LAVCA spoke with Diego Cordoba, Co-Founder and Managing Partner at Teka Capital, about his firm’s vision to internationalize Colombian companies by serving the demand of Latin America’s growing middle-class.
LAVCA: Please give us some background about your firm.
Córdoba: Teka Capital is a private equity firm targeting mid-sized companies in Colombia and Latin America with proven business models, solid management teams and a desire for export or expansion-led growth.
Both Colombia and the region in general have enjoyed middle class expansion and we believe that the companies where Teka is investing will benefit from this growth. The industries that we are looking at are health services, logistics and transportation, energy and alternatives, retail, industrial, entertainment and leisure, and engineering services businesses.
Teka has a total US$148 million in commitments representing 30% of our first fund.
LAVCA: The Teka Capital team came together out of a group that previously worked for a family office. How does this differentiate you from your peers and how does that influence your strategy?
Córdoba: We have been working together for 12 years which gives us a solid foundation. During our time with Valorem (the Santo Domingo family office), we gained experience managing $3bn in assets in 18 companies across different industries while providing solid returns (27.6%) to the family office.
At Valorem, we worked together with management teams in diverse situations and backgrounds on successful purchases (US$360m) and divestments (US$2.4bn) across a variety of sectors, including: retail, telecommunications (mobile phone, cable, internet, and long distance services), automotive, media production, IT Services, forestry, and petrochemicals. The team that ultimately became part of Teka is very hands-on and experienced, and aims to provide intelligent capital to our investee companies.
LAVCA: How do you view the role of family offices as investors in Latin America? What types of things do they focus on that other investors may not?
Córdoba: Latin American family offices are becoming very professional and today they manage important sums of capital. At the same time, they have an appetite for investments with longer terms than private equity usually offers. Also, institutional investors like family offices with a lower cost of equity and a longer investment horizon generally are willing pay more and take more risks when it comes to pricing.
LAVCA: We understand you closed your first fund with local and international commitments. Can you give us some details about your international commitments? How did you find the appetite for the fund amongst international investors?
Córdoba: We have investors from Asia, North America, Central and South America and Europe. These include institutional investors and family offices. We went on a very extensive road show to present Teka and Colombia to international markets. We suspect that this effort opened the door for other funds raising money in Colombia, but we are happy to be a pioneer and are satisfied with our partners and their track records.
LAVCA: Is this fund pan-regional, or dedicated to Colombia only? Are you interested in expanding your investment targets beyond Colombia to other countries in Latin America?
Córdoba: The fund targets companies in Colombia that have the potential to enhance their export activities, first within Latin America and then later to a broader market. We are particularly interested in companies with the potential to serve the Brazilian market, and see this expansion as the most natural opportunity to grow Colombian exports.
LAVCA: Colombia has a very dynamic PE environment, with an increasing number of local funds in development in addition to regional and international firms seeking deal opportunities. What opportunities and challenges does this create?
Córdoba: Private equity in Colombia is new and, in terms of the ratio of PE activity to GDP, we remain behind the region. If you divide the market into a pyramid that has small, mid-sized and large companies, we see that there are around two thousand operations in the mid-size range. We believe you have to be local to be competitive in this space. International investors are only willing to buy operations with tickets larger than US$40 million, while we think our average ticket should be US$20 million, and think there are very interesting opportunities despite the growing competition.
LAVCA: What was the investment strategy behind your investments in Bodytech and Color Siete? Can you give some background on Teka´s views on the consumer sector?
Córdoba: Colombia has grown its per capita income from US$2,000 to US$8,000 in eight years. As a result, consumer appetite has increased dramatically. Retail and health services are part and parcel of this trend. We started off trailing the region and other emerging markets on per capita consumption. Now, the country is growing at 4.5% and forecast to grow at least at 4% for the next ten years.
Color Siete manufactures and commercializes high quality clothing and accessories for women, men and children under the brands of Color Siete and Rosé Pistol, with over 80 points of sale in Colombia and other countries in Latin America. Bodytech, with 89 fitness and health clubs throughout Colombia, Peru, and Chile, is the largest health club chain in Latin America, and the 15th largest worldwide.
In the case of Color Siete, we believe that the growth will be led by the local market and by exports to both Latin America and the United States. With Bodytech, the growth will be led by expansion locally and in Latin America. In both cases our strategy is to bet on growth.
Color Siete manufactures and commercializes world-class high quality clothing and accessories for women, men and children under the well-recognized brands of Color Siete and Rosé Pistol, over 80 points of sale in Colombia and other countries in Latin America.
LAVCA: What is your long term strategy for investing in Latin America, say over the next 5 years?
Córdoba: Our philosophy is to invest in businesses with proven business models and experienced management teams that stand to benefit from growth in the region, but lack capital and/or operating expertise to grow and reach their full potential. Moreover, we believe that our opportunity is enhanced by the absence of funding for mid-size companies that are typically family-owned and lack understanding of their financing options.