Conglomerates are seen to lead merger and acquisition (M&A) activities in the country in a post-new coronavirus disease 2019 (COVID-19) scenario, according to the Oxford Business Group (OBG).
OBG sees “high-risk but offers significant long-term returns” opportunity following the economic tragedy wrought by the coronavirus pandemic.
“In the Philippines, it will be the big conglomerates that will be capable of expanding, consolidating their operations and making acquisitions of companies that are having difficulties or need new investors,” said OBR, quoting Protacio Tacandong, chief operating officer of professional services firm Reyes Tacandong & Co. who it interviewed for the report.
“There may be some opportunities for companies capable of buying now and waiting for the recovery,” it added.
According to OBG, this reflects one side of the argument on the investment sentiment debate which notes that due to ongoing uncertainty, combined with falling valuations, firms are likely to be resistant to offloading previously strong assets to the market if they have the capital buffers to retain them.
“On the other hand, these same factors provide opportunities for investors looking to acquire once profitable firms at an attractive price or consolidate strategic businesses,” OBG said.
“Although such acquisitions can be high-risk, they offer the potential for significant long-term returns. In the emerging markets of Southeast Asia, this provides opportunities for diversified legacy groups in particular,” it added.
The latter is supported by a global survey of more than 2,900 C-suite executives published by multinational consultancy Ernst and Young in May, the OBG noted.
The survey showed 47 percent of Southeast Asian respondents would actively pursue M&As in the next 12 months, above the 10-year average of 43 percent, while three-quarters were anticipating an increase in competition for assets within the next year.
“Notably, UK-headquartered law firm Bird & Bird says M&A could be the ‘perfect marriage’ between start-ups in Southeast Asia with financial issues and larger companies looking for cheaper opportunities for strategic consolidation,” OBG said.
The hospitality sector is one space where M&A could become active, OBG said, quoting Paul Ashburn, co-managing partner at business consultancy BDO Thailand.
“Hotels and hospitality is one area where I see the potential for significant M&A activity. Bangkok and the major resort areas have a lot of hotels that have been closed for several months due to the pandemic and not all of them will have the financial capacity to weather this sudden downturn,” Ashburn said.
“It was already very competitive before the pandemic so those operators that are more leveraged could now be looking to exit, and I would expect to see some consolidation in this sector,” he added.
Parallel to this, OBG said companies in the e-health, ed-tech and e-commerce segments have all benefitted from an increase in consumer and investor interest since the outbreak of the pandemic, which could in turn lead to a rise in acquisitions or investment moving forward.
