The Mergers & Acquisitions Review: Singapore
Overview of M&A activity
In 2019, Singapore recorded a healthy volume of 640 mergers and acquisitions (M&A) transactions valued at US$72.4 billion, driven by significant outbound investments by Singapore's sovereign wealth funds (SWF).2 While outbound acquisitions continued to account for the lion's share of M&A value in Singapore at 66 per cent, domestic M&A value grew to 26 per cent of total M&A value in 2019, an increase from its 10 per cent share in 2018. Private equity (PE) and venture capital (VC) investments maintained their value at about US$6.5 billion across a higher number of 166 deals, as compared with 154 deals in 2018.3 In total, 442 cross-border deals were closed at an approximate value of US$53.5 billion.4
The spread of covid-19 has dealt a blow to the global economy, as governments curtailed economic activity and enforced border controls in an attempt to stem infection rates. Singapore has been no exception. On 7 April 2020, the Singapore government declared a 'circuit breaker' to address then then-increasing number of covid-19 infections in the city state. Non-essential workplaces were ordered to shut, schools adopted home-based learning and dining-in at food establishments was prohibited. In May 2020, the Singapore government revised its growth forecast for 2020 downwards to -7 per cent to -4 per cent. In August, the forecast was narrowed to between -7 per cent to -5 per cent.5
Be that as it may, the impact of covid-19 on deal making in the Asia-Pacific region (APAC) in the first half of 2020 has been felt less acutely than globally.6 M&A activity in APAC fell 13 per cent year-on-year in the first half of 2020 to 1,744 deals with a total deal value of US$255.1 billion, a 12 per cent decrease from the first half of 2019.7 Global M&A value for the first half of 2020 plunged 53 per cent year-on-year with deal volume 32 per cent lower than the first half of 2019.8 In South East Asia (SEA), technology-related investments remained robust in the first half of 2020 with more than 300 deals inked at a total deal value of US$5.6 billion.9 Total deal value in SEA in the first half of 2020 was driven by mega-rounds raised by mature start-ups such as Grab, which raised S$1.2 billion in February 2020, and Ninjavan, which raised S$390 million in April 2020.10 In Singapore, technology start-ups raised S$3.3 billion in the first half of 2020, more than half of the S$6.5 billion raised by such companies in 2019.11
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General introduction to the legal framework for M&A
i Statute and common law
The sources of law under Singapore's common law system are legislation, subsidiary legislation and judge-made case law. Parliament passes legislation and subsidiary legislation, which are interpreted by the courts. The validity and interpretation of agreements are governed by the common law principles of contract law and supplemented by legislation.
The Companies Act and the Securities and Futures Act (SFA), and their respective subsidiary legislation, are the key legislation relevant to M&A transactions in Singapore. The Companies Act is the principal legislation governing Singapore-incorporated companies, be they private or public. It contains, inter alia, provisions that regulate the criteria and processes by which share transfers, schemes of arrangement, amalgamations and compulsory acquisitions are effected.12 The SFA regulates, among other things, offers of securities, notifications when a substantial interest is acquired and market conduct rules, including those relating to insider trading and market manipulation.13
In addition to the above statutes, which apply generally to all companies, companies in certain sectors must abide by additional sector-specific legislation. For example, insurance companies, banks and telecommunications companies are regulated by the Insurance Act, the Banking Act and the Telecommunications Act, and their respective subsidiary legislation, respectively.
