Revised M&A rules may boost deal values

Deals will soon be driven by economics and speed rather than personal ties.

A plan to scrap deal protection mechanisms and make mergers and acquisitions (M&A) more competitive is expected to boost deal sizes in Singapore over the next three years, amidst declining values.

“At least in terms of dollar values, it should be positive because now, there will be more contested deals and auctions where there are multiple parties bidding, since no one party has an advantage over the others,” Manas Tamotia, managing director, Performance Improvement, Alvarez & Marsal Southeast Asia and Australia, told Singapore Business Review.

“More bidders will have the comfort that they are able to get into a process where the playing field is a bit more levelled than perhaps may otherwise have been the case,” he said via Zoom.

M&As involving Singaporean companies fell 6.4% to $20.9b (US$15.5b) in the first quarter from a year earlier, according to data from the London Stock Exchange Group.

The Securities Industry Council wants to amend Singapore’s Code on Take-Overs and Mergers by removing break fees, which are paid to the original bidder when the target company backs out, usually for a better offer, as well as exclusivity arrangements that limit competition.

Tamotia said these measures as well as the “put up or shut up rule,” which imposes a 28-day deadline on a potential acquirer to clarify its intentions after announcing an offer, would “most significantly” shape deal-making strategies.

The company must either make an offer or publicly back out within that period.

“Deals or transactions will now be driven by economics and speed rather than behind-the-scene relationships, personal connections, or favoritism toward one party,” he pointed out.

The council appears to want to fast-track everything based on its proposal, from due diligence to the purchase terms, to the term sheets on funding, Tamotia said. “In the old days, you could take it as slow as you wanted, but that’s no longer on the table.”

“A lot of preparation, bid and due diligence readiness need to be fast-forwarded,” he said. “You will also have to take into account the reality that a counter-bid might be forthcoming, and there’s a need to build more buffer into the price you’re willing to pay, or think carefully about how you would best play your cards.”

Tamotia expects a slight decline in deal volume in Singapore in the short term as dealmakers adapt to the rules. In the longer term, he expects volumes to remain stable, though some sectors may see stronger activity.

He expects real-estate investment trusts, data centres and infrastructure-type assets to benefit from the proposed changes to the M&A code, apart from the healthcare sector.

Tamotia said the changes would benefit minority shareholders and are in line with most markets such as the UK.

“There are now many minority shareholders, and you need to provide better protection, more disclosure, and clearer continuous reporting,” he said. “You want the gold standard for deals.”