Singapore’s M&A activity in 2020 totalled USD59.2 billion, falling from USD72.4 billion in 2019. Outbound deals accounted for two-thirds of the total deal value and amounted to USD40 billion. In 2020, there were 149 private equity and venture capital investments, amounting to USD5.2 billion (Duff & Phelps).
The COVID-19 pandemic has severely impacted cross-border deals, which largely drive Singapore’s M&A market. Singapore’s M&A activity, while still healthy, was at its lowest in 2020, since 2016. In particular, the COVID-19 pandemic has caused deal delays due to business uncertainty and the inability to complete onsite due diligence.
Privatisation trends observed in previous years surged in 2020, surpassing last year’s by 70% in deal value. Companies such as BreadTalk Group, Perennial Real Estate Holdings and SK Jewellery de-listed from the Singapore Exchange (SGX).
In terms of IPO listings, capital raised was significantly lower at USD944 million in 2020 compared to USD2.3 billion in 2019.
The real estate sector continued to have a strong M&A track record. In 2020, the real estate sector totalled USD22.5 billion in deal value, and was the top sector for both domestic and outbound M&A deals.
This was followed by the energy sector which accounted for 18.5% of M&A deal value and the banking, financial services and insurance (BFSI) sector with 9.4% of M&A deal value.
Many industries have been badly affected by the COVID-19 pandemic, such as the aviation, tourism, food services, land transport and arts and culture sectors. The Singapore government has introduced financial measures to help these specific sectors, in addition to broad-based support for the whole economy.
Asset or Share Acquisition
Generally, the acquisition of a company in Singapore can be effected by way of a share acquisition or the acquisition of the business or assets of the company.
An asset or share acquisition is commonly effected by entering into a sale and purchase agreement. Before executing the agreement, parties may enter into a letter of intent or term sheet, which will typically set out the agreed key terms of the transaction. Such a preliminary document may be expressed as non-legally binding, except for certain obligations such as confidentiality or exclusivity.
The primary techniques to acquire a company’s shares in Singapore include:
General offers for shares in a Singapore public company are regulated under the Takeover Code. General offers take the form of mandatory offers, voluntary offers or partial offers.
Under the Takeover Code, a bidder is required to make a mandatory offer for all the shares in a Singapore public company where the acquisition of shares by the bidder results in the shareholdings of the bidder and any parties acting in concert with it exceeding certain thresholds. The mandatory offer rules under the Takeover Code apply when:
Voluntary and Partial Offers
An offer that does not trigger the mandatory rules under the Takeover Code is a voluntary offer governed by Rule 15 of the Takeover Code. A voluntary offer must be conditional on the bidder and its concert parties acquiring more than 50% of the target company. A higher percentage acceptance threshold may be stipulated, subject to the consent of the Securities Industry Council (SIC).
A bidder makes a partial offer by making a voluntary offer for a portion of the target company’s shares. All partial offers must be approved by the SIC, and it will generally grant consent for partial offers that do not result in the bidder and its concert parties holding more than 30% of the target company’s voting rights.
Scheme of Arrangement
A scheme of arrangement under the Companies Act, Section 210 is a legislative procedure that allows a company to be restructured. A scheme is typically organised as a transfer of shares from the shareholders of the target company to the acquirer, and in consideration of the share transfer the acquirer pays cash or issues new shares in the acquiring company to the shareholders of the target company. An alternative scheme is where the target company cancels its existing shares and issues new shares in the target company to the acquirer.
To pass a scheme of arrangement, the scheme must be approved by the requisite statutorily prescribed majority at the scheme meeting and must be sanctioned by the High Court. A scheme that has been successfully passed will be binding on all shareholders of the target company.
A scheme of amalgamation under the Companies Act, Section 215A-K is a legislative procedure that allows two or more Singapore-incorporated companies to amalgamate and continue as one company. The amalgamated company may be one of the amalgamating companies or a new company, and all property, rights, privileges, liabilities and obligations of each of the amalgamating companies will be transferred to the amalgamated company. The amalgamation may be carried out without a court order, subject to certain conditions being satisfied, including obtaining the requisite shareholder approvals and the provision of solvency statements by the directors of the amalgamating companies.
The primary regulators of M&A activity in Singapore are:
There is no general restriction on the amount of shares that a foreign entity may own in a company incorporated in Singapore. However, there may be restrictions that limit or require prior regulatory approval for control or share ownership in companies in certain regulated industries that are perceived to be critical to national interests, such as banking, insurance, broadcasting, defence and newspaper publishing.
Business combinations in Singapore are subject to the Competition Act, which contains, among others, the following provisions:
As the merger notification regime in Singapore under the Competition Act is voluntary, parties to a merger are not obliged to notify the CCCS of their proposed or completed business combinations. However, parties to a merger situation may do so where, following a self-assessment, they have concerns that the merger or anticipated merger has led to or may lead to a substantial lessening of competition in a Singapore market.
Whereas the CCCS can investigate mergers on its own initiative, it is unlikely to intervene in a merger situation that only involves small companies, ie, where the turnover in Singapore in the financial year preceding the transaction of each of the parties is below SGD5 million and the combined worldwide turnover in the financial year preceding the transaction of all of the parties is below SGD50 million.
Generally, the CCCS is also unlikely to investigate in a merger situation, unless the merged entity will have a market share of:
Where the acquisition is structured as a transfer of the business undertaking of the target company, the automatic employment transfer provisions under Section 18A of the Employment Act (Cap 91) may be applicable in respect of employees who are covered under the Employment Act at the time of the business transfer (EA employees), ie, generally all employees. In particular, Section 18A provides for:
Where the business transfer involves a transfer of foreign employees, the acquirer should consider if new work-pass applications would be required for the incoming foreign employees or if the transfer of foreign employees would affect work-pass quotas.
Where the acquisition is structured as a transfer of shares, the employees of the target company will continue to be employed by the target company and will be unlikely to be affected by the transfer of shares.
