More mergers and acquisitions expected ahead of Asean integration

MANILA, Philippines – More local companies are bracing for expansion overseas via mergers and acquisitions on the back of a stronger access to domestic financing accompanied by the official effectivity of  the Asean Economic Community, the investment banking arm of the Metrobank Group said.

First Metro Investment Corp. (FMIC) EVP Justino Juan Ocampo said the growing number of local companies embarking on expansion abroad is expected to increase further this year.

“We expect a lot more M&A’s this year. We’ve seen this last year and we are likely to see it again this year,” Ocampo said.

Last year, companies that embarked on a regional M&A include Jollibee with the purchase of Smashburger for $99 million, Grupo Emperador  Spain S.A.’s $275 million acquisition of Fundador, URC’s acquisition of Griffin New Zealand for $576 million, and Monde Nissin acquisition of Quorn Foods UK for $835.61 million and  Menora  Foods Australia for $42 million.

For this year, FMIC said there would be more acquisitions of mid-tier firms.

Ocampo said companies looking for cross border expansion would not be limited to large publicly-listed companies anymore as they start to scout private firms.

The strong potential for cross border acquisitions is triggered by the Asean integration, healthy balance sheets of local companies, and access to domestic acquisition financing.

“It’s not limited to PSEi (Philippine Stock Exchange index) corporates but moving down to mid-tier names as a result of Asean integration. More companies are expanding their view regionally. They have very good balance sheets and local currency financing is pretty much available.  The next step after this transition is eventually listing,” he said.

FMIC, however, noted that interest for M&A’s are not exclusive to Philippine companies but also to international firms looking for local opportunities as well.

“Everyday we get visits from international friends, private equities, and strategic investors looking at acquiring Philippine corporates. So the interest goes both ways and it’s going to continue given the Asean integration theme,” Ocampo said.

In a briefing yesterday, FMIC officials gave a “guarded optimism” outlook for the Philippines this year on the back of an expected sustained moderate economic growth.

For the capital markets, FMIC sees the PSEi climbing to as much as 7,500 this year, lower than its 8,500 forecast for 2015 which  the local bourse failed to achieve.

Corporate earnings, meanwhile, are forecast to  grow 13.8 percent this year with holding companies, retail and banking sectors expected to lead the index.

“Capital raising will be muted in the first half of the year as issuers await results of the May elections. In equities, smaller size companies will continue to tap the market,”  PDIC vice president Bede Lovell Gomez said.