Mergers and acquisitions uptick seen in foreign influx from China

MANILA, Philippines (UPDATE 2 7:37 a.m. Sept. 10) — Foreign investors looking to establish footprint outside China are set to partner with local firms, setting the stage for more mergers and acquisitions (M&A) this year and the next.

The Philippines is seen as one of the 20 leading markets for M&A post-pandemic as Southeast Asia strives to take a larger pie of companies moving out of China to avoid getting caught between economic disputes with the US and penalties they bring, a report from Euromonitor International, a market research firm, showed.

In Euromonitor’s M&A’s Investment Index, the Philippines scored 43.8 this year, down from 62.4 last year, but enough to put the country in ninth place in a ranking of M&A markets. The score rises to 52.4 projected for next year, indicating “moderate-low M&A activity.”

The US topped the list with over 100 score, reflecting “high M&A activity,” followed by Vietnam. Hong Kong, where China has recently intensified restrictions on freedoms, was at the bottom of the list.

“Countries such as India, the Philippines and Vietnam are forecast to grow rapidly at a total of 26% in industries including interactive media services, distribution networks and sustainable alternatives in packaged food,” Joao Luiz Paschoal, consulting practice manager for investor services at Euromonitor, said in a statement.

Locally, Herbert Yum, research manager at Euromonitor, said manufacturing and utilities sectors may see more M&A transactions. Over 12 to 24 months, M&A activity in the Philippines is seen to grow 29.84%, next only to Singapore and Ireland.

"Areas where M&As will concentrate usually align with industries that expected to have strong expected growth," Yum said in a statement.

Constraints

The report comes amid persistent fears Manila may be losing out to its cheaper and economically freer neighbors like Hanoi on corporates looking to expand in the region. High power and labor costs were also viewed as typical investor concerns.

“We continue to address power issue through more investments in power projects, and the fact that majority or about 90% of companies have not raised power as an issue,” Trade Secretary Ramon Lopez said in a Viber message in response to request for comment.

“On labor, our quality and abundant labor resource has always been cited as an advantage rather than a disadvantage, and a relatively good state of industrial peace,” he added.

For Euromonitor's Yum, income inequality is also a "key constraint" for domestic M&As. "The government needs to...continue the development of infrastructure...to support the future growth of various industries, as well as a prosperous M&A environment," he said.

More broadly, Euromonitor sees Asia Pacific M&A’s likely in consumer goods, energy, advertising, infrastructure, industrial machinery, interactive media and entertainment. “The region presents different realities as Southeast Asian countries are investing heavily in infrastructure to compete with China,” the report said.

Low borrowing costs, enabled by Southeast Asian central banks cutting rates to drive up demand amid the pandemic, are working in tandem with subdued inflation to attract buyouts when the situation normalizes.

“As western economies diversify their supply and value chain strategies away from China, Southeast Asian economies like Vietnam are forecasted to grow in investment and is an area for growing M&A activity,” the research company said.

Editor's note: Added Trade Secretary Lopez's comments, Yum's comments