There is currently no regulatory body in Singapore that undertakes a national security review of acquisitions. However, regulatory approvals may be required for control or share ownership in companies in certain regulated industries that are perceived to be critical to national interests, eg, banking, insurance, broadcasting, defence and newspaper publishing.
One of the more significant legal developments relating to M&A is the amendment of the SGX Mainboard Listing Rules in June 2018 to permit the listing of companies with dual-class share structures on the SGX Mainboard. The Takeover Code was subsequently amended with effect from 25 January 2019 to clarify its application to companies with dual-class share structures.
Additionally, changes to the delisting rules, which bars the offeror and parties acting in concert from voting on voluntary delistings and requires the exit offers to be reasonable and fair has given minority investors greater power to determine the outcome of the vote.
There have not been any significant changes to takeover law in the past 12 months.
It is not uncommon for bidders to build up some shareholding stake in a company prior to launching an offer. A 10% ownership stake in the target company could be used to prevent a rival bidder from a compulsory acquisition of the minority stake in the company. A bidder may also seek to obtain a 25% ownership stake to effectively veto a rival scheme of arrangement or amalgamation.
Bidders seeking to build a significant stake in a target company generally need to comply with the following:
A bidder may concurrently seek to obtain contractual undertakings from existing shareholders to accept its proposed offers or to vote in favour of their scheme. Such irrevocable undertakings may potentially be aggregated as part of the bidder’s ownership stake in the target company, which may potentially trigger the mandatory offer rules under the Takeover Code (among other requirements).
Under the Securities and Futures Act, a party who acquires an interest in 5% or more of the voting shares (a "substantial shareholder") in a company incorporated and listed in Singapore is required to notify the company of its interest in writing within two working days of becoming aware that it is or had been (if it ceased to be one) a substantial shareholder.
In addition, the substantial shareholder is required to notify the company in writing if there are subsequent discrete 1% changes in the substantial shareholder’s interests or if he or she ceases to be a substantial shareholder, within two working days after he or she becomes aware of the change. The substantial shareholder disclosure requirements also apply to corporations that are incorporated overseas, but with a primary listing on approved exchanges in Singapore.
From a competition law perspective, merger parties may voluntarily notify CCCS of their merger or anticipated merger if, after conducting a self-assessment, they have concerns that the merger or anticipated merger has led to or may lead to a substantial lessening of competition in a Singapore market.
It is open to a company to introduce more (but not less) stringent reporting thresholds, eg, in its constitution. Apart from the general restrictions that may be applicable to stakebuilding (see 4.1 Principal Stakebuilding Strategies), the acquirer should be mindful of statutory limits or regulatory approvals required for having control or share ownership in companies in certain regulated industries, such as banking, insurance, broadcasting, defence and newspaper publishing.
Dealings in derivatives are allowed, and are generally subject to the same restrictions as dealings in capital markets products (which include shares) under the Securities and Futures Act.
Under the Takeover Code, a person who has acquired or written any option or derivative that causes him or her to have a long economic exposure, whether absolute or conditional, to changes in the price of securities, will normally be treated as having acquired those securities for the purposes of the mandatory offer rules.
Where the acquirer triggers the mandatory offer requirement under the Takeover Code as a result of acquiring such options or derivatives (among others), the acquirer must consult the SIC to determine if a mandatory offer is required, and, if so, the terms of the offer to be made.
Dealings in derivatives in respect of certain securities of the target company subject to the Takeover Code during the offer period must be publicly disclosed. Full details of the dealings in derivatives should be provided so that the nature of the dealings can be fully understood. This should include, at least, the number of reference securities to which they relate (where relevant), the maturity date or if applicable, the closing-out date and the reference price.
Separately, under the Securities and Futures Act and the Securities and Futures (Reporting of Derivatives Contracts) Regulations 2013, a specified person who is a party to a specified derivatives contract (which includes a derivatives contract the value of which is determined by reference to the value of underlying stock or shares, among others) is required to report certain prescribed information to a licensed trade repository or licensed foreign trade repository in respect of the derivatives contract.
There are no specific filing/reporting obligations for derivatives under competition laws in Singapore.
For public M&A transactions subject to the Takeover Code, an offer document, which should be despatched no later than 21 days after the offer announcement, should disclose the bidder’s plans relating to the target company and its employees, including:
For public M&A transactions subject to the Takeover Code, before the board of the target company is approached, the responsibility for making an announcement will normally rest with the bidder or potential bidder. However, once an approach has been made to the board of the target company, the primary responsibility for making an announcement will typically rest with the target company’s board.
The target company’s board is required to make an announcement in any of the following circumstances:
SGX Mainboard Listing Rules
Furthermore, a company listed on the SGX Mainboard must announce any information known to it or any of its subsidiaries or associated companies which is necessary to avoid the establishment of a false market in its securities or would be likely to materially affect the price or value of its securities as prescribed under the SGX Mainboard Listing Rules. However, the announcement need not be made if:
According to the Corporate Disclosure Policy under the SGX Mainboard Listing Rules, a frank and explicit announcement is required if rumours indicate that material information has been leaked. If rumours are false or inaccurate, they should be promptly denied or clarified.
As mentioned in 5.1 Requirement to Disclose a Deal, for public M&A transactions that are subject to the Takeover Code, the responsibility for making an announcement on the potential deal will normally rest with the bidder or potential bidder, before the board of the target company is approached.
In terms of timing, the bidder or potential bidder must make an announcement:
Where an approach has been made to the board of the target company, the board must make an announcement following the occurrence of any of the circumstances as set out in 5.1 Requirement to Disclose a Deal.
There is no standard process on carrying out due diligence under Singapore laws, and the level of information and documents provided will depend on the nature of the transaction and the relevant parties.
