Stax anticipates continued private equity interest in Sri Lanka through 2017



Stax, a global strategy consulting firm that advises leading private equity (PE) funds worldwide, noted that investment and merger & acquisition (M&A) activity in Sri Lanka has increased over the past two years. An ongoing high level of activity is expected in the near-term, mainly fueled by continued interest in the country’s healthcare, hospitality, education, and export sectors.

PHOTO - Dr Kumudu Gunasekera, Director of Stax
Dr. Kumudu Gunasekera, Director of Stax.

Stax noted that M&A trends in Sri Lanka mirror those in Asia—some of the largest PE deals in the region (within the past two years) have been in the B2B and healthcare space. For example, leading PE firms General Atlantic, Bain Capital, and Warburg Pincus acquired a stake in MedPlus Health services, a private healthcare player in India, for a value of $370M in 2015. Overall, M&A activity by PE firms within the Asian region saw an increase of 13% from 2015 to 2016.

Deal value sizes in Sri Lanka often do not match those within the broader region, as mature APAC economies are such dominant forces. However, there is still scope to attract smart investors to the island if local businesses “think big” and position themselves attractively as high-growth options. “Sri Lanka is currently at an economic crossroad and the next few years are crucial. It has experienced stable GDP growth in the past and is expected to move to the upper middle income category by 2020. However, FDI inflows have decreased and the CSE is still not a mature exchange in comparison to heavyweights such as Singapore. A continued focus on hard infrastructure, increased emphasis on soft infrastructure, targeted trade promotion, and a renewed focus on an export-driven economy will be vital for Sri Lanka in attracting more investment capital,” noted Dr. Kumudu Gunasekera, Director of Stax.

Private secondary education, universities (foundation, pathway and degree programmes), and technical colleges are ripe for foreign investment, as there is increased spending on education, limited capacities at public universities and schools, and narrow study streams. Investors will also be eyeing earmarked export areas, which include knowledge-based exports (IT/BPO), and manufacturing-based wholesale and branded products.

“Healthcare investment in Sri Lanka generally focuses on developing infrastructure such as hospitals, wellness centers, laboratories, and institutes for medical tourism. However, there is also scope within services oriented to address healthcare needs. By 2030, one in every five Sri Lankans will be over the age of 60, and the 80+ cohort will account for over 5% of the country’s population by 2050. With the combination of rising incomes and ageing populations, we will see increased private healthcare expenditure,” added Dr. Gunasekera “Aspects of hospitality such as support industries are also at a nascent stage and should be monitored for investment opportunities,” he concluded.

The next three to five years will be a window of opportunity in which local companies in healthcare, hospitality, education, and export industries can attract smart capital. With the right positioning and evidence of high growth, such players stand a good chance of capitalizing on the PE interest in Sri Lanka.

About Stax : Stax has offices in Boston, Chicago, Colombo, Singapore, and New York. The company has over two decades of experience in advising global PE and corporate firms, spanning 2,000+ projects in 40 countries, on both the buy- and sell-side. Stax has been in Sri Lanka since 2005, and has an employee strength of 60+ in Colombo. Stax jointly works with companies to identify the right investment vehicle, maximize the business valuation, and define the market/industry opportunity that will position companies as ‘high growth’ options to attract strategic investors. Stax’s industries of expertise span financial services, agriculture, healthcare, business services, education and training, energy, IT, and more.