LatAm PE down but optimism high

BY Matt Atkins

Latin America focused private equity (PE) invested and raised a lower amount in 2013 than in previous years, according to a new EY Report. However, amounts remained well above 2009 levels.

PE faces a much more challenging environment in Latin America than in previous years, says the ‘Great expectations: what’s next for Latin American private equity?’ report. GDP growth forecasts have been lowered for many of the region’s biggest economies, and high inflation remains an issue. However, the region’s continued development means PE activity is significantly higher than a decade ago.

The biggest story of 2013 was the strength of Latin American IPO markets. Exits via IPO in EY’s study sample doubled, and 38 percent of IPOs in the region were PE-backed – the highest level ever recorded. The trend looks set to continue through 2014. Exit by IPO is by far the most common route to realisation for Latin America’s larger PE portfolio companies, with trade sales predominant in sub-$100m deals. However, as the barriers to going public are coming down, particularly in Brazil, this longstanding divergence is narrowing.

While secondary buyouts were expected to increase, they have remained relatively rare. In EY’s study, only a tenth of deals exited from the sub-$100m category were sold to other PE houses. The report predicts this proportion will grow as smaller houses work more closely with portfolio companies.

EY reports that PE is exploiting opportunities in a diverse range of sectors. The consumer goods and services sector accounted for nearly a third of realisations in 2013, followed by financials and technology. These three sectors benefited from growing consumer demand and overall economic development in the region.

Regarding triggers for exit, in 2013, strong business performance accounted for nearly 50 percent of exits. Favourable market conditions were a timing trigger in just over a third of exits. Overall, says EY, this suggests that PE owners in Latin America have an eye on exit. Their preparation is paying off, with exits via sales to trade buyers and IPOs both showing strong multiple returns.

Report: Great expectations: what’s next for Latin American private equity?

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