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Mexican Private Equity Firm Nexxus Capital Could Bring 3 IPOs

4 November 2010

(Dow Jones) November 3, 2010 – Mexican private equity firm Nexxus Capital said  it could take an additional three companies public on the Mexican Stock Exchange in the near term on the heels of its latest initial public offering.

Nexxus, singled out three companies from the $146 million Nexxus III fund that might go public sooner rather than later: Harmon Hall Holding, a chain of 105 English-language schools throughout Mexico; Grupo Hotelero Santa Fe, which operates the Hilton and Krystal hotel brands in Mexico; and Credito Real, a consumer and micro-credit company.

According to Arturo Saval, Nexxus’ other co-founding partner, the firm’s philosophy involves identifying companies among Mexico’s many family-run enterprises that can rise to a more sophisticated level. “The idea is to invest expansion capital in medium-sized Mexican companies because we think there is a large segment of medium-sized Mexican companies — as we have fortunately been able to demonstrate — that have the desire and attitude to convert themselves into world-class companies, companies that transcend,” said Saval.

Nexxus reduced its majority stake in Mexican sports club operator Grupo Sports World SAB (SPORT.MX) to 21% last month through the sale of 53.6 million shares for 857.5 million pesos ($68.3 million) on the Mexican Stock Exchange. The shares sold at 16 pesos each and have a public float of 61%. The shares have since tracked lower, to MXN14.59 as of Wednesday afternoon.

Speaking after a ceremony to commemorate the Sports World listing, Harvey said the private equity firm is in no hurry to exit its investment in the health club chain, which has 14 locations and 25,000 members. “We’re going to stay a good while because we think this company is going to have very good returns.”

Sports World plans to use its share of the public offering to build new clubs, replace existing sports equipment and improve its operating systems, according to Hector Troncoso, chief executive of Sports World.

The health club chain is high-end, with swimming pools and squash courts at some locations. An individual membership runs around MXN2000 a month, plus a one-time fee of MXN8000. Troncoso said the club has four additional locations under contract, and that it perceives very little competition for users among Mexican health clubs. Once the high-end segment reaches its saturation point, Sports World hopes to offer more affordable options for lower income levels, Troncoso said.

Sports World is the third company that Nexxus has taken public, following home builder Desarrolladora Homex SAB (HXM, HOMEX.MX) and pharmaceuticals company Genomma Lab Internacional SAB (LAB.MX).

Returns for investors, both those involved with the Nexxus private equity funds and its first two stock listings, have ballooned. Nexxus I, the $76.5 million fund that included Homex, produced a return of 22% while the still-open Nexxus II that includes Genomma Lab and Sports World has returned about 30% so far, the managers said.

Homex shares were trading at MXN70 Wednesday afternoon, more than double their 2004 list price of MXN30.05, while Genomma Lab was trading at MXN26.40, up 65% from its 2008 IPO price of MXN16. Nexxus’ Harvey said that if Genomma Lab had not split its stock, the shares would be trading around MXN52.

Saval said Nexxus will continue to search for Mexican businessmen with the desire to be advised and the “stomach” to institutionalize a family company.

After a near two-year drought, the Mexican stock market has seen a handful of initial public offerings this year. Javier Artigas, director of strategic planning and marketing for the exchange, said that with 20 billion pesos ($1.6 billion) in capital raised so far in 2010, and at least another MXN10 billion in the pipeline, the bourse is on track for a record year.

Still, the capital raised on the Mexican exchange is a drop in the bucket compared with that of Latin America’s biggest IPO market, Brazil. In late September, Brazilian state oil company Petroleo Brasileiro (PBR, PETR4.BR) alone raised $70.1 billion in a single secondary offering.

By Amy Guthrie, Dow Jones Newswires