Local companies to grow through acquisitions

MANILA, Philippines - Local companies are expected to grow by acquiring either fellow domestic or foreign firms in the next three years despite a US-driven slowdown and turbulent financial markets. The merger and consolidation phase will make these companies become more valuable and will better prepare them for capital-raising activities in the stock market, audit and consulting firm Punongbayan & Araullo (P&A) said Wednesday. According to an international business report prepared by Grant Thornton International, half of local firms plan to grow by buying companies in related fields. Of this pie, about 63% of Filipino businessmen expect the growth to come from cross-border, acquisitions, while a fourth said domestic acquisitions would drive their growth. "This is a very positive indication that Philippine businesses are now ready to compete in the global acquisitions of businesses and expand their operations offshore," said Francis Albalate, P&€™s transaction advisory service head. Acquisitions, he added, would likely take place in the business process outsourcing (BPO) and banking sectors. As a result, companies in these sector should be able to widen their reach and diversify their products. Mr. Albalate cited the example of publicly listed IPVG Corp., which announced plans to buy at least two BPO companies within the year, including Influent, Inc. and despite its failed bid to acquire People Support. Banks have also been merging and acquiring each other following a central bank call for stronger financial institutions. The merger between Sy-led Banco de Oro and Equitable PCI Bank, which will be completed this year, created the country’s second biggest bank — Banco de Oro Unibank. "We might see more bank mergers in two or three years as the Basel 2 standards are fully implemented by 2010," Mr. Albalate said in an interview. Philippine National Bank and Allied Bank, both owned by businessman Lucio Tan, announced their long-awaited merger Wednesday. Mr. Albalate said local companies usually look at two sources of funding in pursuing possible acquisitions: internally generated funds and loans. "[An acquisitions] is a good marketing tool to expand markets while also providing companies some cost advantages. Obviously, if you are dominant in certain markets, you can actually do a lot of things and cross-sell products," he pointed out. But Mr. Albalate said acquisitions do not necessarily reduce competition, as perceived by corporate watchdogs that guard against monopolies. Some companies, he added, acquire their peers as they prepare to go public. "Some of them could have been buying other companies to build their portfolio businesses, which... add value to future shareholders," he said. Based on the report, 22% of Filipino executive polled expect to list their businesses in the next three years, at about the same time companies will have grown their portfolios through acquisitions. - Lovely Nica P. Lee, BusinessWorld