EY - Private equity roundup for Latin America

Private equity roundup for Latin America

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A deceleration across many of Latin America’s economies in 2013 led to a mixed operating environment for PE.

Growth was more difficult for PE portfolio companies, in particular those dependent on domestic demand. At the same time, lower equity prices in the public markets helped bridge the valuation gap between private market buyers and sellers.

Despite the challenges, PE investors in Latin America continued to raise, deploy and return capital to their limited partners in 2013.

Fund-raising slows by more than a third

The macroeconomic deceleration, combined with a surfeit of funds raised in previous years, led to a muted fund-raising environment for Latin America in 2013. After raising nearly US$18b in 2011 and another US$8.1b in 2012, PE investors raised only US$5.2b in 2013, a decline of nearly 36% from the prior 12 months (see chart).

PE fund-raising in Latin America, 2010-13 (US$b)

EY - PE fund-raising in Latin America, 2010-13 (US$b)

Source: Preqin

A lack of fund-raising by large Brazilian funds was a key contributor to the decline. These houses, including Gávea Investimentos, Pátria Investimentos, Victoria Capital Partners and Vinci Capital Partners, raised significant funds in 2011 and 2012.

Instead, activity by smaller funds was a key theme. Many of these funds focused on the frontier markets of Mexico, Central America and, in particular, the Andean region.

PE-backed IPO activity grows

Despite declining stock prices, 20 companies in the region went public last year, the second most active year since 2007. Seven of these 20 companies were PE-backed, including Carlyle Group-backed CVC Brasil Operadora e Agencia de Viagens SA, which raised US$226m on the BM&F Bovespa exchange in December.

PE firms announced 93 deals valued in total at US$2.9b in 2013. That was down from the US$4.5b announced in 2012, but an increase of 45% from 2011. The fourth quarter was the most active, with 27 announced deals valued at US$1.1b in total.

Chile and Peru

Chile and Peru are small, distinctive and dynamic markets for PE investment. Although very different from one another in size, market maturity and income level, both are attractive markets for PE.

The countries share similar industrial profiles, with an emphasis on mining and metals, energy, and agriculture. Along with the rest of the region, Chile and Peru also have increasingly important consumer goods businesses.

Investors have noticed. Local firms are raising funds from both local and global investors, and global funds are becoming increasingly active in these markets.

PE investors focused on Chile and Peru may benefit from the recent deceleration in macroeconomic growth. Valuations in both countries have been relatively high, given the relatively small size of these markets as a proportion of the amount of investment capital that needs to be deployed.

A narrowing in the valuation gap could spur increased activity and help PE invest further in Chile and Peru -- and across Latin America.