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PwC Philippines
M&A Challenge
Preliminary Round -
Case Study

Strictly Private
and Confidential

2 October 2019
 Macroeconomic Overview

Contents 1
2
Competition Overview and Logistics
The Mandate
3
5
3 Judging Criteria 8
4 Macroeconomic Overview 10
5 Client's Background Information 17

PwC Philippines M&A Challenge 2 October 2019

PwC 2
 Macroeconomic Overview

Competition
Overview
and
Logistics
 Macroeconomic Overview

Competition Overview and Logistics

Welcome to the PwC Philippines M&A Challenge for 2019

The PwC Philippines M&A Challenge, which is now on its fourth year, is the Philippines’ pioneer merger &
acquisition-focused case study competition involving the top colleges and universities
nationwide. This competition will offer an opportunity for undergraduate students taking business related
studies at the university/college level to test their analytical abilities and gain realistic and hands-on
experience as a corporate finance advisor. This will also provide the winning contestants with the opportunity
to learn from PwC M&A professionals and to earn an internship slot reserved for each member.
For this year, competition will be structured in two stages: Final Presentation

Preliminary Round Final Round

1 October– 21 October 30 Oct – 23 Nov
3 December 2019
After the submission deadline for the Preliminary Round, PwC will choose a pool of 6 teams (maximum of one
team per university) that will be invited to participate in the Final Round. The participants will have to prepare
the following:
• Pitchbook detailing information on the contribution of the potential business partner, key deal issues that
may arise from the proposed transaction, and a recommendation of the optimal structure, and
• Valuation report on certain assets or investments contributed by the partner or the client to the venture
(e.g. intellectual property, required capital contribution, etc.).
The six (6) finalists will then present their recommendations before a panel of judges from PwC and
other business leaders at the finals on 3 December 2019.
The Top National Finalists will be awarded cash prizes as follows:

1st place:
2nd place: 3rd place:
PHP100,000 and; PHP50,000 to
PHP50,000 PHP25,000
the college/university

The 1st Place winners will also have internship slots reserved at PwC’s Deals and Corporate Finance group.
Competition Mechanics
All teams will be required to submit their preliminary round presentation and any supporting materials by
11:59pm PST on 19 October 2019 to [email protected]. Teams should include their team name in the
subject line of the email submission. All teams are required to include their registered team name on the file
name. However, their respective school’s name should NOT appear on any page of the report. The case should
be submitted as a presentation (.PDF) and supporting files (e.g. financial analysis) in excel format (.xlsx).
The students will then be informed via email whether or not they have been selected to proceed to the Final
Round on 30 October 2019. PwC reserves all rights as to whether or not teams advance to the Final Round.
 Macroeconomic Overview

The Mandate
 Macroeconomic Overview

Preliminary Round
Your team will be assigned as the financial advisor to the Board of
Directors of one of the largest companies in the Philippines
In 2019, PwC Philippines has been engaged by six companies in the Philippines (the “Client/s” or the
“Company/ies”) that are listed in the Philippine Stock Exchange about a potential multi-service engagement
they would like to outsource to a third party adviser.
The Clients are currently experiencing stagnant growth, and are looking to expand, either locally or
abroad and would like PwC to assist them in assessing the right market, the right sector, and the right
partner to grow their business. The Clients explained that as the competitive landscape continues to change,
there is a growing focus on expansion to sustain growth to further create value for their shareholders.
Hence, the Clients will initially require an analysis on two levels:
• Top down analysis of the (a) Philippine economy, (b) industry(ies) where the Client operates in, and (c)
operational and financial challenges and opportunities of the Client;
• Identification and analysis of the foreign entity (listed or non-listed) (the “Partner”) and rationale for
choosing such. The Client can either bring the Partner here or expand to the foreign territory. Note that the
Partner can be any foreign entity within or outside Asia.
The Philippine companies that are engaging PwC for this engagement are as follows: Jollibee Foods
Corporation, Megaworld Corporation, Metropolitan Bank and Trust Company, PAL Holdings,
Inc., Puregold Price Club, Inc., Semirara Mining and Power Corporation.
Your team, as PwC Professionals, will be assigned to analyze operational and financial challenges
and opportunities of the Client, and to provide information on the foreign entity that the Client
can partner with. The Client will use your report to support their recommendation to the Board of Directors.
The Client would like your team to investigate the their operations and financials, using the economic and
industry overview, and other research materials used as bases for your observations. They envision that the
assessment of these challenges and opportunities can be used to identify an appropriate expansion strategy, and
subsequently, the right market, the right sector, and right foreign partner to expand with.
General information about the Philippine economy has been compiled for you from publicly available sources.
You will need to conduct additional research to address all of the questions that may be raised by the Board. The
Client expects that you will only use publicly available data to back up any analysis for this report.
Your output should take the form of a professional report directed to the Board of Directors of the Client. The
Board expects the report to be relevant and concise, and to have all your information obtained from reliable and
publicly available sources. The report should not be more than 25 pages including an executive summary
of no more than three pages.
While the Board has provided a list of information that they would like to see in the report, it is up to you to
decide which are the most relevant, for the purpose of the analysis. You are expected to cover the following items
to some degree in your report.
 Macroeconomic Overview

