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Consumption to be spark for buyouts

– Thailand, Vietnam and the Philippines will see the strongest increase in private-equity transactions in Southeast Asia this year as buyouts in the region struggle to recover, according to Bain & Co.

A growing middle class will push up demand for consumer goods such as food, fashion and banking services in those countries, which have experienced fewer deals compared with the more saturated markets in Singapore and Indonesia, said Sebastien Lamy, a partner at Bain, which provides management consulting services to the private-equity industry.

“Especially in Vietnam, Thailand and the Philippines, private equity will be surfing on the wave of the consumer story,” Lamy, a Singapore-based private-equity specialist for Southeast Asia, said in an interview. “The growing middle class is set to push up investments in companies focusing on those areas.”

Private-equity investors are counting on consumption growth in the three countries to deploy capital and aid a revival in transactions in Southeast Asia. The value of buyout deals in the region fell more than 50 percent to $4.9 billion last year from a peak of $12.7 billion in 2007 as credit slowed following the 2008 global financial crisis, according to Bain.

Thailand in late March increased its gross domestic product growth forecast for 2013 to 5.3 percent from 5 percent, while Vietnam approved a master plan in February to revamp the economy.

The Philippines achieved investment grade for the first time as Fitch Ratings raised its assessment last week, rewarding President Benigno Aquino for leading a growth resurgence after the nation lagged behind peers for decades.

“The rise of the middle class will continue to be the big story for Southeast Asia’s economies over the coming years,” said Gareth Leather, a London-based Asia economist at Capital Economics Ltd. “More and more people have more money in their pockets so that they don’t only spend on surviving goods, but also in a more discretionary manner on consumer goods.”

Buyout firms bought companies in Malaysia, Singapore and Indonesia valued at a combined $2.7 billion in the past year, according to data compiled by Bloomberg. That’s more than 12 times the value of transactions with targets in Thailand, Vietnam and the Philippines.

The main sectors for private-equity deals in Southeast Asia, where most of the region’s 650 million people will be middle class by 2020, will be consumer goods like food and beverage, consumer finance, health care and industrials, Lamy said.

Consumer spending on food and beverage in the region that also includes Cambodia and Myanmar will jump to about $350 billion in 2020 from less than $200 billion in 2000, according to a 2011 analysis by consulting firm Accenture. Food and drink spending surpasses every other category, including housing and transport, according to Accenture.