016 were generally dampened by political uncertainties surrounding the 2016 national election and companies preferred to defer strategic investment decisions until economic policies have stabilized under the new government.
The energy sector has dominated the flow of M&A activities in the past three years in terms of both value and volume, primarily due to large demand for power. Government initiatives have also created investment opportunities for energy projects which in turn encourages deal activities. Consumer, financial institutions, and construction trailed behind as consistent leading sectors for M&A deals.
In June 2016, the Philippine Competition Act, the landmark anti-trust law, was finally enacted, 25 years after it was proposed in the country’s legislature. The law regulates monopolies, promotes fair market competition, reviews M&A deals with transaction values above Php1 billion (ca. USD 20 million) and assesses whether a transaction will restrict or diminish competition in the relevant market.
The creation of the competition watchdog, the Philippine Competition Commission (PCC), adds another layer to the consummation of the M&A process, as the review usually takes 30 days, but can extend to up to 90 days. The parties are subject to an administrative fine of one to five percent of the transaction value, should they proceed with their M&A agreement within this period of time.