ii The Singapore Code on Takeovers and Mergers
The Singapore Code on Takeovers and Mergers (Code) governs the conduct, timing, approach and documentation in relation to takeovers and mergers of corporations with a primary listing of their equity securities in Singapore, business trusts with a primary listing of their units in Singapore and real estate investment trusts.14 The Code is issued by the Monetary Authority of Singapore, pursuant to the SFA.15 Unlisted public companies and unlisted registered business trusts with more than 50 shareholders or unitholders, as the case may be, and net tangible assets of S$5 million or more, must also observe the letter and spirit of the Code, wherever possible and appropriate.16
The Securities Industry Council (SIC) oversees the administration and enforcement of the Code and, under the SFA, has the power to investigate any dealing in securities that is connected with a takeover or merger transaction.17 The Code itself does not have the force of law; however, a breach could result in sanctions imposed by the SIC.18 Such sanctions include a private reprimand, public censure or, in a flagrant case, further action as the SIC deems fit, including actions designed to deprive the offender temporarily or permanently of its ability to enjoy the facilities of the securities market.19
iii The SGX-ST Listing Rules
Companies listed on the Singapore Exchange (SGX-ST) must additionally comply with the SGX-ST Listing Rules (the Listing Rules) contained in the SGX-ST Listing Manual (the Listing Manual). The Listing Manual comprises the Mainboard Rules, which apply to companies listed on the Mainboard of the SGX-ST; and the Catalist Rules, which apply to companies listed on the Catalist Board of the SGX-ST. The Listing Rules applicable to Mainboard and Catalist-listed companies are broadly similar in the context of M&A transactions.20 Listed companies are required to disclose or obtain shareholders' approval (or both) for transactions such as acquisitions and realisations that meet certain thresholds relating to, among other things, net asset value, net profits, aggregate consideration and number of consideration shares issued.21 Where as a consequence of an acquisition the public shareholdings of the listed company fall below 10 per cent, the company may be subject to delisting.22
Strategies to increase transparency and predictability
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Developments in corporate and takeover law and their impact
i Proposed amendments to the Companies Act
The Accounting and Corporate Regulatory Authority of Singapore (ACRA) and the Companies Act Working Group, have announced proposed amendments to the Companies Act, aimed at ensuring Singapore's corporate laws and regulatory framework stay competitive.23 A public consultation in respect of the proposed amendments was held between 20 July 2020 and 17 August 2020, the outcome of which has yet to be announced at the time of this publication.24 The proposed amendments aim to strike a balance between an effective and efficient regulatory framework and the compliance burden on companies.25 The proposed amendments noteworthy and of relevance to the due diligence process and the execution of M&A transactions are summarised below.
Dematerialisation of shares and facilitating digitalisation
The current position under the Companies Act is that a physical share certificate is prima facie evidence of a shareholder's title to his or her shares.26 The proposed amendments to the Companies Act remove the requirement for physical share certificates. In the context of M&A transactions, vendors may not consequently need to locate their physical share certificates for surrender to the company for cancellation at completion, or be required to indemnify the company in exchange for the issuance of a replacement share certificate. The proposed amendment would bring the treatment of share certificates in line with existing provisions under the Companies Act which has, since 2016, eschewed physical registers of members in favour of electronic registers of members maintained by ACRA.
Review of company types and refinements to financial reporting criteria
The proposed amendments would introduce two new company types under the framework of the Companies Act: (1) the 'publicly accountable' company and (2) the 'micro' company. The proposed introduction of the publicly accountable company would be for financial reporting purposes and aims to better tailor the financial reporting obligations under the Companies Act to a broader group of stakeholders, based on the public interest or accountability of companies. A micro company, with total annual revenue and total assets of not more than $500,000, would be permitted prepare reduced or simplified financial statements.
Streamlining and clarifying financial reporting requirements for companies and foreign companies
The proposed amendments would streamline the financial reporting requirements for local and foreign companies. Under the proposed amendments, the Minister and the Registrar would be granted the power to exempt a company from all of the requirements in the Accounting Standards and to require the company to comply with other accounting standards instead. Foreign companies would be permitted to lodge financial statements prepared in accordance with accounting standards that are substantially similar to Singapore's Accounting Standards. Foreign companies with insignificant operations in Singapore (with total revenue, total expenses, total assets and total liabilities arising out of the foreign company's operations in Singapore not exceeding S$5 million) would be permitted to file unaudited branch accounts, instead of an audited statement of assets, liabilities and profit and loss in respect of the foreign company's operations in Singapore. Such amendments would reduce the compliance costs for foreign companies in Singapore.
