Loving Latin America

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By Taina Rosa
(The Deal Pipeline)

October 12, 2012 – In 2011, 38 Latin American-focused private equity firms raised a record-breaking $15 billion in capital commitments, according to Preqin data. With all that dry powder, it is no surprise that fundraising for the region has slowed down.
But that doesn’t mean firms are not busy marketing new funds this year. According to Ernst & Young, more than 60 funds focused on Latin America are seeking more than $19.7 billion in new commitments.
By the end of the third quarter of 2012, 18 Latin America-focused funds had raised $6.8 billion, Preqin noted. That figure is below the $12.9 billion that private equity firms had amassed in the first three quarters of 2011, but it is still significant and in line with numbers seen in 2010, when, coincidentally, $6.8 billion was raised by the end of the third quarter.  
All of which is interesting, but not new. After all, Brazil has been a hot investment target for years.
But experts say interest is picking up in countries outside the region’s largest economy.
“There are quite a few firms on the road and while Brazil continues to be viewed positively, there is an increased interest to invest outside of Brazil,” said Philip Bass, global markets leader at Ernst & Young.
One New York-based placement agent who helped a Brazilian general partner raise almost $1.2 billion for a fund that closed in 2011 said he is getting calls from funds based in Brazil and in other Latin American countries that are interested in raising $300 million to $1 billion from international limited partners.

In fact, the Emerging Markets Private Equity Association’s 2012 investor survey shows that Latin America ex-Brazil, Brazil and China lead the rankings, in that order, with respect to market attractiveness for private equity investments.
A closer look at the survey reveals that Latin America ex-Brazil has in 2012 become the most attractive of all the emerging markets for private equity investing. In 2011, Brazil was at the top spot, followed by China and Emerging Asia ex-China, with Latin America ex-Brazil in the fourth spot.
Within Latin America, there is also a shift in preferred markets. In May, the Latin America Private Equity & Venture Capital Association, known as Lavca, released its 2012 scorecard, which ranked Latin American markets according to their regulatory environments. That scorecard revealed that Mexico, the region’s second-largest economy, was gaining ground in terms of investor friendliness. Mexico, with a score of 65 out of 100, remained in the third spot behind Chile, ranked No. 1 with a score of 75, and Brazil, in second place with a score of 72. Nevertheless, while the first two countries’ scores remained unchanged, Mexico’s grade went up two notches over last year’s.
Although many of the Latin markets have proven to be friendly to private equity investors, the region is not risk-free. Cate Ambrose, Lavca’s president and executive director, noted that there are four main challenges to private equity investments in the region: the lack of human capital in proportion to market demand, difficulties in exiting portfolio companies via initial public offerings, the number of investors competing for relatively few opportunities to make deals valued at more than $100 million, and, mostly outside of Brazil, business owners’ skepticism toward the benefits of taking in a private equity partner. However, she emphasized that these challenges all are a result of the relative youth of the private equity industry in the region.
But even with those challenges, Latin America fares well in comparison to other emerging markets.
Competition levels and entry valuations are playing an important role in making Latin America more attractive to investors than other emerging markets.
“Entry valuations in Latin America have generally been less volatile over prolonged periods of time than in other emerging markets,” said Ralph Jaeger, managing director at Siguler Guff & Company LP. “Based on our observations, pricing has been relatively attractive, with the majority of deals in Brazil in the past five years executed at valuations of 6.5x EV/Ebitda, while deals in Latin America [ex-Brazil] have been executed at valuations between 5.0 to 6.5 x EV/Ebitda,” he added.
In addition, while competition is hot in Latin America, it doesn’t come close to what is seen in China’s private equity industry.
“The ratio of the number of funds relative to the opportunities that exist is better in Latin America than in other emerging markets,” said a private equity insider who spoke at a late September event in New York. For instance, this person said, while there are probably about 3,000 private equity firms in China, there are maybe about 40 in Latin America.
“In China, competition among private equity firms makes it harder to find interestingly priced deals in larger companies. However, attractive investment opportunities exist across China, particularly in the early-stage and growth equity space,” Jaeger said.
And India is a difficult market for traditional private equity strategies, according to Jaeger. For one thing, competition for deals on the subcontinent is as fierce as in China. In addition, investors in India often find a “mismatch between private and public company valuations, a difficult exit environment and an increasingly hostile political and fiscal environment,” Jaeger said. He noted, though, that despite these factors, attractive opportunities still exist in India for selective and opportunistic investment managers.
Another factor that can explain Latin America’s attractiveness is its relatively healthier gross domestic product growth trends in comparison to troubled developed markets.
For instance, Barclays plc predicts that as a whole, Latin America’s GDP will slow to 3.2% in 2012, down from 4.5% in 2011. Growth is expected to rebound to 4.0% next year.
Meanwhile, Barclays estimates that GDP growth in developed markets as a whole will remain lower, at 1.3% in 2012 and 2013. In 2011, GDP expanded at the same rate.
So which firms are active in Latin America? Acon Investments LLC, for one. The Washington-based buyout shop is in the early stages of raising its fourth Latin American fund, which will likely be mostly invested outside of Brazil, mainly in Mexico and Colombia. The firm expects to raise about $500 million. “The firm’s three previous Latin American funds have provided its investors with a return of 2.9 times their money,” a person familiar with the situation said.
In early October, PineBridge Investments made a final close of its Mexican development capital certificate fund, known in Mexico as “certificados de capital de desarrollo,” or CKDs, with almost 2.7 billion pesos ($209 million), the firm said.
Colombian private equity firm Altra Investments Inc. made a first closing of $165 million for its second fund, Altra Private Equity Fund II LP, according to a regulatory filing. The firm aims to raise $300 million by the end of October, a source said. Altra, based in Bogotá, invests in the Andean region, particularly Colombia and Peru. Stamford, Conn.-based Stanwich Advisors LLC is the placement agent of the fund.
Lima, Peru-based Macrocapitales SAFI SA also closed its first fund, which raised $50 million in August, with another $30 million expected to be raised by early 2013, according to fund manager Pablo Avendaño.

