Capitalising on opportunities in the Philippines

Gorriceta Africa Cauton & Saavedra lawyers led by Mark S. Gorriceta (managing partner), Kristine T. Torres (partner) and Kathleen T. Guiang (mid level associate) explore the challenges, cross-border elements and post acquisition disputes for M&A transactions in the Philippines

Can you describe your expertise with M&A transactions within the Philippines? How does the Philippine legal and regulatory framework influence your approach?

Our firm, Gorriceta Africa Cauton & Saavedra, a top-tier full-service law firm in the Philippines, has extensive experience in providing legal and transactional advisory services for M&A deals, representing either the buy or sell side in all types of domestic and cross-border acquisitions, investments and divestments of businesses across a wide spectrum of industries.

We are highly regarded and trusted for our advice on all stages of transactions, specifically in due diligence, structuring, drafting of definitive agreements, negotiating and closing M&A transactions. Through our team’s vast experience, we have developed industry-specific knowledge in public and private deals and cross-border transactions, as well as equity investments and divestments.

Currently, we have been very active in representing sell and buy side parties in equity investments of foreign investors; acquisition of highly regulated entities such as those with secondary licences from the Securities and Exchange Commission, Philippine Central Bank and Department of Information and Communications Technology; as well as holders of permits and licences from the Department of Energy and other regulatory bodies.

In structuring and negotiating deals, we always make sure that our advice is a result of a thorough review of relevant legal and regulatory frameworks, including taxation, corporate, securities, intellectual property and civil law, to ensure adherence to laws while optimising shareholder benefits and protection in the deal’s arrangement. Moreover, we also conduct legal analysis of the potential regulatory issues that might surface concerning the acquisition or transaction.

Our approach in providing transactional advice is impacted by the developments in the legal and regulatory framework relating to M&A in the Philippines. These considerations include: (i) restrictions on foreign investments, (ii) antitrust regulations and compulsory notification thresholds under the Philippine Competition Act, (iii) environmental, social and governance principles, and (iv) potential tax exposures, among others.

We provide transaction-specific advice and offer out-of-the-box solutions that consider both the legal and regulatory requirements in closing a deal, and the business and commercial considerations of our client.

What do you see as the most significant challenges and opportunities for M&A in the Philippines today?

The Philippines continues to open up its economy to more diverse investors with recent legislative amendments, encompassing the amendment to the implementing rules and regulations of the Renewable Energy Act of 2008 which effectively removed the foreign ownership restriction on the renewable energy sector; the amendments to the Public Service Act which now allow 100% foreign ownership in public services entities; the amendments to the Foreign Investments Act which reduce the required minimum paid-in equity capital for foreign investors in micro and small domestic enterprises; and the amendments to the Retail Liberalisation Act which lower the minimum paid-up capital requirement for foreign investment in the retail sector to Php25m.

The continued accelerated digitisation and the current licensing moratorium on certain industries imposed by regulatory agencies also open up a wealth of opportunities for M&As and investments particularly in the fintech, technology, banking and lending spaces.

Nevertheless, while the Philippines strives to position itself as open to foreign investments with the significant regulatory changes that will drive M&A and investment opportunities in these sectors, high interest rates, geopolitical tensions, stagnant capital market activities and limited IPO exit opportunities, coupled with heightened regulatory requirements, may introduce intricacies and challenges to M&A deals.

Our reputation and expertise allow us to assist our clients in navigating these challenges. We guide them through providing out-of-the-box solutions and deal structuring options which are compliant with regulations with minimised exposure to these roadblocks, while still being able to achieve the client’s goals and objectives for the transaction.

The Philippines has seen an increase in cross-border M&A activity. Can you share your experience with these types of transactions?

We have a proven track record in assisting clients in transactions with cross-border aspects, including foreign private equity and venture capital investments in companies in the Philippines, spanning a diverse range of sectors.

Cross-border transactions are highly complex and sophisticated in nature, especially when a number of jurisdictions are involved. We render a full spectrum of legal advisory services to help our clients resolve issues or mitigate risks, on cross-border investment rules, foreign exchange controls and compliance with securities laws and investment limitations. We closely liaise and collaborate with foreign counsel to navigate and comply with varied legal frameworks, laws and business environments prevalent in the jurisdictions involved.

Due diligence is crucial in any M&A transaction. How do you tailor your due diligence process to address the unique aspects of the Philippine market?

Our approach in conducting due diligence depends on the type of the deal; the purpose, size and complexity of the transaction; the parties involved; the risk profile; tolerance; and background of our client. The industry the target company belongs to is also a factor in strategising for diligence work, since the legal and regulatory considerations and areas of focus would be different.

Most of our recent deals involved acquisitions in highly regulated companies with secondary licences, or imbued with public interest. These types of transactions require more extensive and specialised due diligence as they have specific requirements under special laws, and change-in-ownership requirements.

We have a number of M&A deals which took a relatively longer timeline to close and some which did not push through due to diligence issues. In some deals where the main objective was to acquire the target companies because of the licences they possessed, the fact that there were material issues on the licence status and compliance which were uncovered during our due diligence, among others, became a dealbreaker for our clients. We also have deals which fell apart because of financial and valuation issues, and accounting practices of the target company.

After the deal closes, integration and potential disputes pose new challenges. How do you support clients in the post-acquisition phase, especially in ensuring smooth integration and handling any disputes that arise?

It is during post-acquisition integration that challenges often emerge, ranging from exposures and risks that were not possible to uncover during the diligence exercise, or consequences that arise from pending litigation or administrative proceedings.

As transaction counsel, we assist and provide advice to clients throughout the lifecycle of the transaction including post-acquisition integration. Our M&A team also implements a proactive approach in monitoring post-closing compliance from both buy and sell sides to ensure a smooth transition and effective integration in the business operations of the target company.

We provide post-merger integration support by assisting our clients with their tax structuring, restructuring and corporate reorganisation, and providing legal advisory and consultancy services.

Where disputes have arisen after a deal has closed, we work alongside our client to look for solutions and to effectively handle these disputes without going through litigation. Unfortunately, some deals gave rise to disputes that were elevated to courts. In such cases, our M&A team together with our litigation group continues to assist our clients in providing strategic advice to resolve these disputes.