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Executive Briefings

Executive Briefing: Funds, Deals and Exits: A Snapshot of Latin America PE/VC in 2011

30 March 2012

LAVCA released 2011 data on fundraising, investments and exits for Latin America private equity and venture capital last week – between January and March, our research department tracked hundreds of transactions reported by over 100 firms through our annual survey, and cross referenced information with dozens of secondary sources.

The numbers tell an interesting story: 2011 fundraising reached a historic record of $10.3 bln, an increase of 27% from the previous year. Back in March 2011, when LAVCA reported record 2010 fundraising of $8.1 bln, it was hard to see how that record would be broken again in 2011 given that in 2010 the two Latin American fundraising powerhouses, Advent International and Southern Cross Group, had closed the two largest-ever regional funds at $1.65 bln each.

But in 2011, fundraising was driven by four Brazilian asset managers, each of which raised their largest PE fund ever: Gavea Investimentos ($1.9 billion); BTG Pactual ($1.6 billion); Vinci Partners, the firm founded in 2009 by former senior partners from Banco Pactual ($1.4 billion); and Patria Investimentos ($1.25 billion for a PE fund, and $1.15 billion for an infrastructure fund). So five Brazil funds accounted for $7.3 bln of the $10.3 bln regional total – a clear vote of confidence in the ability and track records of Brazilian asset managers.

At the regional level, Carlyle Group and Linzor Capital raised Latin American dedicated funds in 2011, and Victoria Capital Partners is in the market now.

In terms of investments, the number of deals in 2011 was on par with 2010, but the amount of capital invested was down 10% year-on-year, $6.5 bln in 2011 versus $7.2 bln in 2010. With strategic and financial investors from within Latin America and around the world seeking out assets, even veterans of the region and those with deep local networks are finding it more difficult to secure deals.

And in Mexico, Colombia, and other markets, PE investors note that many business owners are well financed and generally unmotivated to cede even minority stakes in their companies. Broadly, CEOs in Brazil appear to be more willing to pursue ambitious growth plans in partnership with financial investors who bring industry expertise or global networks.

Overall, while Brazil continued to capture the greatest percentage of deals (50%) and capital invested (64%), other regional markets did see increases in deal totals or dollars invested, including Argentina, Colombia and Peru.

Mexico saw an increase in both the number of deals and capital committed. Firms completed 21 deals with a value of $456M, an increase of 117% when compared to the capital invested in Mexican companies during 2010.

The largest deals were reported in the energy sector, logistics and distribution, financial services, retail, and consumer products, and other services, which includes emerging industries such as fast food chains and franchise businesses.

The number of new investments in information technology related-business continued to surge, with 46 deals reported, or more than 25% of total deals closed in the region. The growth in IT, including a number of e-commerce start-ups, is in sync with the increase in early stage and seed/incubator deals. US venture capital firms that closed on new investments in Latin America in 2011 include Accel Partners, Redpoint Ventures, General Catalyst and Tiger Global Management.

An abundance of capital may be making the investment environment more challenging, but then PE firms looking to sell portfolio companies have unprecedented opportunities. As a result, exits surged in 2011, with a historic record of $10.6bn raised by the 37 divestments with financials disclosed, and another 16 exits reported without financial information.

Fund managers exiting investments in 2011 realized local and international IPOs, sales to Latin American and international strategic acquirers, and trade sales to global PE firms looking to do their first deal in the region. Given historic concern over shallow exit markets in the region, an ongoing trend of increased liquidity in future years would be an important positive development for the industry.