PH companies, formerly fusty, become global big dealmakers

MANILA – Philippine conglomerates, flush with cash and confidence, are seeking to transform themselves into regional players in fields from food and beverages to real estate by going on an acquisition spree.

While falling demand in China and weak commodity prices have left many global companies reeling, Philippine conglomerates such as JG Summit Holdings Inc. and Alliance Global Group Inc. are feeling resilient, thanks to a focus on the services and consumer sectors. They are benefiting from domestic demand fueled by overseas remittances – money sent home by roughly 11 million Filipinos living and working abroad – and a booming outsourcing industry that handles callcenter and back- office functions for overseas clients. These pumped $26.6 billion and $18.6 billion, respectively, into the Philippine economy in 2014, with most of that cash invested in real estate or spent in shops, a boon for the big conglomerates, all of which count real estate and retail as core business areas. Most count both.

Against that backdrop, the total revenue of the Philippines' top eight conglomerates in 2014 broke $40 billion, more than twice what it had been four years earlier. Most conglomerates are expected to report further increases for 2015. The net-profit picture for the first nine months of the year was strong: Ayala Corp., which has interests in property, retail and utilities, posted a 26% jump to $368 million, and San Miguel Corp., the country's biggest conglomerate by sales, posted a 7% increase to $558 million.

Bumper earnings have helped fund $6 billion in overseas acquisitions since 2014 by Philippine companies, which had almost no track record of foreign takeovers and were widely criticized as too conservative and inward-focused. Before 2014, the only high-value foreign play by any Philippine company was San Miguel's $610 million acquisition of Malaysian energy assets from Exxon Mobil in 2011.

"Five years ago [ large foreign acquisitions] would not have been undertaken by any company," said Lance Gokongwei, president of JG Summit, the Philippines' third-largest conglomerate by sales, with businesses in property, retail and aviation. "Now there are 10 or 20 Philippine corporates who could swing a $1 billion deal." And executives at the country's biggest companies say more deals are likely in 2016 as they look to grow their footprint overseas.

Philippines Inc. isn't at the level of China Inc., whose companies spent $111.9 billion on overseas assets in 2015 and announced a further $12.3 billion in deals in just the first two weeks of 2016, according to Dealogic. But Philippine companies have been more acquisitive than local rivals in Indonesia, Malaysia, and Vietnam, which haven't made significant overseas purchases during that period.

"The Philippines is in a better macroeconomic situation than ever, there's a very solid domestic market resistant to external shocks, and the credit environment is very benign--you can really do a lot with that, " said Ronald Mendoza, an economist at the Asian Institute of Management in Manila.

Recently, Philippine companies have been mainly targeting the food and beverage sectors, where they are emerging as strong Southeast Asian players.

In 2014 JG Summit acquired Griffin Foods, a New Zealand maker of cookies and other snacks, for $608 million. Mr. Gokongwei, JG Summit's president, said in an interview that the acquisition would help its food and beverage unit, Universal Robina Corp., become a regional business targeting Southeast Asia's increasingly affluent consumers. JG Summit, which had $1.1 billion in cash as of September, is open to further acquisitions, he said, without naming any targets.

Last year snack- food company Monde Nissin Corp. bought meatsubstitute specialist Quorn Foods of the U.K. for $831 million, and in 2014 and 2015 it picked up three Australian food brands for $211 million.

Also in 2014 and 2015, Emperador Inc., the beverage unit of conglomerate Alliance Global – which also operates restaurants and hotels – made three deals of its own, spending a total of $1.1 billion on British spirits company Whyte & Mackay and two Spanish liquor brands. Fruit processor Del Monte Pacific Ltd. paid $1.7 billion for the US's Del Monte Foods in 2014.

Now San Miguel is pursuing what would be the biggest purchase so far by a Filipino company. In January, President Ramon Ang said he is interested in European beer brands Grolsch and Peroni, which Anheuser-Busch InBev is preparing to unload for around $3 billion as part of its enormous takeover of SABMiller PLC. A bid by San Miguel could pit it against Japan's Asahi Breweries Ltd. and Thai Beverage, which have also said they intend to join the chase.

Philippine companies have also been acquisitive in real estate and utilities. Ayala's deals in Southeast Asia most notably include buying 33% of Malaysian property company MCT for $135 million in 2015. Ayala also has manufacturing interests spread across several countries through its Integrated Micro-Electronics electroniccomponents unit.

Now is the right time to grow internationally, especially within Southeast Asia, an Ayala spokeswoman said, adding that its water-utility, property and electronics units are "all taking steps to expand outside the Philippines."

SM Investments Corp., the country's No. 2 conglomerate by sales and its biggest retailer, is expanding its shopping-mall business into China. And the Aboitiz Group, one of the Philippines' largest power-generation companies, has begun acquiring regional power assets, initially focusing on Indonesia, where it is developing geothermal and hydropower projects.

The Philippines isn't immune to global instability: Like other stock markets, Manila's took a beating in January, losing around 14% of value in a couple of weeks. Decliners included major conglomerates such as JG Summit and SM.