Several Brazilian shops are in the market raising new funds too, proving that global limited partners are still hungry for exposure in the country, despite committing about $10 billion to Brazilian funds in 2011.

Kinea Investimentos Ltda., Banco Itaú SA’s alternative asset manager, closed on a $1 billion reais ($490 million) private equity fund in early October. The fund is actually made up of two vehicles. One, with R$800 million, contains commitments raised from local and foreign institutional investors, while the other R$200 million vehicle contains commitments raised from high-net-worth individuals, explained Cristiano Lauretti, partner and head of private equity at Kinea.
Kinea plans to invest it in mature companies with Ebitda between R$100 million and R$200 million. If the opportunity arises to make investments larger than R$200 million, Kinea will call capital from its existing limited partners on a deal-by-deal basis, Lauretti said, adding that the firm plans to take minority positions in companies in consumer-oriented sectors such as healthcare, education and retail.
New York-based GTIS Partners’ Brazil Real Estate Fund II closed with $810 million in March. The fund will invest in real estate projects in São Paulo and Rio de Janeiro states.
Mantiq Investimentos, which in January spun out of Banco Santander Brasil SA, in February closed FIP Brasil Petroleo, its first fund as an independent firm, raising R$585 million.  
São Paulo private equity firm Valora Gestão de Investimentos Ltda. made a final closing of R$500 million for its debut fund in August. The fund, which met its fundraising target, plans to take minority stakes in suppliers of the oil and gas industry in Brazil, said fund manager Paulo Rezende, who had worked at Kinea Investimentos’ private equity practice.
Although some of the funds that are in the premarketing stage may not see a final closing until next year, the fact that they are on the road shows that investors’ appetite for Latin America exposure is alive and well.

Executive Briefing: The Takeaway – Five Themes in LatAm PE today

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Executive Briefing: The Takeaway – Five Themes in LatAm PE today

Over the summer LAVCA and Coller Capital teamed up to reach out to over 100 global investors for the first LP Survey on Latin American Private Equity. The survey findings were presented in September during the annual LAVCA Summit and Investor Roundtable in New York, just days after we announced 1H2012 data on fundraising, investments and exits.  Read more

LAVCA Announces 2012 Mid-Year Data

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LAVCA Announces 2012 Mid-Year Data

Deal activity in Latin America surged in the first half of 2012, according to data released today by the Latin American Private Equity and Venture Capital Association (LAVCA), reflecting how firms across the region are utilizing ‘dry powder’ from last year’s record fundraising cycle. In the first half of the year, firms closed 90 deals across Latin America, representing a 38% increase from 1H2011. For more information or to purchase the 2012 Mid-Year Data and Analysis, click here.

LAVCA Mid-Market Report

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LAVCA Mid-Market Report

Drawing on proprietary data and analysis, LAVCA’s most recent publication offers insights on sectors, strategies, entry multiples and exit markets. In addition, there are deal highlights and links to LAVCA member firms currently doing mid-market deals in Latin America.

If you are a member and have not received your complimentary copy, or if you are not a member and would like to purchase one, please click here.

* This research initiative is supported by MIF/FOMIN and CAF.

