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Executive Briefings

By the Numbers: 2011 Funds, Deals and Exits

22 September 2011

Earlier this month LAVCA announced 1H 2011 data on fundraising, investments and exits for Latin America private equity and venture capital. So what do the numbers tell us?

Capital committed to new funds in 1H 2011 increased almost 60% year-on-year to $4.9bn, with fundraising for Latin America on track to match or surpass the record $8.1bn closed in 2010.

Fundraising was heavily weighted towards Brazil, with two billion-dollar plus Brazil funds closed in 1H2011: BTG Pactual at $1.6bn and Vinci Partners at $1.4bn. There is about another $3.5bn in the market for the second half of the year for funds raised by Pátria, Gávea and Axxon, so Brazil is set for a blockbuster year on the fundraising side.

Clearly, unprecedented global investor appetite for LatAm exposure has sent a signal to the region’s private equity and venture capital managers, with a record number of new funds in the pipeline. But managers out on road shows report that getting commitments from global LPs is still an arduous task.
Investors looking to allocate to Latin American funds for the first time are traveling to the region, attending conferences and consuming research as part of a painstaking due diligence process before making an investment decision.

The results of the 2011 LAVCA LP Survey support the idea that investors are taking a mid- to long-term approach to the region: 55% of respondents said that they would increase their commitments over the next 12 months, on par with 2010. But an additional 13% of respondents, or 68% of the total, said that they plan to increase their commitments to the region over the next 36 months, up from 50% in 2010.

On the investment side, capital committed to new deals in 1H 2011 was down 30% year on year from 2010, with $2.7bn committed in 56 transactions, and another nine deals announced without financials reported.

The decrease may reflect a certain discipline on the part of veteran managers who are resisting overpaying for assets while valuations are high and currencies overvalued. With multinationals and Latin American conglomerates competing for deals, many financial investors appear to be avoiding bidding wars and focusing on opportunities where they are confident that entry multiples will allow them to meet return targets.

Restaurant chains and fast food were a popular theme, with new investments in Burger King do Brazil and Krispy Kreme donuts in Mexico, and IPOs for McDonalds chain Arcos Dorados and IMC Group restaurants. In August, GP Investments acquired the Fogo de Chao restaurant chain in Brazil.

There were also a large number of deals targeting consumer credit, including transactions in Brazil, Uruguay and Central America for credit card and credit rating services, and auto leasing.

Energy deals – especially hydroelectric projects – were completed around the region, as well as deals in sectors that have dominated in recent years, including healthcare, manufacturing and agribusiness.

One third of reported transactions were in technology-related businesses, in line with the steady increase in the number of local and global firms targeting ICT and internet/e-commerce businesses. This trend has evolved in tandem with the renaissance of early stage investing across the region, and with the entrance of leading US and European venture capital firms to back internet startups in Brazil in particular.

Deals ranged from growth equity investments in data centers, software developers and mobile technology platforms, to over a dozen internet startups and online gaming businesses in Chile, Argentina, Brazil, Uruguay and Colombia.

The most remarkable story from 1H 2011 is the number of exits realized: an historic record of $8.9bn was raised by the 20 divestments with financials disclosed, with another 13 exits reported without financial information.

Two veteran PE investors in Latin American had multiple exits – Advent International with four and Capital International with three. But another 15 sellers exited investments across the region in markets including Brazil, Argentina, Peru, Colombia, Mexico, Chile and Uruguay.

The $8.9bn generated in exits was dominated by the proceeds of Ashmore Energy International’s strategic divestment of their Latin American portfolio, with $4.4bn raised in the sale of six assets throughout Latin America. (AEI sold another three businesses without financials disclosed).

PE-backed sales reported in 1H 2011 included a total of six initial public offerings, including the blockbuster IPO of Arcos Dorados, the Latin American franchises of McDonalds backed by DLJ South America Partners, Capital International and Gavea, which raised $1.25bn on the NYSE.

Despite global capital markets volatility and weak demand from international investors for Brazilian shares, four investments were exited through IPOs on the Bovespa. And in Chile, Linzor Capital completed the IPO of health care company Cruz Blanca Salud on the Santiago Stock Exchange.

Multinational firms seeking to expand their footprint in Latin America were ready buyers of PE-backed assets, with strategic sales to firms from Spain, Canada and Israel. Latin American business and family groups and Multilatinas competing to acquire strategic businesses also created opportunities for PE firms ready to exit.

The influx of new private equity and venture capital players in Latin America continues to gather momentum in 2011. Global asset managers, funds of funds and institutional investors are making trips, forming partnerships and opening local offices. Over the last year, service providers including placement agents and headhunters are targeting Latin America for the first time. There is intense competition to recruit local executives with relevant experience, and PE managers cite human capital as the greatest constraint to building a presence in Brazil in particular.

At the same time, local firms in Colombia, Chile, Peru and Argentina are aiming to build regional scale to access deal flow across multiple markets, and are looking to expand their reach into neighboring countries. In sum, in 2011 Latin America resembles a fast-paced chess game with competing players and strategies

Detailed data and commentary on 1H 2011 activity in Latin America PE/VC will be available in 2011 LAVCA Mid-year Data and Analysis. The report will be available next week on the LAVCA website.