CVC agrees Philippines' BPO carve-out

A host of global third-party BPO service providers and multinationals' in-house operations have taken up residence in the Philippines, and this was where CVC Capital Partners began its search for potential acquisition targets. "There are a lot of captive providers and we are looking for the day when the in-house operations no longer have to be 100% owned and could be carved out," Brian Hong, a senior managing director at CVC, tells AVCJ.

However, the asset that became available was entirely homegrown. SPi Global Holdings, a subsidiary of Philippine Long Distance Telephone Company (PLDT), dominates the call center space as well as offering domain expertise in healthcare and publishing. It primarily serves US and Europe-based customers with close to 18,000 employees worldwide.

PLDT last year decided to sell an 80% stake in the business as part of efforts to divest non-core assets. Several private equity firms expressed an interest, but CVC felt it had an edge, given its prior knowledge of the sector and relationships forged with company management before the auction process began.

"We had a pretty good understanding of the industry," says Hong. "We hoped they would do an exclusive deal with us and, even though they ended up going for a process, it largely came down to who PLDT and management wanted to work with."

The deal values SPi at more than $300 million - with CVC's commitment split equally between equity and debt - making it comfortably the largest buyout ever seen in the Philippines. Two years ago, CVC was also responsible for one of the largest minority deals in the country when it acquired a 15% stake in Rizal Commercial Banking Corp. for $115 million. Hong suggests that the PE firm's track record in the country helped facilitate the transaction.

"If you are a global firm and you are trying to get someone to engage with you in a country like the Philippines, the question is are you really going to get there and invest a large sum of money," he says.

PLDT will retain a 20% interest in SPi, which means it can participate in future growth of the business. SPi posted revenues of $170 million for the first nine months of 2012, up by 16% year-on-year, and had an EBITDA margin of over 20%. For CVC, PLDT's continued presence is a source of comfort.

"Our 20% partner is the second-largest listed company in the Philippines and they know the local market," Hong says. "They are also a customer on the call center side and a supplier in terms of telecom and data connectivity."

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• Topics
• Support services
• Investments
• Southeast Asia
• CVC Capital Partners
• Philippines