Caitlin Mitchell, LAVCA
Latin America Private Equity and Venture Capital Investors Remain Active, Mexico Realizes Record Investments
International Investors Target Latin America in Wake of Currency Devaluation
New York, March 3, 2016 – Latin American private equity and venture capital investors remained active in 2015 despite macroeconomic headwinds, with US$6.5b deployed through 310 transactions, according to data released today by the Latin American Private Equity and Venture Capital Association (LAVCA). Mexico, the second most active market behind Brazil, saw a record US$2.3b invested through 88 transactions in 2015, up 80% in number of deals and 72% in amount invested year-on-year.
“International private equity investors are responding to the opportunities generated by Mexico’s ambitious energy reform,” said Cate Ambrose, President and Executive Director of LAVCA. “With several energy-focused CKDs in the market, large-cap deals in this sector should propel Mexican PE investment sums.”
Region investment activity (US$6.5B via 310 transactions) was on par with 2014. A total of 14 large-cap deals (US$100m+) accounted for US$3.8b, dominated by oil & gas, healthcare, and energy transactions. Another US$2.2b was invested through 68 mid-market deals, almost half of which were in the information technology (IT) and consumer/retail sectors. Venture capital investors deployed US$594m, up 13% from 2014, through 182 deals.
Over the last three years, PE infrastructure deals have accounted for roughly half of the total amount invested in the region, with large transactions in oil & gas, logistics & distribution, and energy contributing the most capital. In 2015 alone, 31% of the capital raised went to Latin America PE funds investing in infrastructure projects and assets.
“Going forward, as investors seek to hedge the increasing inflation caused by heavily depreciated local currencies, the appetite for PE investments in infrastructure-related sectors should continue to attract interest,” continued Ambrose.
Brazil remained the largest market for private equity and venture capital investments in Latin America, representing just under half of the total capital invested in the region (US$3.2b) in 2015 and half of all deals (149 transactions). A year-on-year decrease of 31% in capital invested is in part a reflection of fewer large-cap tickets in 2015 and the 32% depreciation of the real against the dollar during this period. When comparing the investment totals for 2015 and 2014 in reais, the decrease in capital invested is just 11%.
In the face of economic recession, currency devaluation and political crisis, select international investors are capitalizing on what they view as an extraordinary opportunity to establish a foothold in the Brazilian market at bargain cost. This includes European PE leader CVC, which recently opened an office in São Paulo, long term investors such as CPPIB (currently expanding their presence in Brazil), and strategic investors willing to overlook current volatility with an eye to long-term gains. The environment in Brazil is also creating attractive opportunities for distressed investors.
Latin American-focused private equity and venture capital funds raised US$7.2b in 2015, with a strong showing of mid-market vehicles ranging from US$100m-US$750m, and only one fund surpassing US$1b. The capital was raised through 52 partial or final fund closings, as compared to 56 closings in 2014.
In 2015, PE/VC firms active in Latin America generated a total of US$3b in proceeds through 46 partial or full exits. An additional six exit transactions did not disclose financials. Strategic sales continued to be the most common exit route for Latin American PE/VC accounting for 31 transactions.
Additional findings include:
- With US$378m deployed through 19 deals, Peru investment totals grew 182% year-on-year
- Dollar-denominated funds accounted for 71% of the capital raised for Latin America in 2015, boosting PE/VC firms spending power in the wake of currency devaluation
- Pan-regional PE/VC funds dominated the market in 2015 with 15 closings representing 45% of the US$7.2b total
- Propelled by the maturity and depth of the Brazilian VC ecosystem, later stage investment rounds in Latin America grew from 29 in 2014 to 63 in 2015.
- Through 126 transactions for a total of US$500m, IT was the predominant sector for VC activity in the region, with financial services, e-commerce, and transportation being the preferred vertical markets for capital deployment in this sector.
The full report will be made available free to LAVCA Members in March. At that time, non-members will be able to purchase the report here.
2016 LAVCA Industry Data Methodology
The 2016 LAVCA Industry Data & Analysis provides insight into the fundraising, investment, and exit activity among private equity and venture capital funds investing in the Latin American region. LAVCA Industry Data is based on a confidential survey of fund managers and secondary sources, creating the first reliable source of data on private equity and venture capital in Latin America. LAVCA has conducted the Fund Manager Survey on PE/VC activity in Latin America since 2008. In this edition of the survey, LAVCA reached out to more than 250 fund management firms active in Latin America and the Caribbean. LAVCA collects most of the information directly from fund managers and amounts have been confirmed whenever possible through information provided by the fund managers themselves. Reported fundraising totals reflect only official closes (first, second, and/or final) confirmed by the fund managers or, if not obtained directly, reported in trusted public sources. Capital commitments accruing prior to or between official closes are not included. Captive funds or funds investing directly from its own internal sources (for instance, the balance sheet) are not included in this study. Infrastructure funds managed by private equity firms and making private equity-style investments are included in the analysis (e.g., equity investments in infrastructure-related industries).
The Latin American Private Equity & Venture Capital Association is a not-for-profit membership organization dedicated to supporting the growth of private equity and venture capital in Latin America and the Caribbean. LAVCA’s membership is comprised of over 170 firms, from leading global investment firms active in the region to local fund managers from Mexico to Argentina. Member firms control assets in excess of US$60b, directed at capitalizing and growing Latin American businesses. LAVCA’s mission – to spur regional economic growth by advancing venture capital and private equity investment – is accomplished through programs of research, networking forums, education and advocacy of sound public policy. Visit www.lavca.org for more information.