Private equity-backed IPOs outperform all other exit routes in Latin America

Washington D.C., 13 May 2014

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Private equity-backed IPOs in Latin America outperformed the broader public markets and other IPOs in the region by a significant margin over the course of 2013, according to Great expectations: what’s next for Latin American private equity?, EY’s annual Latin American private equity exit study published today. The report underscores that exits via IPOs yielded better returns than the other key route in Latin America – sale to corporates. The report, now in its third year, examines the results and methods of over 107 PE exits between 2007 and 2013. 

  • PE-backed IPOs gain traction in Latin America
  • Organic growth is the primary driver of revenue growth for PE-backed companies
  • Consumer goods, financial services and healthcare are top sectors for PE investment

With PE-backed IPOs worldwide recording their strongest year-on-record in 2013, 38% of IPOs in Latin America for 2013 were PE-backed – the highest level ever recorded in the region and significantly higher than 2012’s figure of 20%. Additionally, PE-backed IPOs outperformed the overall performance of the region’s stock markets. During 2013, the Ibovespa and MSCI Latin America Indices were down 15.1% and 13.8% respectively, and the average non-PE-backed IPOs were down 5%. This compares with the average PE-backed IPOs in 2013 that were up 2%. Moreover, the report highlights that multiples are 9.8%higher for IPOs than trade sales.

Jeffrey Bunder, EY’s Global Private Equity Leader, says: “IPOs are becoming an increasingly viable and highly attractive exit route for PE-backed companies across a range of deal sizes and countries in the region. Last year’s results should help reinforce competitive tension at exit between the trade buyer and public markets, enabling Latin American PE houses to improve returns further.” 

He adds: “Beyond Brazil, the Latin American PE market is steadily maturing with more exits also coming from newer markets such as Colombia, Chile, Mexico and Peru. As we move forward, it will be crucial for PE to continue developing and maturing in the region as it will play a vital role in providing the necessary capital, discipline and expertise required to help the Latin American economy achieve its full potential.”

Revenue increases driven by organic growth through geographic expansion

Organic revenue growth is by far the largest component of revenue growth for PE-backed companies in the region. Over 68% of EBITDA growth was driven by organic revenue growth. Less than 30% came from acquisitions and only 3.1% was achieved through cost reduction.

When examining organic growth as a whole, geographic expansion is the primary driver accounting for 47% of growth. This figure is far more significant than growth in the overall market, which accounts for 22.1% of organic revenue growth. New products accounted for 15.2%, while improved sales techniques made up 13.2%.

Bunder adds: “The region’s PE firms are clearly focusing on driving growth through successful geographic expansion. There is a lot of growth capacity in Latin American domestic markets. As local markets continue to mature and larger firms increasingly seek deals beyond Brazil over the coming years, there will be an expectation for international and regional growth to increase markedly as a driver of organic revenue growth.”

Consumer-led sectors remain popular for PE investment

Targeting industries directly related to middle class consumption – consumer services and goods, technology and health care continue to be a lucrative and scalable strategy for PE-backed businesses in Latin America. Consumer goods and services accounted for the highest proportion of exits at 32% between 2007 and 2013. This sector has been long popular with the region’s PE houses, where favorable demographics in the form of a rising middle class with increasing disposable incomes have attracted high levels of investment. Financial services and technology accounted for 23 and 18% of exits respectively.

Michael Rogers, EY’s Global Deputy Head of Private Equity remarks: “The focus on investing in sectors that service the growing middle class in Latin America is clearly reflected in PE investments and, ultimately, in exit patterns by sector.”

Two-tier market system continues to develop

As the Latin American market continues to mature, there is a clear transition into a two-tier PE model resembles the multistate PE ecosystem in many developed markets. The study shows that the vast majority of sub-US$100m entry value (EV) deals were acquired from private sellers. By contrast, there is a broader spread of deal source in the over-US$100m entry EV category, with private sellers accounting for 53%, 40% coming from corporates and public markets and 7% coming from other PE houses.


While the figures for the exit market are encouraging, the coming years will be a crucial time for Latin American PE. In contrast to developed markets where cost reduction initiatives play an important role, focus on portfolio company growth is a main focus in Latin America. The study shows that 27% of portfolio companies remain in the portfolio for more than six years and that holding periods have lengthened considerably since 2011. After a peak in 2011, fund-raising totals in the region have fallen. Additionally, many of the large deals completed between 2008-2010 will need to be exited over the coming years.

Rogers remarks: “Many firms are now reaching the point where they will need to raise fresh capital, and they will need to intensify their focus on exits. They must demonstrate their ability to exit before LPs will commit to new funds. The coming years will be a critical time for Latin American PE as more exits start to come through and the full performance picture starts to emerge.”

Bunder concludes: “Firms must consider focusing more heavily on developing a wider range of exit options for their portfolio. While improvements in the IPO markets are encouraging, the exit route still continues to be dominated in Latin America by either public markets or trade buyers. While other options, including secondary buyouts, appear to be realistic on the horizon, the industry needs to manage this development carefully.”


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About the study

Great expectations: what’s next for Latin American private equity? examined the results and methods of PE exits between 2007 and 2013. Drawing upon confidential interviews with PE firms active in Latin America, and public documents and data sources, the study drew a sample from an initial population of 107 exits. The aim of the study is to develop an understanding of the exit modalities and strategies in these markets and the underlying drivers of value creation. (

About EY’s Global Private Equity Center

Value creation goes beyond the private equity investment cycle to portfolio company and fund advice. EY’s Global Private Equity Center offers a tailored approach to the unique needs of private equity funds, their transaction processes, investment stewardship and portfolio companies’ performance. We focus on the market, sector and regulatory issues. If you lead a private equity business, we can help you meet your evolving requirements and those of your portfolio companies from acquisition to exit through a highly integrated global resource of 175,000 professionals across audit, tax, transactions and advisory services. Working together, we can help you meet your goals and compete more effectively.