LPs Still Bullish on Latin America

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by Joanna Glasner

September 11, 2012 – Private equity limited partners have considerably increased Latin American investments in recent years, and new data indicates they will want to continue.

Two-thirds of those already investing in the region say they plan to maintain or raise allocations in the next year, according to a survey published today by the Latin American Private Equity & Venture Capital Association (LAVCA) and Coller Capital.

The survey, which included input from 105 private equity investors worldwide, found that LPs active in Latin America saw the region’s economic growth potential and deal flow as the its biggest strengths. Underdeveloped IPO and M&A markets and the regulatory and tax environments were cited as Latin America’s weakest points.

The findings come on the heels of what has been a robust fund-raising climate for Latin America-focused venture and private equity firms. In 2011, funds in the region raised a historic record of $10.3 billion, up 27% from the $8.1 billion raised in 2010, according to LAVCA. Of that, Brazil-dedicated funds captured the lion’s share of capital committed in 2011, bringing in $8.1 billion. The bulk of that went to funds raised by local firms Gávea Investimentos, Vinci Partners, BTG Pactual and Patria Investimentos.

Both Latin American and international investors told surveyors they believe the consumer goods and retail sectors offer attractive investment opportunities for GPs in Latin America over the next three years. However, there were variations in the views of international and domestic LPs on some other sectors. Cleantech and life sciences are roughly twice as popular with Latin American investors as with international LPs. Meanwhile, international investors are more enthusiastic about opportunities in the financial services and agribusiness sectors than Latin American LPs are.

Just over three quarters investors surveyed said they expect net annual returns of 16% or more from their Latin American PE funds (excluding Brazil), and two thirds (65%) expect the same returns from Brazilian PE funds.

Deloitte and NVCA Release Results of 2012 Global VC Confidence Survey

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(Deloitte and NVCA) July 16, 2012 – Global venture capitalists see pockets of optimism in the current venture capital environment, according to the 2012 Global Venture Capital Confidence Survey from Deloitte and the National Venture Capital Association. In particular, investors favor emerging geographies such as Brazil, and innovative information technology (IT) sub-sectors such as cloud computing and social media. Read more

Capital privado: financiamiento para empresas con potencial

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By Víctor Esquivel
El Universal

Abril 17, 2012 – La asociación de empresas familiares con fondos de capital privado es una fórmula exitosa que acelera el proceso de institucionalización, consolida las fortalezas del negocio y dispone de capital fresco para crecer de manera acelerada en nuevos mercados. Es una forma de financiamiento de bajo costo, que se paga con las futuras utilidades, y que tiene la ventaja adicional de aportar talento, experiencia y mejores prácticas.

En la actualidad, debido a la participación en este mercado de las Afores y a la llegada de nuevos interesados, el mercado muestra un gran crecimiento con operaciones millonarias en diferentes sectores de la economía.

Los fondos de capital privado profesionalizan el negocio y lo dotan de mejores prácticas, como una forma de alcanzar sus metas de largo plazo. Algunos beneficios son: asegurar la sustentabilidad de la empresa en el largo plazo, capitalizar conocimiento y experiencia, y la posibilidad de consolidar el patrimonio de la familia y los accionistas.

A cambio de aportar recursos y experiencia, las alianzas con fondos de capital privado implican algunas restricciones y obligaciones por cuenta de los propietarios y socios. No sólo deben considerar la conveniencia de compartir la dirección del negocio o algunas áreas estratégicas, sino que para atraer y convencer a los posibles inversionistas deben buscar la profesionalización de la gestión, transparentar la información, y sobre todo aceptar el nuevo modelo de hacer las cosas.

Incremento de los fondos
Incremento de la actividad de los fondos de capital privado.

Éste es un modelo de captación atractivo y en auge, que en los últimos años ha ido ganando en variedad y complejidad, por lo que existen opciones en muchos tamaños de negocios, giros industriales y formatos de contratación.

En México es una actividad creciente. De acuerdo a 2011 LAVCA Industry Data, en 24 meses (2010 y 2011) se contabilizaron 45 inversiones y 20 salidas o desinversiones, entre ellas colocaciones de deuda y de capital. En México las operaciones suman alrededor de 0.02% del PIB, mientras que en Brasil representan 0.23% y en países industrializados 1% o más.

Una de las razones para explicar este entusiasmo por los fondos de capital emprendedor es la creciente participación de las Afores, que han invertido una cantidad importante de recursos a través de los Certificados de Capital de Desarrollo e instrumentos estructurados que se negocian en la Bolsa Mexicana de Valores. La regulación actual permite a las Afores destinar hasta 8% de sus recursos a estos instrumentos, y se estima que ese volumen podría rebasar los 8 m il millones de dólares. La Asociación Mexicana de Capital Privado (Amexcap) tiene alrededor de 43 fondos asociados que administran más de 8 mil millones de dólares e invierten en unas 170 empresas de diferentes giros.