Preliminary Round

• Macroeconomic and industry assessment

− Analyze the current economic environment and relevant industry in which the Company operates in,
including major drivers that affect the business of the Company.
− Assess the competitive environment of the relevant industry using a framework to evaluate competition
(e.g. Porter’s Five Forces, BCG, PESTLE analysis, among others). Evaluate how the Company is affected
by these identified factors.
− Analyze relevant sustainability trends in the economy (e.g. sustainability, inclusion, among others) and
how the Client’s business help.
− Analyze the outlook and key trends of the identified key economic and industry drivers, and how these will
underpin growth of the Company moving forward.
− Analyze key legislation or implementing rules that affect the Company (this including pending bills that
have a high likelihood of being passed to be implemented in the near future).
• Overview of the Company
− Provide an overview of the Company, including basic information such as major milestones, key statistics
(e.g. number of branches, capacity of plants, gross floor area of properties, among others), and other
pertinent information.
− Map out the corporate structure of the Company including all of its subsidiaries, associates and joint
ventures, including an identification of the specific functions carried out by these entities.
− Chart the value chain of the Company’s operations (e.g. from sourcing of raw materials to the final
product/service provided).
− Conduct a financial analysis of the Company (e.g. historical financials, financial ratios, horizontal and
vertical analysis, among others) including a brief commentary on movements of key material accounts.
− Identify financial and operational challenges and opportunities using the information gathered as a basis.
− Recommend an area of the business where you think the Client will need a partner to grow. Justify
your choice. State the benefits of partnering as an avenue for growth.
− Recommend an appropriate expansion strategy for the Company based on the aforementioned factors
including details such as where to expand (whether locally or abroad), an explanation on the choice of
where to expand, and how this is aligned with the Client’s operations.
− Assess the feasibility of the recommended growth strategy from different perspectives (e.g. financially,
regulatory, operationally, among others), including assessment of potential risks and challenges of the
potential venture.
• Evaluation of the foreign entity
− Identify the publicly listed foreign entity to partner with, in line with the recommended growth strategy
and justify your choice.
− Provide an overview of the Partner, including key performance indicators. Highlight the key competitive
advantages of the Partner and how they would complement or enhance the business of the Company.
− Prepare a financial overview of the Partner (e.g. historical financials, financial ratios, horizontal and
vertical analysis, among others) including a brief commentary on movements of key material accounts.
Judging
Criteria
Judging Criteria

Section 1: Macroeconomic and industry assessment

Identification and analysis of key macroeconomic drivers that affect the business of the Company.
Analysis of the industry, where the Company operates in using the identified framework for competitive
analysis
Assessment of key regulatory provisions that affect the Company.
Assessment of the outlook of identified economic and industry trends.

Section 2: Overview of the Company

Clear overview of the Company, including relevant basic information and other pertinent information.
Clear and concise corporate structure and value chain of the Company.
Evaluation of the financial performance of the Company based on relevant financial metrics, and explanation
of key material accounts.
Assessment of key operational and financial challenges and opportunities.
Justified and feasible growth strategy for the Company based on the key operational and financial challenges
and opportunities.

Section 3: Evaluation of the foreign entity

Identification of the chosen foreign entity to partner with including clear justifications why they are an
appropriate consideration for the Company’s expansion plans.
Evaluation of the financial performance of the Partner based on relevant financial metrics, and explanation of
key material accounts.
Macroeconomic
Overview
The Economy and the Demand Side

Historical GDP of selected Asian countries

7.8%
7.1% 7.3% 7.0%
6.9% 6.9% 6.7% 6.7% 6.8% 6.6%
6.1% 6.0% 6.1% 6.2%
5.6% 5.7%
5.1% 5.2%
4.7% 5.0% 5.0% 5.0%
4.9% 5.0% 4.7%
4.0% 4.1%
3.6% 3.4% 3.7%
2.9% 3.0% 3.1%
2.7%
1.9%
0.9%

2013 2014 2015 2016 2017 2018

Philippines Thailand Indonesia Malaysia China Singapore

Source: BSP

Since 2013, the Philippine economy has grown at rates surpassing the majority of its ASEAN neighbors. In 2018,
the Philippine economy grew at a robust 6.2%, establishing itself as one of the fastest growing economies in Asia.
Over the first two quarters of 2019, the Philippines has seen a dip in its GDP growth to 5.6% in 1Q and 5.5% in
2Q, but it still remains one of the most rapidly growing economies in the region given its resilient and sound
economic fundamentals. The economy can be analyzed in two perspectives: the demand side and the supply side
of the economy.
On the demand side of the economy, household consumption continues to be a main driver of growth at 75% of
total GDP as of 1Q19. There are three factors that have been fueling private consumption: first, the size of the
population, growing at 1.6% p.a. at an estimated 108.4m in 2019; second, the population’s high propensity to
consume as reflected in its Consumer Confidence Index (Nielsen), one of the highest in the world; finally, the
inflow of personal remittances by overseas Filipino workers of USD28.9b in 2018 which boosts domestic
circulation of money.

