Carlos Garcia, Founding Partner & CEO of Victoria Capital Partners, shared insights into the recently formed firm and the keys to building a strong regional investment team.

LAVCA: Please give us some background on Victoria Capital Partners.

García: Victoria Capital Partners is a firm recently created by the management team of DLJ South American Partners to continue developing its investment activities in the region. Victoria has become the owner of the general partner of DLJ South American Partners LP and the three co-investment funds that invested alongside the main fund. In addition Victoria manages the legacy investments of DLJ Merchant Banking Partners in the region.

Our team spun off from the Credit Suisse/ DLJ Merchant Banking Partners group in 2007 to create DLJ South American Partners, a regionally dedicated private equity fund focusing on investments in South America, primarily Argentina, Brazil and Chile. This firm was originally a joint venture between the management team (51%) and Credit Suisse (49%). Simultaneously with the creation of Victoria we have restructured the partnership with Credit Suisse and management currently owns 75.1% of the firm. Currently Victoria has approximately $ 1 billion under management.

LAVCA: Tell us about your professional background.  What factors led you to join/start the firm?

García: I started my career as a commercial banker in Argentina in the 1980’s and very soon, almost by accident, transformed myself into an investment banker and a principal investor. Those were the days of the debt to equity swaps in the region and, with the objective of recovering value in the defaulted loan portfolios, we started to invest in the equity of industrial and services companies. In the late 1980’s I joined Bankers Trust in New York and continued doing private equity with the balance sheet of the firm. Finally in early 1995 I joined DLJ Merchant Banking Partners, at that time a leading private equity house, to lead their investment activities in Latin America. Later on, in 2000, Credit Suisse acquired the firm and we stayed there until we spun off in 2007. 

LAVCA: Which markets are you most focused on, and do you see this changing in the future?

García: Victoria is a regionally dedicated private equity firm focused on South America. We have expanded our target markets to include Colombia and Peru in addition to our historical focus on Argentina, Brazil and Chile. Our plans are pretty straight forward; we will continue developing our regional/opportunistic investment strategy across our target markets.

We are not a single country firm, and because of this, we are constantly evaluating the best countries to invest. It is very difficult to anticipate which are going to be the most attractive countries in the future. However, because of the size and diversity of their economies we will continue focusing on our current core markets and will add new countries if we believe the opportunity exists.  

LAVCA: What has been your strategy to build a presence in the region that enables you identify investment deals across different markets?

García: Our firm has offices in Sao Paulo and Buenos Aires and since last January we have people on the ground in Colombia where we plan to open our office before the end of the year and also plan to have a presence in Peru in the not too distant future.  The members of our team have done investments across the region for many years and as such, we have a network of relationships, presence and reputation that have allowed us to generate our deal flow.

To further expand our origination capabilities we have established a Senior Executive Advisory Board, formed by a group of well known executives and businessmen from the region that are constantly referring opportunities and investment ideas.

LAVCA: What is your ideal investment size and why?

García: We like transactions in which our investment is anywhere between $ 40M to $100M. We believe this is a space where you can get the best value these days. Generally speaking the larger the transaction the more competitive it is likely to be and, therefore, the target returns may be lower. Our investors have high return expectations and we feel nowadays we can get them in this segment of the market. However, if the right circumstances are there, we can also do large transactions like our investment in Santillana, in which the ticket was $ 375M.

LAVCA: Can you choose two different deals you’ve done in the region recently and provide details and some lessons learned?

García: If I were to pick two among the most recent ones I would say our investment in Arcos Dorados and the one in Brazil Trade Shows (“BTS”). Even though these are very different transactions, they have a couple of key common attributes; the quality of management and that of your partners in the deal make the difference. In both transactions we have great management teams and fantastic partners.  Both companies were very different, Arcos Dorados was a very large pan-regional company. On the contrary, BTS was initially a small Brazilian company. In one case, we took the company public, in the other we sold to a strategic buyer. However if you have the right management and partners in a deal, like we did in these two deals, you can do well despite the underlying differences in the companies.

LAVCA: You recently took Arcos Dorado public on the NYSE.  Are you seeing any trends in exit strategies throughout the region?

García: In my opinion there are several indicators that point to a sustainable exit environment in Latin America for private equity investors. First of all is the depth of the IPO market, primarily in Brazil, which we believe will continue offering interesting exit alternatives for private equity investors.  There is currently a slowdown in the IPO calendar but I am convinced it is going to come back shortly.  Then you have a very strong M&A market which is essential for private equity investors outside of Brazil and in this market if you invest in small to medium size companies. Within the M&A activity I believe the increased participation of the intraregional transactions is critical because they are, by definition, a more stable source of exit opportunities. Finally, I believe that the arrival of the large international private equity houses to the region will generate significant secondary buyouts in which regional players will end up selling their companies to these firms. I am very optimistic with the trends and believe that the exit environment will remain robust.

LAVCA: You’ve been active in the Southern Cone, and in particular Argentina, for many years. What do you feel is the country’s current investment opportunity? What would you like to see change moving forward to spur additional PE/VC investment?

García: I am from Argentina and live there. I have been doing business in the country for many years and, obviously, lived through the intense cycles the country went through. The country presents a paradox, businesses operating in the Argentina are doing, in general, extraordinarily well and most companies are showing records earnings and strong growth. However, in parallel with this outstanding operating performance, there is a perception that it is very risky and very few people seem to want to invest there. Clearly Argentina is a very challenging environment but, one you should not eliminate from your strategy. It is a large economy, growing fast and with a diversified economic base. Because of the perceived risk the level of competition is limited and that provides the opportunity to identify great assets at very compelling risk adjusted prices. In my opinion it is a matter of picking the right spot and maintaining the appropriate investment discipline. Private equity is a long term game in which you should not make decisions thinking exclusively in what is going on today. You have to take a long term view and things change.  In my opinion what Argentina needs is more clarity in the rules of the game. This doesn’t mean that it has to be absolute free market or no intervention.

LAVCA: What is the greatest need for regulatory reform that you currently see with regard to private equity in Latin America?

García: I think that the region overall is very investor friendly and in my opinion each country has a few aspects to improve or change. As a general rule I would say that stressing the rules of sound corporate governance and promoting the access to the capital markets are some of the key aspects that should be maintained or enhanced in the region.