In late August LAVCA published data on PE/VC activity in Latin America for the first half of 2016. Between elections, impeachments, and peace agreements, it has been an eventful year in the region’s major markets, at the same time that economies are struggling to return to growth in an environment of weak demand for commodities. So the data gave us a great opportunity to identify trends amidst the turbulence.

It’s a Good Time to Exit

Private equity and venture capital-backed exits in Latin America had the strongest first half of the year since 1H2011, generating total proceeds of US$1.89b. International strategic acquirers committed to expanding in Latin America and incentivized by favorable exchange rates bought up assets in a range of transactions across sectors and markets. French multinationals acquired a Dominican airport concessionaire from Advent and a 50% stake in Colombia’s largest parking operator from Tribeca, an Israeli company purchased Guatemala’s largest electricity network from Actis, and US multinational DDB Worldwide acquired the largest independent advertising group in Brazil. Sponsor to sponsor sales also drove exit activity, with General Atlantic providing an exit to Actis for a Brazilian brokerage firm, GP Investimentos selling its stake in a Brazilian call center to Carlyle, and Riverwood’s acquisition of a Chilean software firm from local PE investor EPG Partners.

Mid-Market and Startups Are Driving Deal Activity

In the first semester of 2016, PE/VC firms active in Latin America executed 177 deals for a total of US$3.03b, a strong showing as compared to the first semesters of 2012-2015. Just under half of all deals were middle market, with ticket sizes between US$10m-US$100m. The number of middle market investments has steadily increased over the last few years driven by local and international firms based in the region, while some of the biggest large-cap deals have been closed by fly-in global investors. There was a significant increase in seed and early stage rounds in 1H2016, particularly in Mexico and Brazil. The number of VC transactions increased from 71 in 1H2015 to 104 in 1H2016. Capital deployed in venture deals totaled US$218m. Additional 1H2016 VC trends can be found on our VC platform here.

The Mexican Deal Pipeline is Expanding

With US$863m invested through 84 transactions in 1H2016, Mexico reinforced its position as the second most important PE/VC market in Latin America in terms of capital invested and the most active PE/VC market in number of deal for the first time since LAVCA began collecting transactional data in 2008. There were only two large cap deals in Mexico in the first semester, so here again activity was driven by the mid-market and consumer deals in particular, including fitness centers and restaurant chains. The year-on-year increase in Mexican deal totals was driven by venture activity, with 47 VC transactions as compared to 11 in 1H2015. Early stage investing in the country has been propelled by the capital made available by government agencies Fondo de Fondos and INADEM.

Peru is Rising

Peru was the third largest PE/VC market by capital deployed in the first semester of 2016, capturing US$269m in new deals. Carlyle’s local team closed a deal in the tourism sector (building on another tourism deal from 2015), and a number of infrastructure transactions were closed by Sigma SAFI and Brookfield. There is new excitement in Peru following the election of PE veteran Pedro Pablo Kuczynski as President, and the expectation is that going forward there will be new opportunities in infrastructure-related sectors, mining, consumer sectors, and agricultural projects. Today however, competition for deals is intense and valuations are dear.

2016 Fundraising Will be Low

PE and VC firms with dedicated Latin American funds raised US$1.05b via 19 fund closings in the first semester, a sharp decrease from the US$4.27b that was raised through 23 fund closings a year ago for the same period. The industry is coming off peak fundraising years in 2014 and 2015 when an aggregate of US$17.6b was raised for the region, driven by four US$1b+ buyout funds, so there is plenty of dry powder available, particularly given the extra buying power of dollar-denominated funds acquiring assets in local currencies. LAVCA predicts record low fundraising totals for year-end, despite very dynamic interest from global LPs doing due diligence on the region in advance of new commitments  – LP attendance for next week’s LAVCA Summit is at an all time high.