Private equity investment in Latin America

November 2014 | FEATURE | PRIVATE EQUITY

Financier Worldwide Magazine

The first half of 2014 was a mixed period for private equity (PE) firms operating in the Latin America region, according to a new survey from the Latin American Private Equity & Venture Capital Association (LAVCA). Although large buyout funds returned in force, PE and venture capital (VC) investments in Latin America actually dropped by 10 percent in the first half of the year compared with the same period in 2013.

Fundraising

In total, PE and VC firms raised around $3.5bn worth of funding during the first half of the year, with final or partial closings completed for 23 separate funds, including a number of regionally focused offerings from Blackstone Group partner Pátria Investimentos, JPMorgan Chase unit Gávea Investimentos, Advent International and the Carlyle Group. On the strength of fundraising efforts in the first half of the year, it is hoped that figure could reach $8bn by year-end, which would represent the highest annual total raised since 2011. “In a parallel trend to 2010/2011 when record amounts were raised in Latin America, we have seen a number of large cap managers including Pátria, Gávea, Advent, and Carlyle launch new funds and secure commitments,” said Cate Ambrose, president and executive director of LAVCA. “This is a dynamic period for private equity fundraising.”

Even though the first half of the year saw considerable funds raised, the picture has not been universally positive across the Latin American region. Mexican fundraising suffered a considerable drop, falling to $212m in 2014 from $879m raised during H1 2013. The fall in Mexican fundraising is at least partly due to the closing of several large funds in 2013. There was also a considerable drop in fundraising in the Andean region, from $763m raised in H1 2013 to $578m in 2014.

Investments

Although generally fundraising has been on the rise, investment in the region trended down in H1. The first half of the year saw PE and VC fund managers invest only $2.57bn in the region via 93 transactions – a 10 percent decrease compared with the same period in 2013. According to LAVCA, as 2013 was a record setting year for the region, it is only natural that there would be a reduction in investments throughout 2014.

“As 2013 was a record setting year for the region, it is only natural that there would be a reduction in investments throughout 2014.”

Chile saw the largest fall in investment year on year, from $309m during H1 2013 to just $13m in the first half of 2014. Surprisingly the drop experienced in the region’s largest economy, Brazil, was just 5 percent in H1. According to data from the Brazilian national statistics agency, the country officially entered a recession during the first half of the year following a second consecutive quarter of contraction. The month-long soccer World Cup, which ground large parts of the country to a halt, undoubtedly contributed to Brazil’s economic stagnation in Q2.

Despite the fall in total investments made in the region, PE and VC appetite for Latin America have remained strong. Total VC investment in Latin America increased by 14 percent to $173m – a sign of investor confidence in the region’s continued development as a technology start-up hub. Indeed, according to LAVCA data, the IT sector was the most targeted industry in terms of the amount of capital raised and the number of deals completed during the period. The sector accounted for around 30 percent of all PE and VC investment during H1. The healthcare sector was the second most targeted, with 11 completed deals totalling $696m.

H1 2014 saw the first deals closed by PE giants KKR & Co and Bain Capital in Brazil, as well as by General Atlantic LLC in Mexico, and Carlyle in Peru. Overall investment was up in both Mexico and Peru in the first six months of the year. Investments in Mexico reached $403m during H1, up considerably from $123m the previous year. Peru’s leap in investment was more modest, climbing to $20m from $13m. Another of Latin America’s larger economies, Colombia, was largely unmoved, with investments in the country remaining steady at $232m. Undoubtedly, the involvement of the PE industry’s major global funds had a significant effect on the types of deals completed within the region. Larger deals became the norm in the first half of the year, with deals priced at $100m and above increasing by 27 percent.

Increasingly, European funds are beginning to explore investment opportunities in Latin America. In June, UK PE firm Cinven acquired Gas Natural Fenosa Telecomunicaciones (GNFT) for €510m. GNFT, although a Spanish-headquartered fibre-optic network operator, has a significant presence in the Latin America market. Furthermore, KKR’s pharmacy chain Alliance Boots also expanded into the region through the acquisition of two major retail pharmacy networks in Latin America.

Richard Summerfield