Darby Plans Country-Specific Mezz Funds

US-based Darby Overseas is working on establishing new country-specific mezzanine funds for LatAm, CEO Richard Frank tells LatinFinance. “A Colombian fund is expected to close soon that will provide both PE and mezzanine financing in the infrastructure space,” says Frank. “We are also looking at Brazil and Mexico to set up more country-specific funds,” he adds. On average, Darby raises between $250m-$300m for its mezzanine and PE funds. Darby introduced mezzanine financing to LatAm about a decade ago, Frank says. The shop has 3 mezzanine funds for LatAm and 6 global funds. “Out of the $1.3bn we have for EM mezzanine finance, about half is focused on LatAm,” he says. Frank adds that the funds offer returns in the high teens and low 20s over an average of 6 years. Darby’s original mezzanine fund, DLAMF I, is down to its last 2 investments, 1 in Colombia and the other in Mexico, both of which are in a sale process. The fund closed at $196m in 2008. Frank explains that Darby began offering mezzanine funding because it often found excellent companies whose owners do not want dilution or to give up control. However, they do want risk capital to be able to grow. “With mezzanine financing, they can get risk capital for expansion without giving up a huge ownership stake,” he says. In almost every case, Darby takes a quasi-equity stake of between 5%-15%, investing between $15m-$30m on average, says Frank.