Bain sees private equity deals
By Denise A. Valdez
THE Philippines is seen able to close at least two private equity (PE) deals this year despite a regional slowdown due to challenges brought by the coronavirus disease 2019 (COVID-19) pandemic.
United States-based management consulting firm Bain & Co., Inc. said the Philippines might benefit in global efforts to diversify supply chains and focus on business process outsourcing (BPO) to cope with the economic decline.
“I think there’s going to be a slowdown [in PE deals] in 2020, but possibly, we’ll come out of this year with a couple or three deals in private equity in the Philippines and possibly go back up from there in 2021,” Bain Partner Alessandro Cannarsi said in a phone interview last week.
“I don’t think the deal flow will completely dry up. In fact, we’ve seen that in the past five years, private equity firms that generated the best returns were those that kept investing during the down cycle,” he added.
Despite 2019 being a challenging year for PE firms in Southeast Asia, with deal value slipping to $12 billion from $14 billion a year ago, Mr. Cannarsi said the COVID-19 pandemic may change the situation in favor of countries like the Philippines.
“The Philippines is one of the few countries in the world, that according to the IMF (International Monetary Fund), can still pull off a positive GDP (gross domestic product) growth in 2020, which is good,” he said.
The IMF said last month that the Philippines could record a 0.6% GDP growth this year, better than its projections for Thailand (-6.7%), Malaysia (-1.7%) and Indonesia (0.5%).
Aside from GDP, Mr. Cannarsi also said the Philippines is poised to benefit from the growth of technology-driven industries and the diversification of global supply chains after the COVID-19 pandemic.
“If you think about it, we’re going through a large experiment in doing things remotely,” he said. This is expected to result in the growth of sectors like online shopping and digital healthcare where the Philippines can take a role in.
“Sectors that have revenues in markets like the US such as BPO, IT (information technology) services, where the Philippines is strong, could get a leg out in attracting private equity investments interest,” Mr. Cannarsi said.
The other element is the increasing tension between US and China, and Japan’s plans to pull out companies in China.
“[The Philippine has] a flourishing services sector, which is strategically well-located to diversify some of the supply chain for western and Japanese companies. And because of the high English communication skills in the Philippines compared to other Southeast Asian countries, it is very advertised in the west,” Mr. Cannarsi said. “I think it’s a candidate for actually benefitting from some diversification of the supply chain.”
In order to attract PE firms into the country, Mr. Cannarsi said the Philippines can work on enhancing corporate governance standards, on the company level, and increasing transparency on deal flows, on the country level.
He said it matters that there are fair and strict but also encouraging regulations to make it easy for funds to do buy-outs or raise capital to increase the growth of Philippine companies.
With these in place, Mr. Cannarsi said “you will make it easier for private equity funds globally to look at Filipino companies and invest with confidence.”