2024 in Review and 2025 Outlook

^{Omar Mahmoud, Managing Director, Creador}

With the recent announcement of your PHP20-billion commitment over the next five years, what key criteria does Creador prioritize when evaluating investment opportunities in the Philippines?

Generally, our criteria would be a minimum ticket size of approximately PHP2 billion for a minority stake in the company. In terms of priority, we would look at the company's ability and potential to grow and scale the business further and how Creador can add value throughout the journey. We like to partner with strong management teams who share the same growth mindset and are motivated to expand their businesses further. We also consider the impact of the business to the broader society and how it contributes positively to the overall development of the country. For instance, our investments in Dali and Asialink aid with food security and financial inclusion in the country.

The mid-market segment has been a significant focus for Creador in Southeast Asia. In the Philippines, what industries or business models within the mid-market space are particularly attractive, and why?

We focus on the mid-market space because it represents a sweet spot in India and Southeast Asia, offering substantial traction with significant growth potential. We meet many entrepreneurs that have successfully established their business and demonstrated a product-market fit, but acknowledge the need for support to accelerate growth, expand internationally or prepare for a strategic event such as an initial public offering (IPO).

This is where we add the most value: partnering with entrepreneurs who have built strong foundations and supporting them with the expertise, tools and resources they need to navigate their next phase of growth. By targeting this segment, we can unlock outsized opportunities while empowering businesses to realize their full potential.

Creador has supported businesses expanding access to essential services in other markets. Are there similar opportunities you see in the Philippines for sectors like education, healthcare or digital finance, and how do you envision mergers and acquisitions (M&A) activities facilitating these opportunities?

We look for products and services that have the potential to expand beyond just tier-1 cities. The key lies in taking the quality typically found in Manila and replicating it nationwide. Another key theme for us is transitioning business formats from unorganized to organized. With greater scale, businesses can deliver consistent quality across a broader market. We've seen this successfully play out in Malaysia's healthcare sector, where we back the country's largest pharmacy chain. The business grew from a small operation into a group with over 500 outlets, driven in part by a series of strategic M&A. With its growth came improved service quality and significantly expanded access to essential medicines nationwide.

What is your forecast for M&A activity in 2025? Will M&A be a priority for Creador's growth strategy this year? What factors do you believe will drive M&A deals in the Philippines in the coming years, both in financial services and other industries?

We anticipate M&A activity in the Philippines ramping up in 2025, with a number of transactions that launched in 2024 spilling over into the following year. Activity has picked up in light of relatively more stable macroeconomic conditions. We are seeing robust activity in sectors such as financial services, healthcare and business services and are optimistic that this will continue through 2025.

Given your successful track record in extracting value from deals, what advice can you offer other organizations on leveraging M&A to achieve their vision and growth objectives?

We view M&A as a driver for inorganic growth across our portfolio of companies. M&A can boost their growth profile and help them scale faster compared to expanding organically. We believe companies in the Philippines can also leverage on M&A to work with investors/partners to provide capital and expertise for the next phase of growth. A good example would be our investment in Asialink, in which we invested PHP4 billion in equity capital to bolster lending capacity to small and medium enterprises (SMEs) in the country. In addition to this, Creador is helping improve operational efficiencies and access to additional funding sources to support Asialink's long-term strategy of sustained growth and market leadership.

Creador has been actively investing in Southeast Asia, including recent investments in Asialink Finance Corp. and UNO Digital Bank. How do these investments reflect your broader strategy for the Philippines? Are there any specific learnings or trends you are applying from your experience in other Southeast Asian markets?

We like to invest in themes, and financial inclusion is a key theme for us in the region. We have a strong track record of investing in lenders in other markets such as India and Indonesia, and when evaluating the Philippines, we found that formal lending as a percentage of gross domestic product (GDP) lags behind many regional peers. Additionally, the banking system primarily caters to large corporations. Our investments in Asialink and UNO Bank align with our thesis of addressing two underserved markets for lending: consumers via UNO Bank and MSMEs via Asialink.

With investments in companies like Dali Everyday Grocery and Angkas, how do you see the evolving consumer behavior in the Philippines influencing your investment strategy? Are there any consumer trends unique to the Philippines that you are monitoring?

The Philippines is a consumption-driven economy where household spending continues to be a top contributor of GDP (demand side). Particularly unique to the Philippines would be its relatively young population with a median age of 26 years and comprising 65% of the working-age group. These are strong tailwinds propelling growth in consumption and continuous rise of purchasing power.

In relation to our investments in Dali and Angkas, we have seen these tailwinds coming to play as demand continues to be strong for affordable daily activities such as grocery shopping and transportation.

What are the key challenges or opportunities private equity investors face in the Philippine market, and how can they be mitigated or capitalized on to unlock the country's investment potential?

As with any nascent market, one of our key challenges is educating business owners about the value that private equity can bring to their business. When we started covering the market, we encountered many entrepreneurs who were hesitant to partner with PE, assuming we offered only financial capital. However, we have demonstrated that we provide far more than just funding—we bring strategic support and hands-on partnership. In the Philippines, we have a full onshore team that focuses on value creation, working day-to-day with portfolio companies to provide strategic advisory, drive business development and execute special projects. As we've built our track record of supporting local businesses in the last few years, we've noticed much warmer reception from entrepreneurs. The key, however, lies in helping them visualize how we can add value to their specific business—there's no one-size-fits-all approach.

What do you think the Philippine government or regulators can do to attract more private equity investments into key industries such as financial services, consumer goods and infrastructure?

We believe that the government has implemented supportive policies to attract more private equity investments such as increasing foreign ownership limits, provision of tax incentives for certain sectors and promotion of infrastructure development under the "Build Better More" program. These initiatives have allowed foreign investors, including private equity firms, to invest in the country with a longer-term horizon.

