With unified Asean, M&A deals likely to rise

THE DAWNING of the unified Association of Southeast Asian Nations (Asean) Economic Community has created a wave of merger and acquisition (M&A) deals involving not just top-tier Philippine corporations but also second-tier companies looking to beef up operations to thrive in a more competitive environment, a top local investment banker said.

“I think the flurry in M&As is largely triggered by the Asean integration and it’s not just the top-tier usual comp (Philippine Stock Exchange composite index)- ruling companies. We see the lower tier companies for the past year or so looking around Asia, bulking up and anticipating the entry of the Asean players,” said Juan Justino Ocampo, executive vice president and investment banking group head at First Metro Investment Corp.

Ocampo sees a strong potential for cross-border acquisitions given the healthy balance sheets of local companies and access to ample domestic acquisition funds.

For privately held Filipino food firms seeking offshore acquisitions, he said the next phase would be to go public.

The Asean integration has also brightened prospects for inbound investments, Ocampo said. “Every week we get visitors from international friends—private equities, strategic investors looking to acquire Philippine corporations. This is going to be bigger,” he said.

For some players, he said the integration would open up opportunities to secure cheaper raw materials while noting that in agriculture, there were still non-tariff barriers to deal with.

Asean has now formalized the creation of a single market and production base that allows the free flow of goods, services, investments, and skilled labor, and the freer movement of capital across the region by yearend.

As a unified economy, Asean is the seventh largest in the world with a combined gross domestic product of $2.4 trillion and could be fourth largest by 2050 if growth trends continue. With more than 600 million people, it is the world’s third most populous region next to China and India.

This economic bloc includes countries with higher per capita income like Singapore and Brunei and the middle-income economies like Indonesia, Thailand, Malaysia, the Philippines and Vietnam. There are also the “new frontiers” like Myanmar, Laos and Cambodia.

“The Asean integration is right now primarily a political arrangement. What it has done is set basic rules and guidelines so that the economic players will find it easier to move within the territory of Asean,” said economist Victor Abola of the University of Asia and the Pacific.

Abola said the official creation of the Asean Economic Community could result in a slight quickening of the liberalization phase started in 2010, when most of the tariffs on goods had been removed.

“But if you look at some countries like Indonesia, for example, it’s actually unwelcoming unofficially. On the ground, they are not very keen on Asean. They are saying things positively but it’s difficult to get into Indonesia,” Abola said.

“I don’t really expect major movements except for the big players and emerging ones that are now getting more interested in in capturing markets in the region,” he said.

He cited the footprint established by the Ayalas, Oishi (Liwayway Marketing) and Universal Robina Corp. as among the key players in the region.

URC dominates Vietnam’s ready-to-drink tea segment with C2 and is also the market leader in Thailand’s biscuits and wafers segments as well as is among the top three players in Malaysia in chocolates and in Indonesia in snackfood.

The companies that have built scale across the region are engaged in food retailing (Jollibee Foods Corp.), food and beverage manufacturing (San Miguel Corp., URC and Liwayway), pharmaceuticals (Unilab), infrastructure (Manila Water and Metro Pacific group) and logistics (International Container Terminal Services Inc.).

Intra-Asean trade reached $608.3 billion in 2014 or 24.1 per cent of the total trade of the region. At $24.4 billion, intra-Asean investment accounted for 17.9 per cent of the total foreign direct investment inflows to the region.

Based on the Asean Strategic Action Plan for small and medium enterprise development 2016-2025 (SAP SMED 2025), the regional bloc will strengthen small enterprises by focusing on promoting productivity, technology and innovation, increasing access to finance, enhancing market access and internationalization, enhancing policy and regulatory environment as well as promoting entrepreneurship and human capital development.