Public M&A Transactions
In general, for public M&A transactions, the scope of the legal due diligence process is likely to be affected as follows:
In view of the above legal restrictions, the bidder often will have to rely on publicly available information. This includes:
Private M&A Transactions
For private M&A transactions, the scope of due diligence tends to be broader as the target company would not be subject to restrictions that apply to public companies. Depending on time or budgetary constraints, the due diligence may include the following relating to the target company:
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has hindered certain due diligence processes, such as onsite due diligence, and physical meetings and inspections. This is particularly so for cross-border deals in light of international border closures and entry restrictions.
The COVID-19 pandemic has also necessitated enhancing the scope of due diligence, to address concerns relating to its impact. This may include making more extensive enquiries on supply chain and revenue risks, reliance on government support schemes, contractual termination rights, and scope of insurance policies.
In general, exclusivity agreements and similar arrangements are often requested, but standstill agreements are not as common. However, in negotiating for exclusivity arrangements, the target company should note its duty under the Takeover Code not to take any action that could frustrate a bona fide offer or deny its shareholders an opportunity to decide on its merits.
Under the Takeover Code, standstill agreements between a company, or the directors of a company, and a shareholder which restrict the shareholder/directors from either offering for, or accepting an offer for, the shares of the company or from increasing or reducing shareholdings, may result in the parties acting in concert.
The terms and conditions of any public takeover will be contained in the bidder’s offer announcement and offer document or in the target company’s scheme document (where a scheme of arrangement or amalgamation is used). Under the Takeover Code, the offer document must set out clearly:
Assuming there is no competing offer, the acquisition of a public company would typically take around six months from the public announcement of the offer by the bidder to the completion of the acquisition of the target company’s shares under the Takeover Code.
For share acquisitions of a private company, the transaction process may take around three to six months to complete, although the time required would, ultimately, depend on a multitude of factors, such as whether there are any competing proposals, the size of the target company, the transaction structure, the complexity of the transaction and the extent of due diligence conducted on the target company. For the acquisition of assets, the transaction process could be longer, owing to the need for additional third party consents to be obtained for the assets transfer.
Impact of the COVID-19 Pandemic
Like many other countries, to tackle the COVID-19 pandemic, the Singapore government has imposed safe distancing measures on businesses, and travel restrictions. These measures have impacted both domestic and cross-border deals, not only in terms of due diligence processes, but also signing and closing mechanics, such as obtaining signatures, and legalising and notarising documents. Physical closing may be practically impossible in some cases.
The mandatory offer thresholds under the Takeover Code apply to public companies, and these are triggered when:
Parties may request that SIC waive this requirement when the acquisition of voting rights arises as a result of the issue of new securities as consideration for an acquisition or a cash injection or in fulfilment of obligations under an agreement to underwrite the issue of new securities. Very broadly, a grant of waiver will be subject to a whitewash resolution, ie the approval of a majority of holders of voting rights of the offeree company at a general meeting, before the issue of new securities to the offeror, of a resolution by way of a poll to waive their rights to receive a general offer from the offeror and parties acting in concert with the offeror.
In relation to the relatively new rule allowing dual-class share structures, under the Takeover Code, when there is a conversion of multiple voting shares to ordinary voting shares (“Conversion”) or a reduction in the voting rights attached to each multiple voting share (“Reduction”), any resulting increase in the percentage of voting rights held by a shareholder and persons acting in concert with him or her will be treated as an acquisition and the shareholder or group of shareholders acting in concert could become obliged to make an offer. However, SIC will not normally require an offer if the shareholder:
For takeovers and mergers involving private companies, consideration more commonly takes the form of cash. Selection of the form of consideration depends on factors such as the availability of financing to the buyer and the tax implications of the payment method.
For public companies, consideration for a general offer can take the form of cash, securities (typically the bidder’s shares) or a combination of the two. However, under the Takeover Code, where the mandatory offer thresholds are triggered, the consideration must be in cash or be accompanied by a cash alternative at not less than the highest price paid by the bidder or any person acting in concert with it for voting rights of the target company during the offer period and within six months prior to its commencement. When voting rights have been acquired for a consideration other than cash, the offer must nevertheless be in cash or be accompanied by a cash alternative of at least equal value, which must be determined by an independent valuation.
Furthermore, except with the SIC’s consent, a cash offer is required where:
Where there is high valuation uncertainty, some common tools used to bridge valuation gaps include deferred consideration, price adjustments based on completion accounts and earn-outs.
For public takeovers all general offers are subject to a minimum level of acceptance. For mandatory and voluntary offers, the offer must be conditional upon the bidder receiving acceptances in respect of voting rights in the target company, which, together with voting rights acquired or agreed to be acquired before or during the offer, will result in the bidder and any party acting in concert with it holding more than 50% of the voting rights. Separate approval thresholds apply for partial offers.
In relation to mandatory offers, bidders cannot impose any other condition or a higher level of acceptance (above 50%).
In relation to voluntary offers, bidders may other conditions, provided that fulfilment of such conditions does not depend on the bidder’s subjective interpretation or judgement, or lie in the bidder’s hands. Normal conditions such as shareholder approval for the issue of new shares and the SGX’s approval for listing may be attached without reference to the SIC. The SIC should be consulted where other conditions would be attached. A condition requiring a level of acceptance higher than 50% needs to be approved by the SIC, and the bidder would need to demonstrate that it is acting in good faith in imposing a higher level of acceptance.
All general offers must be conditional upon the bidder receiving acceptances in respect of voting rights in the target company, which, together with voting rights acquired or agreed to be acquired before or during the offer, will result in the bidder and any party acting in concert with it holding more than 50% of the voting rights (see 6.4 Common Conditions for a Takeover Offer).
Voluntary offers that are conditional on a level of acceptance higher than 50% must be approved by the SIC, and the bidder would need to demonstrate that it is acting in good faith in imposing the higher level of acceptance. Where the bidder is seeking to privatise the target company, a 90% minimum acceptance condition is common, as it allows the bidder to avail itself of the compulsory acquisition procedure under the Companies Act.