We see potential room for improvement in terms of development of the capital markets where retail and domestic investor participation remains limited. For instance, daily trading liquidity on the Philippine Stock Exchange (PSE) is ~US$80–100 million for the entire market compared to US$500 million to US$1 billion for our regional peers in Southeast Asia. Having a robust capital market will aid in facilitating liquidity events for financial investors and ability to realize returns on the investments made in the country.

^{Koon Po, Partner, Growtheum Capital Partners}

As Growtheum Capital Partners assesses the Philippine market, which industries do you see as having the greatest growth potential, and why?

Growtheum is a strong believer in the Philippine consumption story and the growing aspirations of the population, particularly the middle-class segment. The industries and companies that drive such growth are fuelled by a growing middle class, urbanization and increasing disposable income, which are focus areas for us at Growtheum. Our recent investment in the cold chain logistics sector is one such example. We view it as a derivative play on the growing consumption narrative, where the requirements of cold storage would be boosted by underlying consumption growth and increasing penetration due to a lack of nationwide high-quality reliable suppliers.

How do you view the current investment climate in the Philippines, especially in terms of the regulatory environment and economic policy?

We are positive on the current investment environment in the Philippines given the growing emphasis on regulatory reforms and economic policies aimed at attracting foreign investment. For example, the CREATE MORE initiatives of the government are expected to both simplify and clarify business regulations, and the tax incentives offered will help develop priority industries. These measures, combined with efforts to improve infrastructure and ease of doing business, create a favorable environment for long-term investment opportunities.

You recently announced your investment in the Philippines, allocating US$121 million to Mets Logistics, Inc., a local company specializing in cold storage. What made you prioritize the cold storage sector over others in the Philippines?

The Philippine cold storage sector is an underserved yet critical part of the infrastructure to build the Philippine economy, supporting the nation's growing domestic consumption needs. According to Global Cold Chain Alliance data, at 0.043 cubic meters per urban resident, the Philippines’ cold storage penetration is less than one-fifth of the global average. Given the country’s archipelagic nature, an efficient and reliable cold storage infrastructure is crucial for reducing wastage, increasing access to perishable goods and supporting the export of agricultural goods. We aim to work with Mets to scale the business nationally and provide more value-added services to our clients.

What actions do you believe the Philippine government could take to attract more private equity investments, particularly in sectors where you have investment experience, such as healthcare, logistics and consumer?

We understand that this is a focus area for the current administration, which is focused on improving the ease of doing business, enhancing transparency and strengthening infrastructure. These initiatives would help improve efficiency and reduce operational costs, which would make these sectors in the country attractive to private equity investors.

With Growtheum's successful track record in extracting value from deals, what advice would you offer to other organizations on leveraging M&A to achieve their vision and growth objectives?

The key is to find the right partner that aligns with your vision and growth objectives. It's important to focus on strategic fit, shared values and complementary strengths to drive long-term value. In our experience, partnerships built on trust and collaboration are instrumental in navigating challenges and maximizing growth potential. It is also important to be an involved and supportive partner across strategic, operational and financial matters, working alongside the local partner and management to drive day-to-day value creation.

Considering your experience in Southeast Asia with investments in the healthcare, e-commerce and consumer/dairy sectors, what lessons from these other markets could contribute to successful investments in the Philippines?

Each market in Southeast Asia has its own nuances, even for the same industry and business model. Evaluating the business from the perspective of the local customers to understand their buying journeys and pain points has worked well for us in effectively identifying gaps in the market and areas for improvement. This, however, requires a deep understanding and appreciation of the local culture, people and consumer behaviors. Our team’s experience in having partnered with over 40 companies in the region in the past is an important enabler and differentiator for us in this aspect. We also set a high bar in making sure we bring well-thought-out ideas and tangible insights to our existing and prospective partners by understanding their industry, their business model and what we can offer as a trusted partner. This is key to building trust and long-term relationships in our markets, including the Philippines.

When evaluating potential acquisition targets in the Philippines, what criteria does Growtheum Capital Partners prioritize, particularly drawing from your experience with KIN Dairy and LOF International Dairy Products (LOF)?

At Growtheum, we prioritize sectors with strong macro dynamics and long-term potential, and identify companies that have the potential to be local or regional champions. Key areas of focus include the target’s market position, competitive advantages, operational scalability, the reputation of the business owners and the strength of the management team in ensuring that the business has a clear path to sustainable growth after our investment. Both KIN Dairy and LOF are examples of investments with such attributes.

What are the main risks and opportunities you anticipate for the Philippine M&A market in the next three to five years, particularly considering global economic trends like the ongoing adoption of AI, supply chain challenges and local market dynamics?

Opportunities will be driven by the continued resilience of the Philippine economy, supported by businesses' openness to expansion and their commitment to enhancing service quality through upgraded technology, digital adoption and enhanced environmental, social and governance (ESG) practices. On the other hand, geopolitical, regulatory uncertainties, infrastructure gaps and climate change would create volatility, so it would be crucial for any investor to closely monitor local market dynamics and adapt accordingly.

How do you assess the impact of sustainability initiatives on the value and growth potential of investments in the Philippines, especially in sectors such as consumer goods and healthcare?

We are a strong believer of environmentally and socially responsible business practices being integral to building sustainable businesses and delivering strong investment outcomes. We adopt and benchmark the existing practices of our prospective investments against our target Performance Standards on Environmental and Social Sustainability, and then align the management team with a defined environmental and social action plan that is aimed at closing the gaps between their existing practices and the aforementioned Performance Standards.