Has tight oversight weighed down Singapore's dealmaking activity?

A total of 66 mergers have been lodged with the Competition Commission of Singapore as of end-June.

Despite a relatively lax competition regime that operates on a voluntary merger notification basis, Singapore companies seeking further expansion via mergers and acquisitions held back on striking deals to fuel their growth ambitions in the past year.

Also read: Singapore M&A deal value crashed 24.8% to US$8b YTD

Nearly 9 in 10 (87%) Singapore companies admitted that they failed to complete or fully scrapped a planned acquisition in the past 12 months citing disagreement over valuation, antitrust views and intervention by activist investors, according to EY’s Global Capital Confidence Barometer. 

Also read: Singapore ranks third in countries with most failed M&A deals

The number of executives planning on pursuing deals in the next 12 months also crashed from 52% six months ago to 40% in the coming year, Vikram Chakravarty, EY Asean Managing Partner, Transaction Advisory Services, Ernst & Young Solutions LLP told Singapore Business Review.

“The reason behind the slight dip in deal appetite is because Singapore companies are restructuring themselves currently, hence some portfolio shifts can be expected before a spate of larger and more targeted M&As take place,” Chakravarty added. “A more effective and structured portfolio transformation may be necessary to ensure that deals close and are successful.”

Also read: M&As targeting Singapore companies plunged to 5-year low at US$4.3b

However, the city state’s competition regime may have less to do about decreased dealmaking  activity than most would like to think. The competition regimes of several of the lion city’s regional peers including China, India, Japan, the Philippines, South Korea, Taiwan, Thailand and Vietnam, for instance, have mandatory pre-closing filing regimes, according to the Global Competition Review. This means that companies seeking mergers first need to secure approval from relevant authorities prior to closing deals.

Merger notifications in Singapore, on the other hand, are mandatory and do not have any automatically operating bar on closing a transactions prior to approval. It joins Australia and New Zealand who operate this type of merger regime.

“Singapore adopts a voluntary merger notification system which aims to strike a balance between the regulatory objective of facilitating competition and making markets work well, and imposing unnecessary compliance costs on businesses and impeding market activities,” the Competition and Consumer Commission of Singapore (CCCS) said in an interview.

Merger parties in doubt of whether their mergers can give rise to potential competition concerns may apply to the CCCS for a formal decision. Singapore companies can also approach the regulatory body for advice on a confidential basis.

As of end-June, a total of 66 mergers have been notified to CCCS, of which 57 have been cleared, three have been given conditional clearances, four have been withdrawn and one anticipated merger was blocked.

The regulator also makes it a point to regularly appraise its guidelines to ensure that the regime adequately responds to changing business needs.

"CCCS reviews its competition legislation and guidelines from time to time to ensure our competition regime remains relevant. CCCS also conducts studies, organises seminars and develops partnerships to keep pace in understanding the changing nature of competition in the rapidly evolving digital economy."

Things are looking up for Singapore as Chakravarty observed that confidence in the local M&A market similarly appears to be gaining momentum even as companies delay deals at the moment in an effort to reorganise their portfolios.

Top sectors looking to make acquisitions to break growth ceilings over the next few months are real estate, hospitality and construction; financial services; automotive and transportation; consumer products and retail; and telecommunications, EY said in its report.

“The growth imperative means companies will remain focused on accessing new markets or acquiring innovation. An early understanding of regulatory implications in terms of how the company should shape the deal — such as subsequent asset sales to meet competition/antitrust requirements — could give them a competitive advantage,” he added.