Government Efforts Brighten Philippines M&A Outlook

By Andrew Kemp


The government’s infrastructure investment initiatives coupled with competition policy reforms are paving the way for increased M&A activity


The Philippines’ US$180bn infrastructure programme has led to a rebound in mergers and acquisitions (M&A) activity in the first half of this year.


The country was the fastest-growing M&A market in the Asia-Pacific ex-Japan (APeJ) region in the first six months, according to Mergermarket, which added that disclosed deal value expanded by 398.2% year on year to US$2.2bn.


The improved performance, which followed a slide in full-year disclosed deal value from US$13.78bn in 2017 to US$3.32bn in 2018, was primarily driven by San Miguel Corp.’s (SMC) acquisition of LafargeHolcim’s 85.7% stake in Holcim Philippines for US$2.15bn.


The Philippines’ 10-year “Build, Build, Build” infrastructure campaign – unveiled in 2018 – has encouraged consolidation among cement manufacturers.


Between the government’s investment ambitions and ongoing competition law reforms, the Philippines is well placed to attract further M&A deal making in the near to medium term.


Policy review

Philippines’ President Rodrigo Duterte’s administration presented its Build, Build, Build programme for financing at the fourth annual meeting of the Asian Infrastructure Investment Bank (AIIB) in July.The programme aims to implement 75 big-ticket infrastructure projects, with 28 of those expected to be finished by 2022.


While the infrastructure push is anticipated to open the door to further mega deals, Manila has also been hard at work these past few years to cut red-tape and improve the ease of doing business for smaller businesses.


After being stuck in Congress for 24 years, the Philippine Competition Act (PCA) was finally passed in 2015. This paved the way for the establishment of the Philippine Competition Commission (PCC) in January 2016.


The PCC began overhauling the country’s new competition regime a little over a year ago, and has twice raised the merger notification thresholds introduced under the PCA. The Size of Party (SoP) threshold now stands at 5.6bn pesos (US $109.4mn) up from 1bn pesos (US $19.5mn), while the Size of Transaction (SoT) ceiling has been lifted from 1bn pesos to 2.2bn pesos (US $43mn).


After looking at reducing regulatory oversight in the smaller end of the sector, the PCC is now keen to streamline its wider review process.


“In 2018, the commission received notifications for 40 M&A transactions, of which it approved 33. Real estate was the busiest sector with nine transactions, while manufacturing followed with eight, electricity and gas with five, and transportation and storage with four.”

Ever Faster


“Ms Abutan is a member of the firm’s special projects department, banking, finance and securities department, and corporate services department.”


The commission implemented new rules on July 2 that speed up the review of certain M&A deals. The PCC said it wanted to streamline reviews of deals that were “less likely to substantially prevent, lessen, or restrict competition” in the market.


The reforms cut Phase 1 assessment times for qualified transactions to 15 working days from the PCA’s recommended 30 calendar days. The commission noted that the regular 30-calendar day review period was already one of the shortest in the world.

“The PCC also adopted a new Merger Notification Form which should be used by notifying parties which have reached a definitive agreement on July 9, 2019 onwards.The new Merger Notification Form requires more details necessary for a substantive analysis of the impact of the merger on competition.”

Leah A. Abutan

Partner, SyCip Salazar Hernandez & Gatmaitan


The PCC identified potentially eligible transactions as those that have no actual or potential overlapping horizontal or vertical local business relationships, are global in nature with a limited local presence or focus, or are joint ventures formed purely for residential and commercial real estate development.


In 2018, the commission received notifications for 40 M&A transactions, of which it approved 33. Real estate was the busiest sector with nine transactions, while manufacturing followed with eight, electricity and gas with five, and transportation and storage with four.


The commission implemented new rules on July 2 that speed up the review of certain M&A deals. The PCC said it wanted to streamline reviews of deals that were “less likely to substantially prevent, lessen, or restrict competition” in the market.


The reforms cut Phase 1 assessment times for qualified transactions to 15 working days from the PCA’s recommended 30 calendar days. The commission noted that the regular 30-calendar day review period was already one of the shortest in the world.


The PCC identified potentially eligible transactions as those that have no actual or potential overlapping horizontal or vertical local business relationships, are global in nature with a limited local presence or focus, or are joint ventures formed purely for residential and commercial real estate development.