Removing outdated requirements and clarifying provisions in the Companies Act
Public companies limited by shares would no longer be required hold statutory meetings and the Registrar would be granted the power to update changes in appointments of directors and secretaries to enhance the accuracy of information in the registers of directors and secretaries.
ii The Listing Manual
Changes to the voluntary delisting scheme
A voluntary delisting is one of the methods by which a listed company may be privatised by an offeror in a 'take private' transaction. In July 2019, the SGX-ST announced changes to the voluntary delisting process under the Listing Rules, in order to better protect minority investors.27 Under the new rules, a voluntary delisting must be approved by a majority of at least 75% of the shares held by shareholders of the issuer present and voting.28 In addition, the offeror and parties acting in concert with it must now abstain from voting on the delisting resolution.29 Under the new rules, the exit offer must now be 'fair' in addition to existing requirement of being 'reasonable', in the opinion of an independent financial adviser which the listed company is now required to appoint under the new rules.30 The exit offer must now include a cash alternative as the default alternative.31
Enhancements to continuous disclosure requirements
Further amendments to the Listing Rules came into effect in February 2020 to enhance the continuous disclosure requirements applicable to companies listed on the SGX-ST, with the aim of safeguarding investors' interests. Some key amendments to the Listing Rules are set out below:
The revised Listing Rules adapt a risk-based approach to quarterly reporting in replacement of the market capitalisation approach. Previously, companies with a market capitalisation in excess of S$75 million were required to undertake quarterly reporting for the first three quarters of the financial year. The new risk-based approach requires a listed company to undertake quarterly reporting if: (1) its auditors have issued an adverse opinion, a qualified opinion or a disclaimer of opinion on the company's latest financial statements; or (2) its auditors have stated that a material uncertainty relating to going concern exists in the company's latest financial statements.32
Provision of financial assistance
Chapter 10 of the Listing Rules, which previously related primarily to acquisitions and realisations, has been expanded to govern the provision of financial assistance by a listed company, except in the ordinary course of its business or of a revenue nature or where the financial assistance is provided to the company, or its subsidiary or associated company.33 Under the listing rules, 'financial assistance' includes the lending of money, guaranteeing or providing security for a debt incurred or indemnifying of a guarantor, and the forgiving, releasing of or neglect in enforcing a debt obligation or the assuming of the obligations of another.34
Valuation of assets acquired or disposed of
The revised Listing Rules provide for greater scrutiny of significant disposals of assets. Under the new rules, in a disposal of assets, by Mainboard or Catalist-listed companies, where any of the relative figures as computed on the bases set out in Rule 1006 of the Listing Rules exceeds 75 per cent, the company must appoint a competent and independent valuer to value the assets to be disposed of.35 Where no valuation is available for acquisitions or disposals of assets classified as major transactions, the company must explain a valuation was not commissioned.36
Interested person transactions
Under the Listing Rules, listed companies are required to disclose or obtain shareholders' approval for interested person transactions (IPT) exceeding specific thresholds. Transactions below S$100,000 are not normally aggregated in determining a company's obligation to disclose or obtain shareholders' approval for interested person transactions. However, under the revised Listing Rules, the SGX-ST may aggregate separate IPTs entered into during the same financial year and treat them as if they were one transaction. In addition, under the revised rules, the SGX-ST may deem any person or entity to be an interested person if the person or entity has entered into, or proposes to enter into a transaction with an entity at risk and an agreement or arrangement with an interested person in connection with that transaction.
iii The Insolvency, Restructuring and Dissolution Act
The Insolvency, Restructuring and Dissolution Act 2018 (Insolvency Act) came into force on 30 July 2020, as part of a wider consolidation of Singapore's personal and corporate insolvency and debt restructuring laws.37 Section 239 the Insolvency Act provides that a company trades wrongfully if it incurs debts or liabilities without reasonable prospect of meeting them in full, when the company is insolvent or becomes insolvent as a result of such debts or liabilities being incurred. The Singapore Courts can declare any knowing party to such wrongful trading to be personally liable for the company's debts and liabilities so incurred.38 Company directors should be mindful of Section 239, which lowers the bar for establishing personal liability in the event of insolvent trading. The Insolvency Act would now shape the structuring of distressed assets transactions and rescue or debt restructuring transactions.
