BY Fraser Tennant
Latin American economies experienced a “challenging” 2014 with decreasing foreign demand, falling commodities prices and a reversal of asset flows back to developed markets contributing to an economic slowdown that significantly impacted the region’s private equity activity.
Data presented and analysed in ‘Private equity roundup for Latin America’ - the latest in EY’s series of private equity reports examining fundraising, investment activity and exits across a range of developing economies – shows that although total deal value increased marginally to US$4.3bn in 2014, the number of PE transactions actually fell by 18 percent to 76 (101 deals totalling US$4.5bn took place in 2012).
Despite these figures, the report does not suggest that investors are looking to withdraw from the region. On the contrary, many investors appear to be increasing their commitments with fundraising increasing by 73 percent over 2013 to US$9.0bn with nearly 60 firms in the region said to be actively fundraising.
“It is a maxim of private equity that many of the best deals are made during the worst of times," observe the authors of the ‘Private equity roundup for Latin America’ report. “While the current downturn in certain sectors of Latin America’s economy hardly qualifies as the 'worst of times,' clear dislocations continue to make the operating environment increasingly challenging. Despite this, the industry has yet to see an exodus of capital. Indeed, fundraising figures and LP surveys confirm that investors continue to fund new vehicles and are maintaining or increasing their commitments.”
Although overall growth in Latin America has slowed, there are significant differences between individual countries – Mexico and Brazil in particular, the region’s two largest economies. The IMF expects Mexico’s economy to grow by 3.5 percent in 2015 and Brazil’s by 1.4 percent.
In terms of regulatory impacts, Latin America still has a long way to go, such as dealing with security issues and corruption, but structural reform programs are underway.
For Latin America the current environment is a challenging. However, the EY report does highlight the “compelling” value of private equity, offering as it does the “operational expertise and financial discipline to help savvy entrepreneurs weather macro headwinds".
Overall, investment is encouraged and positive outcomes are expected in Latin America.