(WSJ) Private equity fundraising and exits in Latin America bounced back in 2014, even as the amount of capital invested in the region slipped year over year, according to data from the Latin American Private Equity and Venture Capital Association.
The fundraising rebound came as a small handful of global players raised funds dedicated to the region, and large domestic firms were also able to quickly raise vast sums of money.
All told, 56 funds raised a combined $10.39 billion, beating the record $10.27 billion that was raised by 35 funds in 2011. The total for 2014 was also nearly double the $5.5 billion raised by 52 funds in 2013.
Advent International scored the biggest haul during the year, raising $2.1 billion for its sixth fund focused on the region. Patria Investimentos, Blackstone Group ‘s investment partner in Latin America, raised $1.8 billion during the year, while rival Gavea Investimentos pulled in $1.1 billion.
The fund inflows underscore a desire among investors to capitalize on a region that boasts strong demographic trends but where sluggish economic growth has tempered valuations.
“Globally, institutional investors have been moving away from emerging markets and toward the growth opportunities in the U.S.,” said LAVCA President Cate Ambrose.
“While [institutional investors] continue to take a cautious approach, the perspective is that this is an important region mid-to-long term,” she said. “For a whole host of reasons it’s important to have exposure to that market.”
Indeed, limited partners have signaled their desire for access to the region. A survey of 114 institutional investors conducted late last year by Coller Capital found that 14% planned to start or increase their investments in the region.
That desire could be driven in part by a rebound in exits during 2014. During the year, some $4.64 billion was generated through 60 partial or full exits in Latin America, an increase from $3.7 billion in proceeds from 53 exits in 2013. Sales to strategic investors accounted for more than 75% of the exits struck in 2014. One-third of these strategic sales involved buyers from outside of Latin America, underscoring the desire among international players to access companies in the region.
Although the amount of capital invested during 2014 slipped 11% to $7.87 billion from $8.9 billion a year earlier, the number of deals increased by more than 30%, driven largely by an uptick in venture capital activity.
Venture investors deployed just over $525 million in 186 transactions during 2014. In part because of those investments, information technology was the top sector in terms of number of deals, and the second highest sector in terms of dollars invested, with $1.14 billion deployed during the year.
Energy proved the most popular sector during the year, thanks to eight large deals in the power generation and distribution sector that totalled $1.64 billion.
Brazil continued to command the lion’s share of investment, attracting $4.57 billion through 141 transactions. Meanwhile, the sweeping reforms in Mexico’s energy space helped drive deal volume in the country to $1.31 billion, roughly double the $651 million invested in the country a year earlier.
Oil price declines may accelerate deal making, as private equity firms seek to snap up ancillary businesses in the energy space, said Ms. Ambrose. Reform in Mexico’s telecommunications space and the emergence of the Pacific Alliance, a trade bloc that includes Peru, Mexico, Colombia and Chile, could also continue to influence mergers and acquisitions in the region.
“I wouldn’t call 2014 the hey day,” said Ms. Ambrose. “In many ways it’s a very contrarian time in Latin America. Growth is slower compared to other markets. But smart investors know they want to be in it for the long run.”