In relation to partial offers, the SIC will normally consent to a partial offer that does not result in the bidder and persons acting in concert with it holding shares with 30% or more of the voting rights in the target company, and provided that the bidder complies with the conditions set out under the Takeover Code. The SIC will not consent to any partial offer that results in the bidder and persons acting in concert with the bidder, holding shares with not less than 30% but not more than 50% of the voting rights of the target company.
For private takeovers and mergers, it is common for business combinations to be conditional on the bidder obtaining financing where cash consideration is involved.
For public takeovers and mergers, it is generally not permitted for business combinations to be conditional on the bidder obtaining financing. Where the offer is for cash, or involves an element of cash, the offer announcement as well as the offer document should include an unconditional confirmation by the financial adviser or by another appropriate third party that the bidder has sufficient resources available to satisfy full acceptance of the offer.
It is generally open to bidders to propose deal security measures. Where the Takeover Code applies, the target company should note its duty under the Code not to undertake any deal security measures that could frustrate a bona fide offer or deny its shareholders an opportunity to decide on its merits.
Two commonly used measures are exclusivity agreements and break fees.
Exclusivity agreements hinder the target company’s board from proposing alternative bids to shareholders, by precluding it from actively shopping for or responding to other bidders during a certain period of time.
A bidder may negotiate break fees (imposed on the target company) or reverse break fees (imposed on a bidder), although these are less commonly used in acquisitions involving private companies. Break fees may not be enforceable if they constitute a penalty, as opposed to liquidated damages (ie, a genuine pre-estimate of loss). Further, directors would need to ensure that agreeing to break fees would be in line with the fiduciary duties they owe to the company (eg, to act in a bona fide manner in the company’s best interests).
In acquisitions involving a target company to which the Takeover Code applies, the SIC should be consulted at the earliest opportunity in all cases where a break fee or any similar arrangement is proposed. Further, the rules under the Takeover Code governing break fees must be complied with, eg:
Impact of the COVID-19 Pandemic
In light of the COVID-19 pandemic, bidders might conversely try to include a financing out provision, allowing it to walk away should it fail to obtain financing for the deal, although the target company is likely to resist this.
Apart from its shareholding, additional governance rights such as board seats that a bidder may seek in respect of a target company generally need to be set out in the target company’s constitution.
Shareholders are generally allowed to vote by proxy, subject to the restrictions under the Companies Act.
Unless the constitution otherwise provides,
The Companies Act, Section 215 provides a mechanism for the compulsory acquisition of shares. Where a bidder makes an offer that is approved within four months by shareholders holding not less than 90% of the shares that are the subject of the offer (excluding shares issued after the date of the offer and treasury shares), the bidder may within two months thereafter give notice in the prescribed manner to dissenting shareholders to acquire their shares.
Additionally, where the target company’s constitution provides for drag-along rights, minority shareholders may be required to accept the offer along with the exiting shareholders.
Bidders may request for irrevocable undertakings from principal shareholders of the target company to accept the offer. These undertakings are usually given immediately before the offer is made, and it is common for them to provide an out for shareholders if a better offer is made.
For acquisitions of a target company to which the Takeover Code applies, information about the commitments (including in what circumstances, if any, they will cease to be binding, eg, if a higher offer is made) must be set out in the offer announcement and offer document. Relevant documents evidencing such commitments must also be made available for inspection.
For acquisitions of a target company to which the Takeover Code applies, once an approach has been made to the board, the primary responsibility for making an announcement typically rests with the board.
The target company’s board is required to make an announcement in any of the following circumstances:
In some cases, under the Takeover Code, the bidder will be required to make an announcement of his or her intention to make an offer, before approaching the target company’s board, eg, where the target company is the subject of rumour or speculation about a possible offer, or there is undue movement in the target company’s share price or a significant increase in the volume of share turnover.
For transactions to which the Takeover Code applies, the relevant disclosures under the Takeover Code must be made if the mandatory offer thresholds are triggered as a result of the issue of shares.
Where the issue of shares is made to a company listed on the SGX, the SGX Listing Rules mandates disclosures to the shareholders.
For public M&A transactions, under the Takeover Code, the offer document must contain financial information about the bidder, including the following:
The offer document should also state whether or not there has been, within the bidder’s knowledge, any material change in the target company’s financial position or prospects since the date of the last balance sheet laid before the target company in a general meeting and, if so, the particulars of any such change.
For transactions to which the Takeover Code applies, all offer announcements and offer documents must be made available publicly.
The offer document must include information such as:
Directors have certain duties both at common law and under the Companies Act. These duties are generally owed to the company, and not to its shareholders or other stakeholders. The duties of directors include the fiduciary duties to act in a bona fide manner in the best interests of the company, to avoid a conflict of interest, to act for proper purposes and to act with care, skill and diligence.
In the case of M&A transactions to which the Takeover Code applies, the board has certain responsibilities under the Code, including:
For companies listed on the SGX, the constitution of the company would provide that directors may not vote on matters in which they have a personal material interest.
It is increasingly common, especially in the case of management buyouts, for boards of directors to establish special or ad-hoc committees of independent directors so as to address issues of potential conflicts of interests and to ensure that the interests of shareholders are addressed fairly.
Whilst the board of directors may delegate the day-to-day conduct of an offer to a committee of directors or individual directors, the board as a whole remains responsible for ensuring that proper arrangements are in place to enable it to monitor the conduct so that each director may fulfil his or her responsibilities under the Takeover Code.
The Singapore courts are generally slow to interfere in commercial decisions taken by directors and generally acknowledge that they should not, with the advantage of hindsight, substitute those decisions with their own, where those decisions were made by directors in the honest and reasonable belief that they were taken in the company’s best interests.
Legal, financial and tax advisers are typically engaged to advise on the transaction structure and valuation, and more generally to manage the transaction.
In the case of M&A transactions to which the Takeover Code applies, the target company’s board must obtain competent independent advice on all offers, except partial offers that could not result in the bidder and persons acting in concert with it holding shares carrying 30% or more of the voting rights of the target company.