Us antitrust enforcement: the year in review
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Foreign involvement in M&A transactions
Cross-border deals, comprising outbound and inbound transactions, continued to account for most of Singapore's M&A transactions in 2019, at 74 per cent of total deal value.39 Cross-border deals were dominated by outbound investments made by sovereign wealth fund GIC Pte Ltd (GIC), together with its consortium partners. GIC's outbound investments featured prominently in Singapore's deal value rankings, with significant investments in the technology, transportation and energy sectors.40 GIC's consortium investment in Ultimate Software Group Inc, valued at US$11 billion, ranked as the top M&A deal in Singapore in 2019.41 Outbound deals accounted for 66 per cent of all cross-border M&A transactions in Singapore.42
Significant transactions, key trends and hot industries
i Start-up support measures
Among its raft of covid-19-related support measures, in August 2020 the Singapore government announced enhancements of S$150 million to the existing Startup SG Founder Programme, to better position Singapore to seize opportunities in a post-covid-19 world. The enhanced programme comprises two tracks, the newly introduced Startup SG Founder 'Train' track and the enhanced existing Startup SG Founder 'Start' track. Entrepreneurs on the Start track who have successfully applied for the Startup SG Founder grant are provided with advice, learning programmes, networking contacts and an enhanced capital grant of S$50,000 (previously S$30,000 and subject to co-matching of S$10,000).43 The Train track introduces a venture building programme in which appointed accredited mentor partners-venture builders with strong track records of venture building provide a three-month mentorship programme to successful applicants. The programme includes support for sourcing innovation, commercialising ideas into scalable businesses, getting product and solution validation from customers and finding capital.44
ii Significant transactions and hot industries
Real estate returned as the top overall sector for transactions in 2019,45 displacing the banking, financial services and insurance sector,46 which had been top in 2018. Real estate investments, with a total value of US$22.8 billion, captured approximately 32 per cent of M&A value in 2019, propelled by a number of significant privatisation deals involving real estate companies and real estate investment trusts.47 The technology sector came in second place, accounting for 24 per cent of total deal value in 2019.48 The technology sector also captured a larger proportion of PE and VC investments, rising from 8 per cent in 2013 to 52 per cent in 2019.49 Real estate was the top sector for domestic transactions in 2019, while the technology sector accounted for the highest deal value among both inbound and outbound cross border transactions.50
Other notable outbound M&A transactions in 2019 include GIC's US$8.4 billion consortium acquisition of Genesee & Wyoming Inc, and its US$3.3 billion consortium investment in Tallgrass Energy LP.51 Notable inbound and domestic transactions include Capitaland Ltd's US$8.1 billion acquisition of Temasek Holdings-owned Ascendas-Singbridge Pte Ltd and YY Inc's US$1.45 billion investment in Bigo Technology Pte Ltd.52
Singapore continued to be a key driver of M&A, PE and VC transactions in the region53 for 2019, contributing over US$81.2 billion out of approximately US$100.4 billion in deal value.54 As Singapore regains its footing in the covid-19 'new normal' era, technology investments in SEA remain strong.55 Technology deals within SEA in the first half of 2020 were focused in the multi-vertical56 sector, at US$2.7 billion in aggregate, with notable investments in Grab and Gojek. The retail and financial services sectors in SEA followed with investments of US$406 million and US$263 million, respectively, in the first half of 2021.57 Singapore's health and biotech sub-sectors raised S$352 million in the first half of 2020, surpassing the S$230 million raised in 2019 by 48.7 per cent.58
In January 2020, the variable capital company (VCC) made its debut on the Singapore investment landscape as a corporate structure for investment funds in Singapore.59 The introduction of VCCs in Singapore aims to boost the fund management ecosystem by encouraging funds to both incorporate and operate in Singapore.60 Under the Variable Capital Companies Act, existing overseas investment funds may redomicile as VCCs in Singapore and existing funds domiciled in Singapore as companies, limited partnerships or unit trusts may restructure as VCCs.61
Key features of VCCs include flexibility in the issuance and redemption of its shares, the ability to pay dividends out of capital and a flexible structure that can comprise a standalone fund or an umbrella fund with two or more sub-funds, each holding its own portfolio of separate assets and liabilities.62 VCCs can also be used for both open-ended and closed-end fund strategies, the former allowing new subscriptions at any time and permitting investors to redeem their investments at their discretion, and the latter having a fixed number of shares and not permitting new subscriptions after the offering period is over.63 The total number of VCCs registered with ACRA is now 123 and expected to grow. The domiciling of VCCs in Singapore is anticipated to increase the availability of dry powder for M&A and investment opportunities.