1Q19 Expenditure shares as a % of GDP

75%

26% 31%
13%

(45%)
Consumption Government Investment Exports Imports

Source: BSP
Drivers of Private Consumption

Philippine Population
In millions

106.7
105.2
103.7

1.6%
102.1
100.5
98.9
97.2
95.6
92.4
94.0 Compound Annual
90.9
Growth Rate
(2008 – 2018)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: World Bank, UN, BMI

1Q19 Consumer confidence index

133.0

104.9
94.2
1st
Highest Consumer
Confidence in Asia

Global average Asia Pacific Philippines

Source: Nielsen Global average Asia Pacific Philippines

OFW Personal Remittances

In USD billions

28.9
5.6%
26.9 28.1
24.6 25.6
23.0
20.1 21.4
18.8 Compound Annual
Growth Rate
(2010 – 2018)

2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: BSP
Supply Side

On the supply side, there has been minimal change to the mix of GDP contribution by sector with service
contributing the bulk of total GDP at 56.6% as of 1Q19. A major contributor to this sector has been the
information technology and business process outsourcing (IT-BPO) industry which has spiked to USD27.3b in
2018, growing at a compound annual growth rate of 25.3% since 2012. As a result, this industry has significantly
contributed to the increasing disposable income per capita, ultimately leading to greater buying power.

1H19 Industrial Origin

As a % of GDP
7.6%

33.8%
58.6%

Agriculture, hunting, forestry, and fishing Industrial sector Service sector

Source: BSP

BPO revenues
USD in millions

25,000

20,000

15,000

10,000

5,000

-
2012 2013 2014 2015 2016 2017 2018

Source: IT-BPAP
Macroeconomic Risks

The country still has room for growth, especially if the government is able to deliver on their Build, Build, Build
program. As seen by the following table and chart, the Philippines is still behind its regional peers according to
the World Economic Forum (WEF). Specifically, the Philippines ranks 56th out of 137 according to the global
competitiveness index published by the WEF based on certain criteria such as infrastructure, innovation, etc.
Pillars 1-4 Pillars 5-10 Pillars 11-12
Basic requirements Efficiency enhancers Innovation & sophistication
COUNTRY - global ranking Rank Score Rank Score Rank Score
Singapore - 3 2.0 6.30 2.0 5.70 12.0 5.20
Malaysia - 23 24.0 5.50 24.0 4.90 21.0 4.90
China - 27 31.0 5.30 28.0 4.90 29.0 4.30
Thailand - 32 41.0 5.10 35.0 4.60 47.0 3.90
Indonesia - 36 46.0 5.00 41.0 4.50 31.0 4.30
Philippines - 56 67.0 4.60 61.0 4.30 61.0 3.70
Source: World Economic Forum: Global Competiveness Report 2017-2018

Most problematic factors for doing business in the Philippines

Poor public health 0.1

Inflation 0.4
Foreign currency regulations 0.9
Crime 1.8
Inadequate education 2.1
Insufficient capacity to innovate 2.3
Poor ethic in national labor force 2.6
Restrictive labor 3.0
Government instability 3.2
Access to financing 4.9
Policy instability 7.6
Tax rates 8.9
Tax regulations 10.9
Corruption 13.7
Inadequate supply of infrastructure 17.9
Inefficient government bureaucracy 19.7
Note: From the list of factors, respondents to the World Economic Forum's Executive Opinion Survey were asked to select the five most
problematic factors for doing business in their country and to rank them between 1 (most problematic) and 5. The score corresponds to the
responses weighted according to their rankings.
Macroeconomic Fundamentals

Despite these risks, both local and international confidence have continued to be strong because of sound
macroeconomic fundamentals.

On the monetary side, inflation has slowed down, growing at a pace of 1.7% in August 2019. This is the lowest
since October 2016, when the inflation rate was 1.8%. The BSP expects September inflation to settle between
0.6% to 1.4%, driven by lower rice and electricity prices. The inflation rate is lower than the government’s target
range of 2%-4%, which gives room for the Banko Sentral ng Pilipinas (BSP) to cut interest rates. So far, the BSP
has reduced benchmark interest rates by a total of 75bps this year. Furthermore, the BSP has reduced 100bps in
the banks’ reserve ratio requirement (“RRR”), which will promote the increase in the amount of loans made to
consumers and business in the economy.