The substance of the advice must be made known to its shareholders and this is typically done as part of the target company’s board’s circular to shareholders indicating its recommendation for or against acceptance of the offer. Where the offer is a management buy-out or similar transaction, or is being made by or with the co-operation of the existing controlling shareholder or group of shareholders, the target company’s board should appoint an independent adviser as soon as possible after it becomes aware that an offer may be made.
Where the offer being made is a reverse takeover and the bidder is incorporated in Singapore, or when the board faces a material conflict of interests, it must obtain competent independent advice on the offer. The substance of the advice must also be made known to its shareholders.
There are reported cases in recent years involving conflicts of interests in the context of takeovers and mergers. For instance, in 2017, the SGX reprimanded Singapore Post Limited (SingPost) for its non-compliance with the SGX Listing Rules, including its failure to accurately disclose that its then director had an interest in SingPost’s subsidiary, which had entered into an agreement to purchase all the shares in FS Mackenzie Limited (FSM Acquisition). The then director was the non-executive chairman and a 34.5% shareholder of the arranger for the FSM Acquisition.
The clarification announcement released by SingPost attributing the inaccuracy to an administrative oversight led to public commentaries questioning its corporate governance, including the then director’s independence, as well as whether the then director should have disclosed his or her interest to SingPost’s board, abstained from voting and recused him or herself from the discussions on the FSM Acquisition.
It should be noted that, under the Takeover Code, the board of a Singapore-incorporated bidder must obtain competent independent advice when it faces a material conflict of interests and make known the substance of the advice obtained to its shareholders. A conflict of interest will exist where there are significant cross-shareholdings between the bidder and the target company, where there are a number of directors common to both companies, or where a common substantial shareholder in both companies is a director of or has a nominee director in either company.
Furthermore, directors who have an irreconcilable conflict of interests and those who have been exempted by the Council from making recommendations to shareholders on an offer should not join with the remainder of the board in the expression of its views on the offer.
Hostile tender offers are permitted in Singapore. However, they are relatively uncommon due to the concentrated shareholding structure of many Singapore-listed companies.
In a public M&A transaction, directors are prohibited under the Takeover Code from taking any action on the affairs of the offeree company that could effectively result in any bona fide offer being frustrated or the shareholders being denied an opportunity to decide on its merits. This is unless they have shareholder approval to do so, or they do so pursuant to a contract entered into earlier during the negotiation process.
Some of the actions that may constitute frustration are:
However, soliciting a competing offer and running a sale process for the company are not considered to be frustrating actions.
As frustrating actions are not permitted in a public M&A transaction (see 9.2 Directors' Use of Defensive Measures), the defensive measures that the target company’s board may take are generally limited to soliciting competing offers or running a sale process for the company. That said, practically, the scope of such measures may be limited in light of the COVID-19 pandemic and lowered M&A activity.
The board may also attempt to convince the shareholders not to agree to the offer in its circular(s) to the shareholders.
Directors continue to owe fiduciary duties to the company pursuant to the Companies Act. Thus, they should have regard to what is best for the interests of the company and its shareholders, and not their own monetary, personal, familial, or other interests (see 8.1 Principal Directors’ Duties).
In public M&A transactions, the target company’s board is also usually obliged under the Takeover Code to obtain competent independent advice on any offer and the advice must be made known to its shareholders. This is especially so if the offer is a management buyout or other similar transaction being made with the co-operation of the existing controlling shareholder(s), due to the very real risk of a divergence of interests within the company.
While directors may recommend, strongly even, that shareholders reject a takeover offer, and while they are permitted to take defensive measures, they are not permitted to frustrate a bona fide offer outright (see 9.2 Directors' Use of Defensive Measures).
Litigation in connection with M&A deals is not common in Singapore. One notable case involved the Noble Group, where Goldilocks Investment, an 8% minority investor, commenced legal action as part of its strategy to obtain a better deal for investors.
In connection with the protection of minority rights, the Securities Investors’ Association (Singapore) (SIAS), an advocacy charity for investors, which has been active since 1999, has expressly stated that its preferred approach to resolving investors’ rights issues is in the boardroom and not in the courtroom. This is compounded by the fact that many minority investors tend to be "persons-in-the-street" without the resources necessary to finance litigation against relatively well-funded companies. They may also lack access to means such as class action lawsuits or litigation funding.
As litigation concerning M&A transactions is not common in Singapore, there is no established pattern in relation to the stage of a transaction at legal proceedings are commonly brought (see 10.1 Frequency of Litigation).
The COVID-19 pandemic has resulted in a volatile M&A climate, with buyers increasingly seeking to rely on material adverse change clauses. Given that such clauses have taken on unprecedented importance, it would be important for parties to give greater consideration in drafting such clauses to ensure that they reflect the intended allocation of risk between the parties, particularly in relation to the COVID-19 pandemic.
There has been a rise in shareholder activism in publicly listed companies.
In Singapore, the focus of shareholder activists tends to be on improving corporate governance and the protection of minority investors’ rights. The SIAS is also involved in this field by conducting investor education workshops and helping to monitor the corporate governance of companies.
Some recent notable instances of shareholder activism include:
There are also activist funds active in Singapore that seek to unlock greater value in target companies via shareholder activism. Judah Value Activist Fund, based in Singapore, announced in August 2018 that it was in the process of building a position in a local bank before crafting an open letter suggesting operational improvements.
Another activist fund, Quarz Capital Management, has made open requests to several firms, such as CSE Global and Sunningdale Tech, requesting a range of actions from cash discipline to dividend distribution.
There have been reported instances of shareholder activists seeking to encourage companies to enter into M&A transactions as a means to unlocking shareholder value, eg, in May 2017, activist fund Quarz Capital Management requested HG Metal Manufacturing to divest its stake in a competitor, BRC Asia. While HG Metal did not acquiesce on that occasion, it did subsequently divest its stake later that year. That said, the uncertainties brought about by the COVID-19 pandemic may have resulted in some hesitation on this front.