Financing of m&a: main sources and developments
Funding for M&A transactions in Singapore is typically provided by the usual sources of internal financing, bank and financial institution loans and PE loans and investments. In particular, local and major international banks and financial institutions were the most common source of financing for M&A deals in Singapore. PE and VC funding in Singapore remained fairly active with a total of 166 deals of US$6.5 billion in value in aggregate in 2019.64
For public offers governed by the Code, requirements for financial confirmations apply. Where the offer is for cash or cash alternatives, the offer document as well as the announcement of a firm intention to make an offer should include confirmation from a financial adviser that the offeror has enough cash resources to satisfy full acceptance of the offer.65 Where external financing is to be availed of, the terms of such financing must satisfy the requirements of the financial adviser.
i Updates to Employment and S Pass salary criteria
In light of the effect of covid-19 on the job market and uncertain growth outlook, the Ministry of Manpower (MOM) has updated the Employment Pass (EP) and S Pass criteria to suit prevailing conditions, in a bid to support to businesses that are in a position to retain or expand local employment.
In this respect, the minimum qualifying salary for EP was raised to S$3,900 per month from 1 May 2020, and thereafter (from 1 September 2020), S$4,500 per month for all new applicants (older and more experienced EP candidates will need to meet a higher qualifying threshold).66 The MOM has also announced that from 1 December 2020, the minimum qualifying salary for EPs in the financial services sector will be further raised to S$5,000 per month for new applicants. For renewal applicants, these new salary criteria will come into effect from 1 May 2021.67
The S Pass minimum qualifying salary was raised from S$2,300 per month to S$2,400 per month from 1 January 2020 and has been further raised from S$2,400 per month to S$2,500 per month from 1 October 2020.68 Similar to the EP scheme, qualifying salaries for older and more experienced S Pass also need to meet a higher qualifying threshold. Again, this salary criterion for renewal applicants comes into effect from 1 May 2021.69
ii Updates to the work injury compensation regime
The work injury compensation regime (governed by the Work Injury Compensation Act 2019 (WICA)) in Singapore has also had updates to: (1) change compensation and medical expenses limits; (2) expand mandatory insurance coverage for non-manual employees; (3) include compensation for individuals placed on light duties owing to workplace injury; and (4) require employers to report all work-related medical leave or light duties to MOM.
With effect from 1 January 2020, (1) compensation for death has been raised to a minimum of S$76,000, and a maximum S$225,000; (2) compensation for total permanent incapacity has been raised to a minimum of S$97,000, and a maximum S$289,000; and (3) the maximum limit on medical expenses has been raised up to maximum of S$45,000, or up to 1 year from date of accident, whichever comes first.70
With effect from 1 April 2020, the salary threshold for non-manual employees requiring work injury compensation insurance has been increased to S$2,100 per month, meaning that employers must purchase workplace insurance for all non-manual employees earning less than S$2,100 per month.71 From 1 April 2021, that threshold will be raised to S$2,600 per month.72
Finally, with effect from 1 September 2020, (1) employees on light duties due to work injuries are not compensated under WICA; and (2) employers must report all work-related medical leave or light duties to MOM.73
The legal obligation to pay taxes in an acquisition, be it stamp duty or goods and services tax (GST), generally falls on the buyer.74 However, parties are free to contractually negotiate as to who should bear the costs of paying such taxes in connection with the transaction.