Please refer to the next page for the respective graphs.

On the fiscal side, the external debt remained at prudent levels, according to the BSP and interest payments
(Debt Service Burden) exhibit the country’s ability to service its loans. Currently, 80.1% of external debt are
medium to long-term in nature, meaning that foreign exchange requirements are well spread out and
manageable. Finally, the country’s increasing reliance on domestic financing indicates that its exposure to
external risks is decreasing. Domestic financing has more room to support the growth in consumption as the
country’s national debt to GDP ratio of 44.0% as of 1Q19. These factors result to the Philippines’ wider fiscal
space, allowing the government to provide resources where they are deemed needed without jeopardizing the
sustainability of its financial position or the stability of the economy.
Please refer to the next page for the respective graphs.

Overall, the Philippine economy has outperformed its neighbors since 2012. It has been fueled by private
consumption and the service sector. Economic risks have also been kept at bay because of strong macroeconomic
fundamentals both on the monetary side and on the fiscal side. The Philippines, however, must remain
optimistic for the coming years in which new government initiatives such as Build, Build, Build and tax reforms
can further support economic growth.
Monetary Indicators

Inflation (consumer prices)

8.3%

4.7% 5.2%
4.2% 3.8%
3.0% 3.6%
2.9% 2.6% 2.9%
0.7% 1.3%

c 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Inflation, consumer prices

Source: World Bank

Banking system indicators

5.4% 5.6%

4.2%
3.7% 3.5%
3.5% 2.8%
3.0% 2.9% 2.2% 2.1% 2.1%
1.8% 1.8%
1.5%
1.4% 1.6% 1.6% 1.4% 1.5%
1.2% 1.2% 1.3%
0.3%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19

91 day tbill rates Bank non performing loans to total gross loans

Source: World Bank, BSP

Budget deficit (% of GDP)

(0.6%)
(0.9%) (0.9%)
(1.4%)
(2.0%)
(2.3%) (2.2%)
(2.4%)

(3.2%)
(3.7%) (3.5%)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: BSP
Clients’
Background
Information
Your team is assigned to Puregold Price
Club, Inc.

Jollibee Foods Megaworld Metropolitan Bank PAL Holdings,

Corporation Corporation and Trust Company Inc.

Background Background Background

Background
Metrobank is a universal PAL is an airlines company
Jollibee is a Filipino Megaworld is a real estate
bank, which engages in engaged in air transport of
multinational chain of fast company that develops large-
deposit-taking and lending, passengers and cargo within
food restaurants. Among scale, mixed-use, planned
trade finance, remittance, the Philippines, and between
the establishment’s best communities incorporating
treasury, investment the Philippines and several
residential, commercial,
sellers are the Yumburger, banking, and thrift banking. international destinations.
educational, and leisure
Chicken Joy, and Jolly components.
Spaghetti.

Puregold Price Semirara Mining and

Club, Inc. Power Corporation

Background Background
Puregold conducts its Semirara generates it
operations through several revenues through the
retail formats and store production and sale of sub-
brands such as “Puregold bituminous coal. Currently,
Price Club”, “Puregold SCC has supply contracts
Junior” and “Puregold with its own power
Extra”. They also own S&R subsidiaries, as well as other
Membership Shopping. plants and cement
manufacturers.
Disclaimer

This material has been prepared by PwC Philippines/Isla Lipana, (“PwC”) based on publicly available
information and for use only in connection with the 2018 PwC Philippines M&A Challenge. This material may
only be used by, and must not be distributed other than to, persons who have entered, or are on the judging
panel for, the 2019 PwC Philippines M&A Challenge. This material is not to be construed as a solicitation or an
offer to buy or sell any securities or related financial instruments.
No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or
reliability of the information contained herein, nor is it intended to be a complete statement or summary of the
securities, markets or developments referred to in the materials. Any opinions expressed in this material are
subject to change without notice and may differ or be contrary to opinions expressed by other business areas or
groups of PwC as a result of using different assumptions and criteria. PwC is under no obligation to update or
keep current the information contained herein. PwC may have or have had a relationship with or may provide or
has provided financial services to the relevant companies.
For the avoidance of doubt, neither PwC nor any of its affiliates, directors, employees or agents accepts any
liability for any loss or damage arising out of participation in the 2018 PwC Philippines M&A Challenge or the
use of all or any part of this material.
© 2019 PwC. The key symbol and PwC are among the registered and unregistered trademarks of PwC. All rights
reserved. PwC specifically prohibits the redistribution of this material and accepts no liability whatsoever for the
actions of third parties in this respect.