PCC studying valuation method for data assets in mergers

THE Philippine Competition Commission (PCC) is considering the possibility of taking into account the valuation of data assets in mergers or acquisitions.
In a phone interview, PCC Commissioner Johannes Benjamin R. Bernabe said the anti-trust body has recently dealt with mergers where the physical assets of the parties were less significant than the value of their data.
The PCC’s data valuation practices may affect the reporting threshold of merger deals — the point at which transactions need to be cleared by the commission — involving technology firms whose value is determined largely by the data they collect.
Citing the Grab acquisition of Uber’s Southeast Asian operations last year, Mr. Bernabe said the commission took note that the parties did not provide a valuation of their data in calculating their transaction’s value, which did not fall within the agency’s notification threshold.
“If you have a value of physical assets at $500,000, and in exchange you give up 27.5% of your equity when your market valuation is upwards $6 billion, what does that tell you? You are purchasing data which is not being valued properly. What is that data? It’s data of the drivers, whatever rider information is embedded in the systems that would have been transferred to Grab,” Mr. Bernabe said.
However, he noted that capturing data-driven transactions will need an adjustment to the PCC’s valuation method.
Mr. Bernabe cited an example from Germany, which factors in the transaction’s purchase price, as a viable model.
“Germany has adopted a valuation method that takes into account the purchase price because they realized that there are so many transactions going on in the members of the EU (European Union) where simply looking at the revenues generated would be misleading because the revenues may be minimal but the market valuation of these social media businesses are going through the roof. And why is it so? Because of the data that goes with the acquisition,” the PCC commissioner said.
“While we have only preliminarily discussed it, one issue that we will have to reexamine moving into the future is whether we can do what Germany did… because that would give input to the value of data that is being transferred,” he added.
Mr. Bernabe said the PCC has not come to a firm decision on the matter.
However, he said drafting the guidelines to notification rules is only a “fraction of the bigger picture” in assessing the impact of data on mergers and acquisitions.
“The more interesting exercise is really conducting an analysis on the substance of what happens once the data is in the hands of the merged entity,” he said.
He said he has been pushing other commissioners and the PCC’s Enforcement Office to analyze whether there will be substantial reduction of competition in the market not only in terms of the impact of the sharing or transfer of goods or services between companies but also at the data that will be controlled by the merged entity.
Mr. Bernabe said he first urged for the broadening of analytical scope particularly after Bayer AG’s $66 billion acquisition of Monsanto Co. in 2017.
“Maybe they’re not going to have significant share insofar as the products are concerned. But what about the research and development, information, that they have which are subject to patent? If they will not provide access to other users to these patented products, then our world will be poorer because R&d will not be facilitated,” Mr. Bernabe said.
The commissioner is also hoping to extend the post-merger review beyond the two-to-five-year period, noting that other jurisdictions have recently realized the longer timeframe that data takes to be made applicable and useful to a business.
Mr. Bernabe pointed out that for patents, for instance, the lifecycle of data that leads to the development of a patented product, including the research and development that goes with it, is much longer than the PCC’s post-merger analysis timetable.
“We have to look at how data will affect the way business will work 10 years from now. It requires more far-sighted analysis. Of course, questions arise [as to] how can you really predict how markets will evolve in 10 years but this is where… really more intensive interviews with market participants come into play,” he added.
In terms of how other commissioners are reacting to this push, Mr. Bernabe said “it’s a slow grind”, as the commissioners are from various disciplines.
However, Mr. Bernabe believes “the commission will be more compelled to face the situation sooner rather than later,” as big-data driven businesses are on the rise.
“I guess that’s the trend in new businesses coming up, based on the use of big data application of data science and data analytics. So we have to prepare for that,” he added. — Janina C. Lim