The transfer of assets in a business sale may be subject to GST.75 The transfer of a business as a going concern, may however be exempted from GST subject to certain conditions including that the transfer of assets is made in connection with the transfer of a business and not a mere transfer of assets.76 Transfers of shares are exempt from GST, and there is no capital gains tax in Singapore.77
Transfers of immovable properties and shares are typically effected by way of documentation such as sale and purchase agreements and share transfer instruments. If such instruments of transfer were executed in Singapore, or if they were received in Singapore and relate to property (comprising immovable property and any stock or shares) situated in Singapore, they are chargeable with stamp duty under the Stamp Duties Act.78 Stamp duty relief may be available for the transfer of a company's business undertaking or shares in connection with its reconstruction or amalgamation.79
Tax incentive schemes
The M&A scheme was introduced by the Singapore government in 2010 to encourage companies to grow their businesses through mergers and acquisitions.80 In February 2020, the scheme was extended to 31 December 2025.81 Under the scheme, an M&A allowance will be granted to a company acquiring the shares of another company between 1 April 2010 and 31 December 2025. To qualify for the scheme, certain transaction-related thresholds must be met, and the acquiring companies must be Singapore incorporated entities that are tax resident in Singapore, among other criteria. Under the current terms of the scheme, the M&A allowance for qualifying share transactions is 25 per cent of the value of acquisition, capped at S$10 million.82 The scheme also includes double tax deduction on transaction costs incurred in respect of qualifying share acquisitions, subject to a cap of S$100,000 on acquisition costs.83
Under the Income Tax Act (ITA), companies are exempted from tax on gains or profits derived from the disposal of ordinary shares in another company, where the divesting company legally and beneficially owns at least 20 per cent of the ordinary shares in the target company for at least 24 months before the disposal (exemption).84 The exemption applies to disposals between 1 June 2012 and 31 Dec 2027 regardless of whether the target is a Singapore or foreign-incorporated company, or a listed or unlisted company. The exemption is subject to certain exceptions, including the disposal of shares in a company which is in the business of trading or holding Singapore immovable properties (excluding property development), where the shares are not listed on a stock exchange in Singapore or elsewhere, and the disposal of shares by a partnership, limited partnership or limited liability partnership one or more of the partners of which is a company or are companies.85
i Competition and Consumer Commission of Singapore
The Competition and Consumer Commission of Singapore (CCCS) is the agency tasked with administering and enforcing both the Competition Act and Consumer Protection (Fair Trading) Act (CPFTA).
The CCCS has conducted a number of market studies and has published its findings as well as other research and discussion papers as part of efforts to ensure guidelines and enforcement keep pace with technological and market developments. The market studies include studies on online travel booking sector and e-commerce platforms in Singapore, as well as a research paper on fair, reasonable and non-discriminatory commitments to resolve competition concerns and a discussion paper on data portability. M&A transactions in these sectors may be subject to enhanced scrutiny for any impact on competition in Singapore.
The CCCS' focus is on evaluating the impact of a merger in Singapore and how competition between the merger parties and their competitors may change as a result of the merger.
ii The Competition Act
The merger provisions of the Competition Act will apply to mergers that have infringed, or anticipated mergers that if carried into effect will infringe, the Section 54 prohibition, unless they are excluded or exempt under the Competition Act. A merger infringes the Section 54 prohibition if it has resulted, or may be expected to result, in a substantial lessening of competition (SLC).86
An M&A situation can lead to an SLC if it creates, maintains or enhances the following types of market power:
- 'non-coordinated effects' – which arise when there is a loss of competition between the merging parties and the merged entity finds it profitable to raise prices or reduce output or quality, or both; or
- 'coordinated effects' – which arise if the merger raises the possibility of firms in the market coordinating their behaviour to raise prices, reduce quality or output.
