MONDAY MACRO: With the recent acquisition announcements, the Philippine M&A environment may be starting to catch up with global trends
The past week saw a lot of acquisition-related news in the Philippine stock market. That said, the country’s M&A environment overall in 2021 continues to be pressured by pandemic headwinds.
However, with the Philippines steadily recovering, what we’ve seen in the 2021 global M&A market may be what’s in store for the country in 2022.
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Mergers and acquisitions (M&As) are oftentimes a disruptive event for a company.
The terms of the deal change constantly depending on shareholder and public perception. Sometimes, the affected management members even have to fight to keep their position.
We’ve seen one M&A deal go wrong recently in the Philippine stock market. In early November, Food and beverage kiosk operator Fruitas Holdings (FRUIT:PHL) announced its plans to acquire a medical clinic company.
The move surprised everyone since the two industries were unrelated to each other. In addition, the family of Fruitas’ CFO owned the company being acquired.
The market reacted negatively to the news—the stock price of Fruitas dropped 10% before the company announced the termination of the deal.
That said, cases like Fruitas are rare and not representative of the M&A deals taking place in the Philippines.
One M&A deal that was received positively was Shakey’s (PIZZA:PHL). On Christmas Eve, the pizza chain announced its plan to acquire the famous french fries brand, Potato Corner.
This news was met with excitement since Shakey’s was already known for its potato products. As a result, the company’s stock price rose 9%, the highest for the day in the PSE.
Joining the M&A-related news last week was Century Pacific Food (CNPF:PHL), known for its canned tuna brand, who announced its intention to acquire the canned sardine brand Ligo.
Furthermore, after months of speculation, Unionbank (UBP:PHL) officially announced its plan to acquire the consumer banking business of Citigroup.
However, looking at 2021 as a whole, Philippine M&As in aggregate are still significantly lower compared to last year.
2021 Philippine M&A activity has only amounted to $1.5 billion so far, while the country saw $4 billion worth of M&As in 2020 driven by Prime Metroline’s partial acquisition of Manila Water (MWC:PHL) in February 2020.
Current M&A activity implies that management teams overall have remained hesitant in spending capital since the start of the pandemic. With the uncertainty in the economy, many chose to hold on to their cash instead.
This is in contrast to the rest of the world, where most developed economies have already made a significant recovery throughout 2021.
As a result, companies from other parts of the world realized that they were holding more cash than needed, balance sheets were strong, and borrowing costs were still low. This enabled them to start executing on M&A deals that were previously put on hold due to the pandemic.
From the chart above, we see that global M&A activity has been on a general upward trend since 2017, but dropped in 2020 due to the pandemic. That said, 2021 levels rebounded strongly and is now close to surpassing previous highs.
With the Philippines showing signs of sustainable growth in the latter half of 2021, it seems the country is now poised to catch up with the rest of the world.
Therefore, if the global M&A trends are an early indication, we may see Philippine companies start utilizing their excess liquidity in 2022 and possibly drive 2022 M&A levels above historical averages.
As we’ve talked about in last week’s Monday article, balance sheets are strong enough for most Philippine corporations to fund various capital projects.
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“The Monday Macro Report”
When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.
Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.
Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.
Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.
Hope you’ve found this week’s macro chart interesting and insightful.
Stay tuned for next week’s Monday Macro report!
Regards,
Angelica Lim
Research Director
Philippine Markets Newsletter
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