En el mercado mexicano existe la liquidez suficiente para financiar el crecimiento de empresas medianas y con potencial; el momento es particularmente interesante debido a que también inversionistas internacionales están buscando oportunidades fuera de Europa y de economías emergentes pero que ya han madurado en este campo.

En este sentido, México es un país con gran apertura comercial y un importante mercado interno, y resulta altamente atractivo para este tipo de inversiones.

Unirse con gobierno

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By Didier Ramírez
El Economista

April 13, 2012 – En México, los recursos destinados a fondos de capital privado y emprendedor representan apenas 0.04% del Producto Interno Bruto (PIB). Este indicador ubica a nuestro país y al sector por debajo de lo que acontece en Costa Rica (0.05%), Perú (0.06%), Panamá (0.07%) y República Dominicana (0.08%), según datos de la Asociación Latinoamericana de Capital de Riesgo (LAVCA, por su sigla en inglés).

Cuando el comparativo lleva a seguir a los referentes internacionales dentro de economías similares, como Brasil y España, el rezago de México es aún más abundante. En el país sudamericano el porcentaje con relación al PIB es de 0.11% y en España se alcanza 0.25 por ciento.

Capitalizar Oportunidades
La realidad del sector evidencia la urgencia para dinamizar la participación de los fondos de capital, consideró Luis Antonio Márquez, director general de la Asociación Mexicana de Capital Privado (Amexcap).

Una vía que se ha identificado es el sumar esfuerzos con los apoyos que ya está destinando el gobierno federal para los emprendedores y el impulso a empresas en desarrollo.

Para Amexcap existen dos áreas en las que se pueden sumar esfuerzos con las acciones de gobierno. El primero va de la mano con el Instituto Mexicano de la Propiedad Industrial (IMPI); mientras que en la otra vertiente está identificar los recursos que ya canalizan las diferentes instancias de gobierno para impulsar empresas, donde se busca hacer sinergias.

“Con el IMPI estamos por definir un plan de trabajo donde se haga una pasarela de proyectos de los investigadores que estén en etapa de emprendedores y que permita identificarse desde la fase inicial y canalizarse con algún fondo de capital privado”, describió Márquez.

El objetivo de los asociados en Amexcap está en cambiar la percepción y la vocación en la generación de patentes, además de impulsar el desarrollo de negocios de los investigadores, para redituar en proyectos rentables para los fondos.

En otro frente, lo que los fondos de capital privado quieren lograr es que los recursos que hasta ahora está destinando el gobierno federal, a través de sus diferentes organismos como el Consejo Nacional de Ciencia y Tecnología (Conacyt), se canalicen a las empresas por medio de los fondos privados, “esto permitiría reducir los costos de administración y hacer más eficiente la canalización de los recursos”, consideró Luis Antonio Márquez.

Lo que sucede actualmente es que los recursos que se entregan a empresas en desarrollo, casi siempre, se complementan con la aplicación de fondos de capital privado. De esta manera, la investigación y el análisis de la viabilidad de proyectos podrían reducirse a uno, en vez de duplicarse como ahora sucede.

La actividad de seguimiento de los recursos canalizados también correspondería al fondo de capital privado.

Aunque estos dos elementos se encuentran en forma de planteamientos, Antonio Márquez reconoce que a través de este tipo de esfuerzos se podrá lograr el crecimiento de este sector, mismo que puede ser más dinámico. Aún así, para este año se estima que los activos de los fondos de capital privado en México pasen de 600 millones de dólares que se manejaron en el 2011 a 1,000 millones en el 2012.

2012 LAVCA Industry Data & Analysis – Now Available!

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2012 LAVCA Industry Data & Analysis – Now Available!

2012 LAVCA Industry Data is a comprehensive data file on fundraising, investments and exits in Latin America. This year’s report has been expanded to include a Market Overview & Analysis.

2012 LAVCA Industry Data summarizes the results of the Latin American Private Equity & Venture Capital Association’s fourth annual survey of nearly 200 fund management firms active in Latin America and the Caribbean, conducted between January and February 2012. The 40-page PDF includes highlights of 21 deals from 2011, as well as a detailed breakdown of activity in six key markets in the region: Argentina, Brazil, Chile, Colombia, Mexico and Peru.