Activists may be more likely to act when they think that there will be positive effects on the company's bottom-line. Retail shareholder activists seem to be more interested in encouraging better corporate governance to protect their investments.
It is fairly uncommon for activists to seek to interfere with the completion of announced transactions in Singapore. However, there has been at least one reported instance of activist intervention in an announced deal, when Goldilocks Investment sought injunctions to prevent the Noble Group AGM from approving a deal (see 10.1 Frequency of Litigation).
In other cases, activists have sought board explanations for transactions that they believe to be questionable, eg, the board of Datapulse Technology was strongly challenged by shareholders on the company’s acquisitions of other firms at a recent AGM.
Overview of the Landscape
The year 2020 has been unprecedented. The COVID-19 outbreak has had a profound impact on the global economy, throwing stock markets in flux and causing overall growth to shrink by approximately 3.5% as estimated by the International Monetary Fund (IMF). Compared to 2019, global M&A activity dropped by 6.6%. Nonetheless, robust M&A performance in the latter half of 2020 showed signs of economic recovery, and the IMF predicts a 5.5% growth in the economy in 2021.
Asian economies were hit hard by the pandemic, with M&A activity in the region falling to a seven-year low at the end of the first quarter of 2020. However, they were also the first to bounce back and are now reported to be recovering faster than the rest of the world. In 2020, Asia-Pacific accounted for 32% of global M&A values, being the region’s highest share of contribution over the past five years, and overall deal value increased by 26.1% despite a 6.7% decrease in the number of transactions. In Singapore, M&A activity in 2020 totalled approximately USD59.2 billion (compared to USD72.4 billion in 2019), with a total deal volume of 482 deals. Private equity and venture capital saw a deal volume of 149 investments, valued at approximately USD5.2 billion.
Entering 2021, analysts remain optimistic that the introduction of vaccines will accelerate the global recovery. Investor optimism is clearly demonstrated by the strong start to the stock market in Singapore, with the total market capitalisation of 687 stocks increasing by 3% to SGD838.1 billion.
Technology and fintech
Technology has played a pivotal role in the fight against COVID-19, from the introduction of contact tracing to remote working and learning arrangements, with videoconferencing applications such as Zoom and Cisco Webex being the clear beneficiaries, and it is no surprise that growth in the industry has been robust. The pandemic has spurred the growth of e-commerce, online media and food delivery sectors. Southeast Asia currently has a USD100 billion internet economy, and this value is expected to triple by 2025.
Surveys show that most private equity funds in the Asia-Pacific region have plans to invest in technology sectors such as software as a service, B2B internet, online services and e-commerce.
Deals involving companies in the educational technology, digital finance and healthcare technology are prevalent. Ventures for the use of blockchain and distributed ledger technology (DLT) have also accelerated in growth and momentum. For example, in January 2021, SGX and Temasek announced their joint venture as Asia-Pacific’s first exchange-led digital asset venture focused on capital markets workflows through smart contracts, ledger and tokenisation technologies. The Monetary Authority of Singapore, Singapore’s central bank and financial industry regulator, has also announced and implemented a number of initiatives which are expected to spur growth in investments and dealmaking in the digital and fintech space (for example, commercial ventures for the use of DLT in clearing and settlement of payments and securities).
Whilst many of the deals and investments in this space remain modest and “start-up” in size, there are also a number of high profile, high value transactions. Singapore-incorporated Grab Holdings Inc is Southeast Asia’s leading on-demand transportation, food delivery and payment services platform. As of 30 November 2020, Grab was valued at USD14.9 billion, and has raised USD10.3 billion through fundraising since its incorporation in 2012, making it the highest valued and highest funded unicorn in Southeast Asia.
In December 2020, the consortium between Grab and Singtel was awarded one of two Digital Full Bank licenses issued by the Monetary Authority of Singapore. Gojek, the second largest unicorn in Southeast Asia and Grab’s rival in the ride-hailing industry, was valued at USD12.5 billion and has received a total of USD6.2 billion in funding. Gojek is now in discussions with another Indonesian powerhouse, Tokopedia, for a potential parallel merger that would create a merged entity worth USD18 billion.
The real estate investment sector in Singapore slowed during the pandemic and faced a 56.8% drop from 2019, which is the lowest investment sales volume since the financial crisis in 2009. However, real estate remained the top sector in Singapore, contributing about SGD30 billion (a 38% share) to the total M&A deal value in 2020. This is a testament to the underlying strengths of investors’ confidence and demand.
Further, 2020 saw Alibaba’s acquisition of a half-stake in AXA Tower for SGD840 million in June and Frasers Centrepoint Trust’s SGD1.06 billion takeover of AsiaRetail Fund Limited which translates to a 63.11% stake in five retail malls. Notable outbound acquisitions included GIC Private Limited’s SGD1.6 billion acquisition of the LG Twin Towers in February 2020, as well as Mapletree Industrial Trust’s acquisition of a portfolio of data centres in the US and Canada worth approximately SGD1.9 billion.
The growth of Singapore real estate investment trusts (REITs) has continued in 2020, with the IPO of Elite Commercial REIT and United Hampshire US REIT in the first quarter of the year. The commercial real estate sector has also continued to see considerable activity from private equity funds, which are attracted to Singapore’s business-friendly environment and favourable tax regime, as well as the easy access to capital and talent.
Special purpose acquisition companies (SPACs), or blank-cheque companies, contributed a total of USD83 billion of IPO proceeds on US exchanges in 2020. Interest in SPACs is now spreading across the globe, with many SPACs looking to Asia for takeover targets. SGX is hoping to be the first major Asian stock exchange to list SPACs this year, and has launched a market consultation on 31 March 2021. There is increasing interest in SPAC deals in Southeast Asia as companies look towards achieving the first mover advantage and striking whilst SPACs are drawing keen interest.
