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10 Emerging Markets to Watch

PHILIPPINES

U.S. private equity investors have only recently started to look for deals in the Philippines

Located in Southeast Asia, the Philippines is an archipelago consisting of more than 7,100 islands, of which more than 800 are inhabited. It has a democratic system of government. Official languages are Filipino and English. With more than 105 million people, the Philippines is a strong exporter of electronic products, garments, petroleum products and fruits. It trades regularly with the U.S., Japan, China, Singapore, South Korea, the Netherlands, Hong Kong, Germany, Taiwan and Thailand. In March, Fitch Ratings upgraded the country's credit rating to investment grade, igniting interest in the country.

Opportunity

Since 2012, when President Benigno Aquino came into power, there has been a push to tackle corruption. It's been working. GDP growth has hit nearly 7 percent, bringing it to $250 billion.

"It's the first time the Philippines is on the map as an attractive destination," says TPG's Dattels. "The government has done a good job of clamping down on corruption, and its credit as a country has been upgraded."

Renato Galve (pictured), head of transaction advisory services in the Philippines for Ernst & Young, a global consulting firm with headquarters in New York and London, agrees. "The current trend is seeing a shift away from corruption to transparency, fostering a more welcoming environment for international businesses and creating confidence among foreign investors."

The country's population is the most highly educated in Southeast Asia, according to Dattels, and the workforce is young.

Challenges

Corrupt business practices in the country are still widespread. The government would do well to continue to clamp down on corruption. Foreign investors are advised to know well the companies they consider putting capital into before investing.

Notable Deals

In April, LT Group Inc., led by the Philippines' second-richest individual, Lucio Tan, raised more than $912 million in the country's largest-ever equity sale. The deal, with UBS as sole book runner, benefited from a stock market boom after the Fitch upgrade.

LT Group is the most acquisitive buyer in the country, having purchased at least seven financial companies in the last 18 months. In July, Coca-Cola Femsa of Mexico (Mexico: KOML.MX), acquired a 50 percent stake in Coca-Cola Bottlers Philippines, a producer of bottled soft drinks, for $689 million, from Coca-Cola Co. (NYSE: KO). Additionally, Atlanta-based U.S. UnitedHealth Group (NYSE: UNH) acquired Savvysherpa Asia, an information technology company based in Cebu City, at the end of 2012.

Private equity firms are also looking for deals in the country. In July, the Philippine Investment Alliance for Infrastructure (Pinai) raised a fund dedicated for investment in the country. The firm held a final close with $625 million. Pinai is targeting five to 10 investments from $50 million to $125 million. The fund is managed by Macquarie Infrastructure and Real Assets, one of the largest infrastructure fund managers in the world.

Future

If the government continues to keep corruption at bay, M&A activity in the Philippines is expected to increase over the next five to 10 years.