Private Equity Sees LatAm Opportunities

The private equity space in LatAm continues to evolve, offering a range of advantages over what the asset class faces in other areas of the world. This includes the improving profile of managers, more creative structures and the possibility of buying controlling stakes in businesses, said investors Thursday at the LatinFinance Investors & Markets Forum. The bulk of the business remains in Brazil, but competition among private equity players there is fierce. That said, some find ways to address it such as bringing in competitors as partners and targeting smaller deals, notes Julio Marquez, a managing director for Global Emerging Markets, an alternative investment fund. And the Brazilian deals are gradually becoming pricier. “We see deals at 7, 8 or 9x Ebitda, up from 5 to 6x Ebitda a few years ago,” points out Chris Bruneau, executive director for asset manager 57 Stars. “But prices are still rational.” Exit multiples tend to be the same as the ones paid for entry so investors rely more on Ebitda growth, they note. The deals themselves are becoming more creative with the use of earnouts and other approaches. Private equity players tend to look for the right managers for the companies they buy and in this sense Brazil offers a strong foreign-educated generation of executives versus peers in other markets of the world, Bruneau says. Indeed for Bruneau, another important aspect of investing in LatAm comes from the ability of P/E players to buy majority stakes in the companies. In China and India many entrepreneurs are young and want to enjoy the business upside so they are less likely to surrender control, but owners of many longstanding family-run businesses in Latin American are more willing to do so. Peter J. Von Lehe, a managing director at Neuberger Berman Alternatives, says he tends to like plays on Brazil’s growing middle class, such as companies in the consumer and health industries. However, he stays away from companies with local currency revenues and dollar b