The CCCS has issued guidelines on the analytical framework for assessing the competitive effects of M&A. Merger parties may use the framework to conduct a self-assessment for potential SLC before implementing the M&A.
iii Proposed changes to competition guidelines
Taking into account legislative changes and market findings, in September 2020 the CCCS proposed updates to its guidelines:
- CCCS Guidelines on the Treatment of Intellectual Property Rights – changes proposed to provide more clarity on the interface between intellectual property and competition law;
- CCCS Guidelines on Market Definition – changes proposed to provide greater clarity on issues related to market definition that may be relevant in the digital era;
- CCCS Guidelines on the Section 47 Prohibition – changes proposed to provide greater clarity on issues relating to the assessment of market power and types of potentially abusive conduct in the digital era;
- CCCS Guidelines on Enforcement – changes proposed to update and rename the guidelines to give effect to legislative amendments to the CA relating to commitments and remedies and reflect CCCS's current practices on substantive and procedural matters in assessing commitments and remedies;
- CCCS Guidelines on Substantive Assessment of Mergers – changes proposed to better guide businesses, consumers, and competition practitioners on issues relating to assessment of mergers; and
- CCCS Guidelines on Merger Procedures – changes proposed to enhance and clarify the process of merger filing notifications to CCCS, and reflect CCCS's current practices on merger filings.
Guidelines such as those on substantive assessments of mergers and merger procedures have a direct impact on M&A transactions, while others such as those on the treatment of intellectual property rights and market definition may have a bearing on market conduct.
From January 2019 to September 2020, there are nine notifications on the public register87 and one application to vary directions issued by the CCCS.
Under the Competition Act, mergers that result in, or may be expected to result in, a substantial lessening of competition in Singapore are prohibited.88 Merger notification is voluntary under the Competition Act, but parties to a M&A transaction should conduct self-assessments against the guidelines published by the CCCS to determine if there may be a substantial lessening of competition and a merger notification is necessary.
The CCCS has set out the following indicative thresholds that when crossed will likely require further review to determine if there is a substantial lessening of competition: the post-merger market share of the top three undertakings is at least 70 per cent, and the market share of the merged undertaking is at least 20 per cent; or the merged undertaking has a market share of at least 40 per cent. The assessment of whether there is a substantial lessening of competition is qualitative and factual and may be undertaken even if the indicative thresholds are not met.89 The CCCS will consider various factors in this assessment, including barriers to entry, market transparency and countervailing buyer power.90
Failure to adhere to merger control procedures may result in financial penalties of up to 10 per cent of the merger parties' turnover (for up to three years) in addition to other remedies such as the dissolution of the merger or subsequent divestments.91
Corporations should be alert to competition law concerns that may arise in their commercial dealings or even in industry gatherings, bearing in mind that the CCCS is empowered to and does conduct investigations into un-notified mergers and that offenders will suffer both financial and reputational losses.92
At the time of writing, the global covid-19 pandemic has not abated, with a number of countries experiencing waves of infection. Domestically, a cautious approach towards the resumption of full economic activity appears to be paying off, with low rates of community transmission of covid-19, paving the way for further resumption of economic activity in Singapore's 'new normal'. Private sector economists anticipate a steady recovery of 5.5 per cent growth in 2021,93 and the technology sector appears to be weathering the pandemic well,94 perhaps due to greater demand for services such as food delivery, logistics, and remote working cybersecurity technology.
While the pandemic may present acquisition opportunities, cautious investors may want to adopt more protective provisions and contractual outs, in the event of any adverse changes in the current volatile business environment. Such clauses can include material adverse change and force majeure provisions, to permit the buyer to walk away or revalue the target in the event of a material adverse change adversely affecting the business or value of the target. There will also be a greater use of digital tools for the conduct of due diligence exercises and management meetings in cross border transactions as travel restrictions look set to stay for the foreseeable future.