In 2018, the commission received notifications for 40 M&A transactions, of which it approved 33. Real estate was the busiest sector with nine transactions, while manufacturing followed with eight, electricity and gas with five, and transportation and storage with four.


PCC chair Arsenio M Balisacan said the commission’s three years of experience meant it could identify which M&A deals were less likely to pose competition concerns. “As such, efficiency dictates we dispose them quickly for the benefit of the parties and also for PCC’s use of resources,” he added.


Leah Abutan, a partner of SyCip Salazar &Gatmaitain (SyCipLaw), one of the largest law firms in the Philippines, said: “The PCC also adopted a new Merger Notification Form which should be used by notifying parties which have reached a definitive agreement on July 9, 2019 onwards.The new Merger Notification Form requires more details necessary for a substantive analysis of the impact of the merger on competition.”


Abutan also mentioned that documents executed offshore and which have been apostilled are now considered authentic in the Philippines, and no longer have to be consularised because “the HCCH Convention of October 5, 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents (Apostille Convention) entered into force for the Philippines on May 14 2019, and this will streamline the process for the use of public documents locally and abroad.”


These changes come after a slide in megadeals drove down disclosed deal values in 2018. Indeed, this year’s first-half figure was rescued by a single such deal.


A challenging year


“Efforts have also increased to promote arbitration as the preferred mode of dispute resolution for commercial disputes and for the Philippines, which is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Awards, to be a competitive hub for alternative dispute resolution in the Asia-Pacific Region.”

John Christian A. Regalado

Partner, SyCip Salazar Hernandez & Gatmaitan


While the country saw the number of announced deals rise from 85 in 2017 to 87 in 2018, disclosed deal values plummeted from US$13.78bn to US$3.32bn. The proportion of deals with undisclosed values rose from 41% in 2017 to 46% in 2018.


The number of inbound deals rose from 18 in 2017 to 28 in 2018, while outbound transactions nearly doubled from nine in 2017 to 17 last year. Deals on the domestic market, however, hit a three-year low in 2018, falling from 58 in 2017 to 42 last year.


The decline in 2018’s deal value can partially be explained by a mixture of local and global economic headwinds. The economy had to contend with rising inflation throughout most of last year, driven by rising food, housing, utility and transport prices. At the same time, the US engaged in a series of trade disputes with China, Mexico and the European Union, creating widespread uncertainty in the global economy.


At the same time, however, the Philippines is not known for having an investor-friendly regulatory framework. The Philippines slid in the World Bank’s (WB) Doing Business Report, with ranks 190 economies, from 113th place in 2018 to 124th in 2019.


Manilla has recognised the challenges, unveiling in February the Revised Corporation Code (RCC), which amended the 38-year-old Corporation Code to create a more business-friendly environment.


SyCip Law’s litigation partner, John Regalado,said: “Efforts have also increased to promote arbitration as the preferred mode of dispute resolution for commercial disputes and for the Philippines, which is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Awards, to be a competitive hub for alternative dispute resolution in the Asia-Pacific Region.”


In particular, Regalado added: “The Integrated Bar of the Philippines has recently launched the Philippine International Center for Conflict Resolution (PICCR), an arbitration institution that will provide commercial arbitration services and facilities, and training for interest arbitrators and practitioners.The PICCR is intended to rival the Philippine Dispute Resolution Center, the first arbitration institution established in the Philippines.”


“The country’s M&A prospects look strong thanks to robust economic and regulatory tailwinds.”

Economic outlook


But despite the challenges, the country’s M&A prospects look strong thanks to robust economic and regulatory tailwinds.


Although GDP growth slowed from 6.7% in 2017 to 6.2% in 2018, the economy is widely forecast to bounce back this year. Both the WB and the Asian Development Bank (ADB) forecast that GDP will expand 6.4% this year. The Organization for Economic Cooperation and Development (OECD), meanwhile, has projected average growth of 6.6% between 2019 and 2023, putting the Philippines ahead of ASEAN-5 peers Indonesia, Malaysia, Thailand and Vietnam.


As the government invests heavily in the local economy and speeds up the M&A approval process, local and foreign investors should see this as a green flag. While there are still both local and international economic obstacles to navigate, the government is moving in the right direction when it comes to dismantling bureaucratic hurdles.


This article was written by Andrew Kemp for Conventus Law in association with SyCipLaw.

For further information on corporate law in The Philippines, please contact:


Leah A. Abutan, Partner, SyCipLaw

lcabutan@syciplaw.com




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