Mexican autoparts manufacturer Nemak, part of conglomerate Grupo Alfa, completed Latin America’s largest initial public offering of 2015 in July, listing 19.3% of the company for 11.9 billion pesos ($758 million). Making its debut on the Bolsa Mexicana de Valores, the equity listing was well received by investors and has provided the company with a strong platform to pursue an ambitious global growth strategy in markets such as the US, Europe, Latin America and Asia.
After 11 days of investor meetings in mid-June across 14 cities in Latin America, the UK, US and the Middle East, the company attracted a diverse group of investors from around the globe, Nemak chief executive Armando Tamez says. International investors bought around 35% of the IPO. The country’s pension funds, known as Afores, were present, highlighting their appetite for investment in successful Mexican companies.
“The demand was strong, as the order book was oversubscribed by about three times,” Tamez says. “We were very pleased with the valuation and managed to secure commitments from a very specific group of investors.”
Nemak sold 537.6 million common shares and priced the deal on June 30 at 20 pesos each, right in the midst of a potential debt default in Greece. Despite the uncertainty in Europe, the deal valued the company at seven times ebitda.
“Our primary target was achieving a fair valuation and when you place our stock against the performance of other global auto parts companies, we are performing very well,” Tamez says. “The Greek crisis did unsettle some investors but overall, when the valuation was set, the stock remained stable and has, since then, moved in the right direction.”
Since pricing the offering, Nemak’s share price has risen almost 20%. Stock in rival firms such as Sweden’s Autoliv has grown only 4%, while Chicago-headquartered BorgWarner’s stock has dived 25% in the same timeframe.
This year emerging market currencies have slumped as the dollar has risen while growth prospects across the region have waned, limiting activity in Latin America’s equities market. In what has been a dry year for Latin American IPOs, Nemak’s offering comfortably raised more than other offerings in the region.
The next largest listing was real estate firm Fideicomiso Hipotecario’s roughly 8.625 billion Mexican peso offering that was priced in November 2014, while Mexican water solutions company Rotoplas raised about $290 million in December 2014. Away from Mexico, Brazil’s Atento priced a $237 million IPO in October 2014.
As a supplier of high-tech, aluminum components for the global automotive industry, Nemak has leveraged its broad and advanced portfolio of casting technologies, Tamez says. The technologies, applied in powertrains and body structure applications, help its customers reduce the weight and increase the efficiency of the vehicles they produce, he adds.
Moreover, Nemak’s investments in vertical integration initiatives have allowed it to deliver quality improvements to customers while increasing its margins, Tamez says.
Nemak’s dollar-denominated exports to the US have also mitigated the effects of a weaker peso, Tamez says.
“Our results have gotten better from currency devaluation, which helped the IPO to attract as much investment as it did,” Tamez says. “We are strong in North America and now that we have completed the IPO, there is an opportunity to invest in growth opportunities in other regions, like Asia.”
While approximately $600 million of the IPO’s proceeds flowed up to shareholders Grupo Alfa and Ford Motor Company, Tamez says $150 million will help finance Nemak’s growth plans and places it in a position to tap the debt and equity markets with ease.
“This IPO marks an important new chapter in Nemak’s history,” he says. “It will support capacity expansions in all markets, increase in-house capabilities and diversify our sources of funding.” LF
Finance Type/ Size: MXN11.90bn ($758m) IPO
Supporting Banks: Banamex, BBVA Bancomer, HSBC, Deutsche Bank, Goldman Sachs, JPMorgan
Law Firms: Cleary Gottlieb, Ritch Mueller, Paul Hastings, Mijares Angoitia