The trend of mergers among Singapore REITs has continued in 2020. The merger of CapitaLand Mall Trust and CapitaLand Commercial Trust to form CapitaLand Integrated Commercial Trust in October was valued at SGD8.3 billion and it is now the largest REIT in Singapore, and the third largest REIT in the Asia-Pacific region.
The trend of consolidation of Singapore’s REITs/business trusts is said to be a natural evolution of Singapore’s maturing market and is expected to continue in 2021 although it remains to be seen how much more consolidation can be expected.
Delistings and privatisations
2020 has seen many delistings and takeovers in the Singapore market. Analysts believe that this is likely due to the target companies’ low-trading liquidity and suppressed valuations attracting cashed-up investors. Privatisation also gives companies which have limited necessity for access to equity capital markets the opportunity to restructure and streamline their operations to generate cost-savings, without worrying about meeting shareholders’ short term demands at the same time. Notable examples of privatisations set to occur in 2021 include the voluntary conditional offer by GuocoLeisure Holdings for GL Limited, the voluntary conditional offer for Penguin by a consortium comprising Penguin’s Chairman and Managing Director with Dymon Asia, and the proposed acquisition and privatisation of Soilbuild Business Space REIT by Soilbuild’s executive chairman and Blackstone Real Estate.
The average premium offered to shareholders in privatisation deals has increased, from around 10% to 20% over the last transacted market price in 2016 to 2018, up to an average of around 38% to 40% in 2020. The privatisation offer for Elec & Eltek in September 2020 (which was dual listed in Singapore and Hong Kong) was at a 99% premium over the stock’s last transacted price on the SGX-ST. Some advisers are of the view that the pandemic has created a number of challenges for valuation, as it is more difficult to predict the materiality and duration of the impact caused on businesses. The assumptions made when determining long-term projections as to future cash flows, revenue and profits, would be a key point of contention between parties.
A notable privatisation offer which had lapsed was the voluntary conditional partial offer for Keppel Corporation. In August 2020, Temasek invoked the material adverse change (MAC) clause and pulled out of the SGD4 billion deal after Keppel Corporation announced a SGD697.6 million net loss for the second quarter of the year. This is one of the rare examples where a MAC clause has been successfully invoked, and ties in with the ongoing discussion on whether the COVID-19 pandemic constitutes a MAC. The issue has not yet arisen in Singapore courts but the final analysis would ultimately depend on the specific drafting of the MAC clause in question.
Shareholder activism has been playing a greater role in the Singapore market. The offer price for Sunningdale Tech was raised by 6.5% to SGD1.65 per scheme share, from SGD1.55 previously. This was sparked by Quarz Capital Management’s statement that the initial offer price was too low and significantly undervalued the company.
In December 2020, ESR-REIT and Sabana REIT's proposed merger was voted down by Sabana REIT’s unitholders, which is a rare instance where a proposed merger had been voted down. Unitholder activists led by Quarz Capital Management and Black Crane Capital were concerned that Sabana REIT had been undervalued, as the offer price was 29.3% below Sabana REIT’s net asset value as at 30 June 2020.
The Securities Investors’ Association (Singapore) (SIAS) is one of the largest investor lobby groups in Asia, and has mediated many high-profile shareholder issues involving listed companies. In June 2020, the SIAS called for the directors of Hyflux to step down, citing their poor credibility and inability to close a deal, and stated that they had been approached by investors to initiate legal action against Hyflux’s directors. Hyflux has since been placed under judicial management and its judicial managers are currently in the process of negotiating with potential investors.
The economic downturn caused by COVID-19 will undoubtedly provide greater opportunities for investors to purchase underperforming companies or companies with underperforming assets under distressed conditions. Distressed M&A would be particularly attractive to private equity funds with substantial under-deployed capital. Such funds reportedly have a dry power of USD400 billion in Asia alone as of March 2020, and USD1.5 trillion worldwide as at the start of last year.
Some of the notable distressed M&A targets in Singapore include Swiber Holdings Limited, who recently announced the entry into an investment agreement with a Saudi Arabian energy services player for USD200 million. As mentioned above, Hyflux is in the midst of conducting a bidding process for potential investors, and has received several letter of intents over the course of 2020.
However, none of the big distressed M&A deals has actually succeeded as at the time of writing, and some have even fallen through. Hin Leong had conducted a sales process in 2020 to attract bids for the company, but it was subsequently announced that the potential bidders have walked away, and that the Singapore High Court approved the winding-up of the collapsed oil training firm. Eagle Hospitality Trust, which was Singapore’s largest IPO in 2019, has since been suspended from trading, and its proposed change of manager was voted down at an extraordinary general meeting held in December 2020. The Trust has since filed for Chapter 11 bankruptcy protection in the United States and are looking to divest a majority of its hotels through a Chapter 11 led process.
Sustainability and impact investing
Alongside “SPAC”, “sustainability” looks set to be the other big buzz word.
Given the evolving attitudes, businesses and fund managers worldwide have been integrating environmental, social and governance (ESG) strategies into their practices and assessment of investments. Fund managers are increasingly aligned in stating that focusing their investment strategies in line with ESG factors can drive positive change and generate attractive returns, as such concepts inherently build more resilient businesses. Due diligence on targets increasingly factor in ESG guidelines.
Impact investments which set out to generate positive, measurable social and environmental impact alongside a commercial financial rate of return has also grown steadily in recent years – sustainable agriculture, renewable energy, micro-finance, housing, healthcare and education are some notable sectors. For example, while the energy industry overall was hit hard by the pandemic, the renewable energy sector accounts for a growing share of activity in the sector, as companies look to achieving carbon-neutral targets. In the latter half of 2020, SunPower Corporation completed the spin-off of its international solar cell and panel manufacturing business into Singapore-based Maxeon Solar Technologies, which was then listed on NASDAQ.