1 Sandra Seah, Marcus Chow and Seow Hui Goh are partners at Bird & Bird ATMD LLP. The authors are grateful to Jonathan Kao, David Marc Lee and Xing Yi Tan for their kind assistance with this chapter.
2 Duff & Phelps Transaction Trail Annual Issue 2019.
6 Mergermarket Deal Drivers Asia Pacific HY 2020.
9 Cento Southeast Asia Tech Investment 1H2020.
10 PWC tech start-up funding trends and outlook: Singapore.
12 Section 126, Section 210, Section 215A and Section 215 of the Companies Act (Chapter 50), respectively.
13 Section 240, Section 135, Section 218 and Section 198 of the Securities and Futures Act (Chapter 289), respectively.
14 The Singapore Code on Takeovers and Mergers: Introductory Paragraph.
20 The main differences in the Listing Rules applicable to Mainboard and Catalist-listed companies relate to the thresholds at which shareholders' approval must be obtained and the criteria by which transactions qualify as 'major transactions'.
21 SGX-ST Mainboard Listing Rules: Rule 1006.
22 SGX-ST Mainboard Listing Rules: Rule 724.
26 Section 123(1) of the Companies Act (Chapter 50).
28 SGX-ST Mainboard Listing Rules: Rule 1307.
30 SGX-ST Mainboard Listing Rules: Rule 1309.
32 SGX-ST Mainboard Listing Rules: Rule 1309.
33 SGX-ST Mainboard Listing Rules: Rules 1001 and 1002.
34 SGX-ST Mainboard Listing Rules: Definitions and Interpretation.
35 SGX-ST Mainboard Listing Rules: Rule 1014.
38 Section 239, Insolvency, Restructuring and Dissolution Act 2018 (No.40 of 2018).
39 Duff & Phelps Transaction Trail Annual Issue 2019.
45 Duff & Phelps Transaction Trail Annual Issue 2019.
46 The banking, financial services and insurance sector includes banks, diversified financial services and insurance services.
47 Duff & Phelps Transaction Trail Annual Issue 2019.
53 Singapore, Malaysia and Indonesia.
54 Duff & Phelps Transaction Trail Annual Issue 2019.
55 Cento Southeast Asia Tech Investment 1H2020.
56 Diverse digital businesses such as Grab and Gojek.
57 Cento Southeast Asia Tech Investment 1H2020.
58 PWC tech start-up funding trends and outlook: Singapore.
59 Variable Capital Companies Act 2018 (No. 44 of 2018).
61 Variable Capital Companies Act 2018 (No. 44 of 2018).
64 Duff & Phelps Transaction Trail Annual Issue 2019.
65 Rule 3.5, Takeover Code.
66 Ministry of Manpower, Singapore.
70 First Schedule, Work Injury Compensation Act (Chapter 354).
71 Second Schedule, Work Injury Compensation (Insurance) Regulations 2020.
72 Ministry of Manpower, Singapore.
73 First Schedule, Work Injury Compensation Act (Chapter 354).
74 Third Schedule, Stamp Duties Act (Chapter 312).
75 Goods and Services Tax Act (Chapter 117A).
76 Section 34, Goods and Services Tax Act (Chapter 117A).
78 Section 4, Stamp Duties Act (Chapter 312).
79 Stamp Duties (Relief from Stamp Duty upon Reconstruction or Amalgamation of Companies) Rules.
80 M&A Scheme, Inland Revenue Authority of Singapore.
84 Section 13Z of the Income Tax Act (Chapter 134).
86 Section 54, Competition Act (Chapter 50B).
87 The public register contains information relating to decisions, directions and certain notices by the CCCS.
88 Section 54 of the Competition Act (Chapter 50B).
89 CCCS Guidelines on the Substantive Assessment of Mergers 2016.
91 Section 69, Competition Act (Chapter 50B).
92 Section 62, Competition Act (Chapter 50B).
94 Cento Southeast Asia Tech Investment 1H2020.