SINGAPORE - Member states in the Trans-Pacific Partnership (TPP) are likely to see an increase in cross-border mergers and acquisitions (M&A) activity in the years following full ratification of the treaty; and Singapore is set to become one of the prime beneficiaries of such growth, said international law firm Freshfields Bruckhaus Deringer.
"Singapore is one of the economic powerhouses of the TPP and Singapore companies will be better placed than many others to make outbound investments in fellow TPP member countries," said Freshfields' head of corporate practice and Singapore partner, Stephen Revell.
The firm based its opinion on a study it conducted of the after-effects of five multilateral and bilateral trade agreements with trade-liberalising effects similar to the TPP's, such as the North American Free Trade Agreement (Nafta) and the ASEAN-Australia- New Zealand Free Trade Agreement (AANZFTA).
The TPP is a trade agreement signed in February by 12 Pacific Rim countries, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. It is awaiting ratification to enter into force.
Freshfields' analysis of the years immediately following the ratification of similar treaties found that member states generally experienced an increase in both the volume and values of cross-border deals with other member states.
It found that, in the first two years after the treaties had been brought into force, the number of deals between member states was on average 29.2 per cent higher than the two years immediately before ratification. This compares with a long-term average - based on global cross-border M&A data for a 20-year period - of 9.3 per cent.
The firm also found that the cumulative value of deals done between member states in the five trade pacts grew by nearly two-thirds (63.8 per cent) in the first two years, increasing to 84.2 per cent after five years. In comparison, the long-term average growth rate for global M&A cross-border deals stood at 36.6 per cent in two years, and just 19.6 per cent in five years.
Nicholas Lingard, Freshfields Singapore partner and head of the firm's international arbitration practice in Asia, said the analysis establishes a strong link between trade-pact membership and cross-border dealmaking. "Much of the discussion around TPP has focused on the trade of goods and services, but this analysis shows us that far greater benefits are potentially on offer for members of the partnership.
"The analysis suggests that M&A deal flow may accumulate at around triple the normal rate of cross-border transactions. That could well result in substantial new investment opportunities for companies with a presence in TPP member states," Mr Lingard said.
He went on to say that the findings also suggest that multinational companies are more willing to make large investments in those countries where they had the confidence of a reliable dispute-resolution mechanism, such as those offered in modern trade and investment treaties.
"Companies are willing to invest more often, and with far more capital, when they have the added protection of a strong investment treaty (to protect their investments overseas). The investment protections in the TPP will be one of the most important factors in its success," Mr Lingard said.
Singapore, in particular, is set to be one of the prime beneficiaries of the TPP's success - given how much it benefited from M&A growth following previous trade treaties.
For example, the US-Singapore Free Trade Agreement saw Singapore companies complete one-third more outbound M&A deals into the US in the first two years after ratification, and the number of US M&A deals into Singapore increased by nearly 60 per cent during the same period.
The size of Singapore's investments into the US also substantially increased following the treaty, with deal value increasing by more than 20 times in the two years following ratification. Over a five-year period, that level of value growth settled to nearly 350 per cent.
The strength of these results was replicated through Singapore's participation in AANZFTA. Singapore investments in other member states increased by 36.8 per cent in the first two years of the treaty, and the value of those investments more than doubled.
Mr Revell pointed out that Singapore also has several particular characteristics that stand it in good stead.
"Singapore's companies by and large have healthy balance sheets which will give them good access to finance, if required, and allow them to move more quickly than many international counterparts.
"What's more, Singapore's companies and financial institutions have significant deal-making experience which will position them strongly to take advantage of any buying opportunities that arise," he said.
He added that the TPP would also change the economics and risks for some potential acquisitions.
"Once the TPP comes into effect, assets that previously were too risky, or off-limits through government restriction, may well become very attractive targets to Singapore's multinationals."
Mr Revell also said that Freshfields is aware of a number of Singapore companies that are preparing themselves for acquisitions in TPP member states once the treaty is ratified.
"There is a recognition that this is a significant opportunity for many businesses in Singapore, and many are positioning themselves to seize this moment."
This article was first published on September 1, 2016.
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