To view the report’s Table of Contents and Sample pages, click here.
To read the 2012 LAVCA Industry Data press release, click here.

2012 LAVCA Industry Data represents the most comprehensive and accurate source of regional industry data on private equity and venture capital investment available to date, and has been designed for use in investor presentations, media reports, and conferences. 2012 Industry Data was recently featured in publications including The Financial Times, WSJ.com, Reuters, peHub Wire and Private Equity International, as well as a variety of regional media.

LAVCA Industry Data is complimentary for members. If you are a LAVCA Member and have any questions, please contact Lindsay Walsh (lwalsh@lavca.org).

2012 LAVCA Industry Data is available for purchase for US$795.00 by non-members.

You can purchase the report online here:



Buyouts to boost Brazil M&A deals after slow start

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By Guillermo Parra-Bernal and Aluísio Alves

April 3, 2012 – Buyouts led by private equity and sovereign wealth funds should help propel merger and acquisition activity in Brazil this year after a flat first quarter, according to investment bankers.

Even as an economic slowdown and buyer caution put the brakes on dealmaking, Brazil’s diversified economy – the world’s sixth-biggest and Latin America’s largest — still lured a large number of sophisticated investors, Thomson Reuters said in its quarterly M&A report.

Companies announced about $21.95 billion worth of deals in Brazil in the first quarter, up 5.6 percent from a year earlier, the report showed. The number of deals — 175 — was nearly unchanged from 174 in the first quarter of 2011.

Brazil’s economy slowed abruptly in the second half of last year and is unlikely to rebound strongly before June. So far this has only slightly weakened Brazil’s bustling job market, the nation’s main engine of growth in recent years, but has hampered manufacturing and lessened incentives for companies to
merge, some analysts said.

Bankers expect M&A activity to gain traction in coming months as retail, consumer goods and infrastructure companies try to add scale and financial muscle by tying up with rivals. Global buyout firms, flush with cash after raising $6.3 billion for their Brazil investments in 2011, may drive such a recovery.

Take private equity, for instance. About half of last year’s Latin American buyouts took place in Brazil, where 64 percent of the region’s capital commitments were invested, the New York-based Latin American Venture Capital Association said last month.

“Investors are ready to invest heavily and do the long-term investment in the country,” said Jean Dreyer, a managing director for Citigroup’s global investment banking unit. “The market is very positive, and this should continue for a long period.”

Citigroup Global Banking & Markets, as the unit is known, led the first-quarter rankings in Brazil based on deal value after advising on two transactions worth a combined $8.15 billion, the data showed.

Citigroup’s Brazil bankers, led by industry veteran André Kok, advised banking giant Itaú Unibanco Holding on its $6.82 billion plan to take card payment company Redecard private.

Kok, who last year left Itaú Unibanco’s Itaú BBA investment banking unit after six years there, also led the team advising Infravix and partners on the purchase of a $1.33 billion license to remodel and operate the Brasilia airport.

Citigroup also was one of two advisers for Abu Dhabi state investment fund Mubadala’s purchase of a $2 billion stake in Brazil’s EBX, an investment holding company controlled by Eike Batista, the nation’s richest man. The deal was not included on the rankings because it took place between Mubadala
and a U.S.-based investment firm controlled by Batista.

Mubadala oversees $46 billion in assets.

The other adviser to Mubadala was Goldman Sachs Group. Itaú BBA, which ranked second in the quarter with advisory work on deals worth $7.82 billion, helped EBX on the transaction.

“The Mubadala deal is a proxy of what we could see in coming months, as Brazil continues to attract strategic pools of new capital and more sophisticated investor classes,” said Fernando Iunes, global head of investment banking for Itaú BBA.

Itaú BBA worked on nine deals, more than any other top 20 firm in the rankings during the first quarter, the Thomson Reuters data showed.

The nine transactions included CPFL Energia’s $683 million purchase of utilities BVP and SPE Lacenas
Participações between the end of February and the beginning of this month.

Itaú BBA was also one of the advisors to parent Itaú Unibanco Holding on the Redecard deal.

Foreign and local banks kept betting on investment banking as a stable source of earnings despite the slower economy and a possible slump in fees. Fees in Brazil probably fell to about $800 million last year from $1.1 billion in 2010, according to estimates from leading investment bankers.

“All the major investment banks have a presence in Brazil,” Citigroup’s Dreyer said. “In terms of fees … the competition is adding some pressure, but this is not surprising as Brazil isa mature and sophisticated market.”

BR Partners, an independent investment banking firm led by former Citigroup and Goldman Sachs banker Ricardo Lacerda, clinched the third spot in rankings by advising on deals worth $7.08 billion.