Alongside the growing demand for ESG investments are calls for regulators to introduce more safeguards against greenwashing. In December 2020, the Monetary Authority of Singapore published a series of guidelines on environmental risk management for banks, asset managers and insurers. However, there is still a lack of standardised regulations setting out what exactly constitutes sustainable investments, which increases the risk of funds marketing themselves as having better ESG credentials than they actually possess.
Growth of family offices
As of October 2020, there are approximately 200 single-family offices in Singapore, whilst multi-family offices are likely in the region of 100 to 150. According to data from the Monetary Authority of Singapore, this number quintupled between 2017-19. Most of these family offices have traditionally invested in funds, or co-invested as shadow capital alongside managers. Some of the larger family offices however, are now pursuing, executing and managing direct investments in varying asset classes.
Based on a report by FINTRX, 41% of family offices now invest directly (across asset classes), with close to 60% of these in Asia. Family offices are generally well connected enough to have first looks at smaller to medium ticket private equity transactions, with these assets being snapped up before seeing light of day. The mid-market sector where the bulk of managers operate in is likely to see direct competition from family offices.
Key Legal Developments
A new type of corporate structure, the variable capital company (VCC) was introduced by the Variable Capital Companies Act which came into effect in the start of 2020. The VCC structure complements the existing suite of investment fund structures that are available in Singapore. It allows several collective investment schemes (either open-ended or close-ended) to gather under the umbrella of a single corporate entity, while keeping each scheme’s assets and liabilities segregated and separate from each other.
The tax-efficient VCC structure has the potential to be used to re-domicile existing overseas investment funds with comparable structures by transferring their registration to Singapore as VCCs. The Variable Capital Companies Grant Scheme was established and is available for a period of three years to subsidise the costs involved in registering and incorporating a VCC. As of September 2020, there were more than 120 VCCs already set up, with an average of 15 funds being registered each month.
Changes to the insolvency regimes
The legislative changes relating to the insolvency regime have provided more flexibility for insolvent companies to seek protection. The Simplified Insolvency Programme provides eligible micro and small companies with a simpler, faster and lower-cost procedure to undertake a restructuring or winding up, and is available from 29 January 2021 to 28 July 2021. The regime consists of:
Furthermore, the new Section 94 of the Insolvency, Restructuring and Dissolution Act allows companies to be placed under judicial management with the approval of its creditors at a creditors’ meeting, without requiring a court order. The judicial management process will then continue under the supervision of the court in the same manner as a court-ordered judicial management process. These changes would help minimise expenses and expedite the process for distressed businesses looking to change their focus, or to liquidate and pivot to something else, and would thereby create more opportunities for investors in the distressed M&A market.
The Singapore government has introduced a number of COVID-19 related reliefs to help businesses tide over the pandemic.
Higher debt thresholds for all
The existing bankruptcy and insolvency legislation was temporarily amended on 7 April 2020 to increase the debt thresholds for bankruptcy and insolvency, from SGD15,000 to SGD60,000 and SGD10,000 to SGD100,000 respectively, as well as to lengthen the statutory period to respond to demands from creditors from 21 days to five months. The relief period lasted for six months from 20 April 2020 to 19 October 2020.
Targeted help for tech-based companies and start-ups
On 8 April 2020, the Monetary Authority of Singapore announced a SGD125 million support package for financial institutions and fintech firms to strengthen their long-term capabilities. This was followed by an additional SGD6 million FinTech Solidarity Grant Scheme launched on 13 May 2020 to support Singapore-based fintech firms. These packages aim to support training for employees, accelerate the digitisation and operational resilience of businesses, and include a business sustenance grant for day-to-day expenditures and a business growth grant for proofs of concept with financial institutions.
There has also been a number of grants given to start-ups in Singapore. So far, SGD4.5 billion of loans have been provided through Government financing schemes (for example, the Temporary Bridging Loan Programme and the Enterprise Financing Scheme). SGD285 million of additional financing support will be provided for promising start-ups by co-investing with the private sector. This is on top of the SGD300 million set aside under the Unity Budget for deep-tech start-ups.
Reliefs for listed companies
In April 2020, the SGX RegCo introduced the enhanced share issue mandate for Mainboard issuers, allowing such issuers to seek a general mandate for an issue of pro-rata and convertible securities of up to 100% of its share capital (previously capped at 50%), enabling the acceleration of fund-raising efforts for listed companies. The enhanced share issue mandate is available to issuers from 8 April 2020 to 31 December 2021.
Changes to the Listing Rules
SGX RegCo introduced changes to the Listing Rules which came into effect on 12 February 2021. These changes deal with enhancing the regulatory regime for property valuation and auditors, and the SGX RegCo expects the quality of the market and investor protection to improve as a result. The amendments to the property valuation regime bring it in line with other overseas exchanges.
Property valuers appointed by issuers must meet minimum qualification criteria specific by SGX, which is consistent with the requirements for other types of professionals engaged by issuers. Valuations must be performed in accordance with acceptable valuation standards recognised in Singapore, and disclosures of summary property valuation reports should contain the information set out in the Singapore Institute of Surveyors and Valuers Practice Guide. These changes would be important for transactions such as the IPO of a property investment firm or developers, business trusts or REITs, and any company contemplating an acquisition or disposal of property assets.
All issuers must now appoint an auditor that is registered with ACRA. SGX RegCo introduced this requirement to address situations where there are problems with the issuer’s financial statements and the issuer has appointed foreign auditors. With ACRA oversight, SGX would be able to deal with the issues in a timely and effective manner. Additionally, the appointment of a second auditor is required to review the issuer’s financial statements under exceptional circumstances, so that uncertainties in the market may be addressed in a timely manner.
Outlook for 2021
Amid the global uncertainty, the strong performance in the second half of 2020 is a testament to the resilience among Asian businesses, and analysts believe that M&A will be at the forefront of the economy recovery. As vaccines become increasingly accessible, investor optimism has grown, and strong deal activity in the region is anticipated as it recovers from the effects of the COVID-19 pandemic.