Executive Briefing: The Takeaway – Five Themes from LAVCA Data

Every time the LAVCA research team finalizes data collection and reports results on PE/VC activity in Latin America the rest of the staff and I share a moment of nervous anticipation – how do the numbers look? What story do they tell? Will we still be here next year?

As we waited for results for the first semester of 2013, there was some justification for concern – short-term investors are moving out of some emerging markets in response to an anticipated shift in US Fed policy, and the firms that have raised US$1b+ Brazilian or regional funds are not in the market in 2013 to boost fundraising totals.

When the numbers came in, the news was good – private equity and venture capital in Latin America expanded by all measures in the first half of 2013, with an increase in fundraising, investments, and exits as compared to 1H2012.

But beyond the numbers, what are some of the underlying trends for investors in the region today?

1. More managers are closing on capital

There is still a shortage of firms in the region with proven track records as compared to the universe of investors seeking to back Latin American managers, and this is likely to be true for years to come. But in 1H2013, 34 firms raised US$3.8b with final or partial closings for 36 separate funds, as compared to US$1.89b through 10 final or partial closings in the same period in 2012. New funds were spread across markets, strategies, stages and sectors, with about half of the firms closing on amounts between US$80m-US$600m. Fundraising totals will likely increase in 2014 when the larger firms go to market.

2. Brazil continues to dominate the region and will for years to come

With all the excitement over the “ex-Brazil” markets (see below) and the frustration over Brazil’s slow growth, investors might forget that the country consistently represents 70% or more of total PE/VC activity in Latin America, both in funds raised and investments, as it did in the first semester of 2013. Brazil is a decade ahead of any other market in the region in terms of industry regulation, the pool of managers with track records and the stock of start-up, mid-market and large cap companies ready to work with financial investors.

3. Mexico, Peru and Colombia are rising

Next week LAVCA and Coller Capital will publish the second annual Latin American Private Equity survey of 100+ global investors, and as results will show, LP views on Mexico, Colombia and Peru are very bullish. In the first half of 2013 global LPs oversubscribed mid-market funds in Peru (Nexus Group) and Colombia (Altra Investments), while Carlyle closed a Peru fund with local commitments. Mexico continues to attract new LPs, with both Nexxus Capital and EMX closing on new capital. Global and regional GPs are also moving into Mexico, most recently General Atlantic opened a local office in Mexico City.

4. LatAm IPOs are possible, even outside Brazil

Sales to strategic acquirers will likely always be the most common exit route for Latin American PE investors, but it was heartening to see fund managers realize five partial and full exits through initial public offerings across Brazil, Mexico and Chile in 1H2013, in addition to three follow on offerings. In Mexico CVCI and Wamex each listed hotel chains on the Mexican Stock Exchange, while CVCI also listed a construction company on the Santiago exchange. Stratus Group and General Atlantic both listed technology companies on the Bovespa. And now we have the news that the PE-backed Argentine technology firm Globant has filed for an IPO on the NYSE later this year.

5. Start-up investing is taking root

It has been about three years since Accel, Redpoint and other US venture capital firms ‘discovered’ Brazil and backed a roster of technology and e-commerce startups in the country. Since then startup investing has grown every year, with an increasing community of Brazilian and Latin American investors leading or participating in deals. In 1H2013 investments closed by VCs, accelerators, and angels (ranging from seed to expansion) rose to US$152m across 58 deals, representing a 69% rise in capital committed and a record number of early stage deals in the region.

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