Expect more mergers, acquisitions — FMIC

MANILA, Philippines - Mergers and acquisitions, as in the previous years, are expected to continue this year even as interest rates are expected to rise, along with the trend in the global interest rate environment.

Justin Ocampo, First Metro Investment Corp. executive vice president and head of investment bank First Metro Investment Corp. (FMIC), sees more M&A taking place this year and the coming year.

“While interest rates are expected to rise, levels are still supportive of acquisition financing with banks as primary source,” he said.

There are several reasons that will continue to make mergers and acquisitions attractive in the Philippines, he said.

For one,  lower valuation may make domestic acquisitions more reasonable. The Duterte administration’s infrastructure program is another.

The Duterte administration has vowed to usher in the so-called golden age of infrastructure in the country, a commitment the President reiterated during his second State of the Nation Address on Monday.

The President said spending for infrastructure would increase to seven percent as a percentage of the economy from just five percent at present.

Thus, infrastructure tickets would continue to promote M&A, Ocampo said.

He said the Philippines and its companies are also becoming attractive for foreign firms on the lookout for acquisitions.

“Inbound cross-border M&A interest from key Asian neighbors such as Japan, Taiwan, Korea in select sectors including retail and manufacturing would continue,” Ocampo said.

One looming transaction is that of Japan Tobacco Inc’s acquisition of Bulacan-based Mighty Corp, the cigarette company of the Wongchuking family that is at the center of a multibillion peso tax stamp issue.

According to the Department of Finance (DOF), JTI and Mighty are in talks for a buyout deal after Mighty was caught in possession of P38 billion worth of cigarettes allegedly with fake tax stamps.

The deal is said to be worth P45 billion.

Rizal Commercial Banking Corp. (RCBC) was likewise reported to be in merger talks with Sy-led China Banking Corp, according to industry sources but both banks have denied anything specific was going on.

The market has been abuzz with speculation that RCBC would be put on the auction block following the demise of its founding chairman, banking taipan and former ambassador Alfonso Yuchengco on April 15.

On April 17, when news of Alfonso’s death came out, shares closed at 42.10 per share and went as high as P66 last June 1 but is now doing around P57.

A board member of the bank said many banks would be willing to acquire the Yuchengco led bank given that RCBC is a good financial institution which has long been in the industry.

Meanwhile, some of the deals closed this year include the acquisition by Davao-based businessman Dennis Uy of a stake in the 2GO Group.

Uy, through his holding company Udenna Group, acquired a 32 percent stake in the company and the SM Group likewise acquired a 34.5 percent stake through SM Investments Corp. 2GO was formerly owned by the Tagud family.

At present, the company, which is an integrated transportation systems provider, controls more than 92 percent of the country’s passenger freight and 35 percent of cargo.