Thriller in Manila: PE investors target the Philippines

The country has a small number of very large corporations, but given the resources at their disposal, these players have generally been wary of stepping beyond their own borders. Since 2003, outbound M&A by Philippines companies comes to $6.1 billion and close to 40% of that was deployed by San Miguel Corporation alone, according to S&P Capital IQ.

Similarly, private equity firms have been wary of stepping in. AVCJ Research data shows that traditional PE investment - one sizeable hedge fund deal was discounted - in the Philippines for the same period is $2.6 billion, 3.3% of the regional total.

However, times may be changing. Since the start of 2012, 40 outbound M&A deals have been announced, compared to 60 in the six years before that. Ten of the 20 largest outbound deals from the last decade came from 2012 onwards. They include Universal Rabina Corporation's (URC) acquisition of New Zealand-based Griffin's Foods from Pacific Equity Partners for NZ$700 million ($608 million). The deal, which was announced this week, represents the company's largest disclosed outbound investment. It is a powerful statement of intent to become a significant regional player in food and beverages.

There is cause for optimism among private equity investors as well. The $572.1 million deployed in the Philippines in 2013 was a record high, yet it could be surpassed this year with $443.8 million invested and more than five months still to go.

Encouragingly, there has also been a change in the spread and nature of deal flow. The 2013 total was dominated by CVC Capital Partners' acquisition of business process outsourcing firm SPi Global for $300 million, the largest ever PE buyout seen in the Philippines. Three transactions account for the bulk of the sum invested so far this year. GIC Private was responsible for two deals, backing Metro Pacific Investments' hospital business in a deal that could be worth $234 million and committing $76.6 million to Century Canning Corporation (CCC) ahead of an IPO. The third came as TPG Capital and Malaysia's Khazanah Nasional invested $132 million in housing developer 8990 Holdings.

While SPi Global represented a bet on an outsourcing industry in which the Philippines is an established international force and a company that has experienced PE ownership before, the three more recent deals suggest a broader investment thesis. Two are clear plays on rising domestic consumption and more transactions along these lines are sure to emerge.

Dennis Montecillo, president of BPI Capital Corporation - the investment banking unit of Bank of the Philippine Isles - told the AVCJ Singapore Forum last week that plenty of PE investors are coming through town in search of deals. He identified three transactional themes: new business created by generational shifts in the population; public markets volatility resulting in attractive entry valuations; and structural arbitrage, given that comparatively few domestic companies are publicly traded.

A fourth has since emerged, with the removal of both the 60% cap on foreign investment in the Philippines banking industry and the rule restricting the number of wholly-owned overseas lenders permitted to operate in the country to 10. A number of private equity firms are already said to be on the lookout for potential targets, although they will inevitably face competition from strategic players.

The Singapore-Manila route is going to become as popular as Singapore-Jakarta - if it's not already.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• Investments
• Philippines
• Southeast Asia
• buyout
• Growth capital