DD in Private M&A in the Philippines

This article describes the specifics of DD and disclosure under the current M&A regime in the Philippines.

The conclusion of a M&A transaction in the Philippines necessarily includes due diligence (DD) of the object of purchase. For modern business, complex DD is a norm, a preventive tool that helps a potential buyer to identify the problem of hidden business ownership; presence of negative information about the beneficiaries of the counterparty; control or dependence of business on influential political figures; material tax evasion or fraudulent activity that has occurred in the past and has not been properly identified; and using business as a channel for money laundering.

Scope of DD

A typical Asian acquisition requires analysis of:

• legal aspects;
• financial statements;
• technical verification.

Legal DD companies in the Philippines typically cover:

• statute;
• shareholder structure;
• licenses and IP protection in the Philippines;
• labor relations;
• target litigation (both current and past);
• corporate issues;
• insurance issues.

It's worth noting that sellers rarely provide due diligence reports in the Philippines, although they should do so at the request of a potential buyer. However, buyers have rather low confidence in these types of reports, so they rely more on third-party audits and independent peer review. IQ Decision UK experts are ready to advise you and provide assistance at all stages of the DD verification of the Philippine company that you intend to acquire.

Seller's responsibility

Local regulations often encourage buyers to bring in outside experts to run a comprehensive DD for a target company in the Philippines. In particular, sellers are not responsible for providing misleading information (unless it is clearly fraudulent). Failure to disclose facts does not entail responsibility. Therefore, trusting everything that Filipino sellers say is hardly worth it.

Publicly available information

Publicly available data can also be used to conduct due diligence of an M&A transaction in the Philippines. Typically, corporate searches are conducted in the registries of the relevant regulatory authorities. They include information on equity, lists of directors, officers and shareholders. Also, the buyer can examine the articles of incorporation and financial statements submitted to comply with reporting requirements.

Search in closed sources

Meanwhile, information obtained from open sources is not enough to get an objective picture and assess the situation with the target Philippine company. It is then recommended to obtain information from external service providers and other reliable sources related to checking the goodwill. This is especially important for countries that do not have or are limited in the provision of public information, or when such public information is insufficient to make informed decisions. Such cases require support from specialists with relevant experience and expertise.

The final word

For those looking to carry out a merger in Asia, it is worth paying special attention to the target company's complex DD prior to entering into an acquisition agreement. In the course of such an audit, an analysis of the internal and external environment of the investigated company can be carried out; the role of its officials; perception of the company in the market; data on assets, cash flows, liabilities, the presence of encumbrances on assets; other important information. The information obtained in the course of such a check will help you not to make a mistake and make the right decision to buy a company or to refuse such a purchase.