* Drop in fundraising is natural part of industry cycle
* Latin America buyouts reached $7.9 billion last year
* Venture capital shows remarkable increase in activity
By Guillermo Parra-Bernal
SAO PAULO, March 5 Buyout and venture capital
firms spent $7.9 billion purchasing companies in Latin America
last year after heavy fundraising during the prior two years
gave them enough capital to buy targets in the consumer,
financial and education sectors, according to a private-equity
Investment by private equity and venture capital funds rose
21 percent from 2011, hitting a five-year high, the New
York-based Latin American Private Equity and Venture Capital
Association said on Tuesday. Last year, there were a total 237
takeovers led by private equity investors, marking a 37 percent
increase from 2011.
Momentum is building in Mexico, Colombia, Chile and Peru,
where there is less competition than in Brazil. Some Brazilian
firms are even expanding into those countries to take advantage
of an improving legal and market environment for buyouts, as
well as accelerating economic growth.
While fundraising fell sharply last year from a record $10.3
billion in 2011, most buyout firms refocused on investing their
money. Rather than underscoring a change in appetite to commit
capital to the region, the decrease in fundraising signals that
private-equity activity in the region is deepening and, more
"This shift is the big story. It's a natural part of the
cycle in private-equity and venture capital," Cate Ambrose,
president of the group, which is known as LAVCA, said in a
telephone interview from New York. "What we need to see from now
is more exits. What matters is that investors in the
private-equity business can sell at a good price so the cycle
Exits, when buyout firms cash in gains in the companies,
returned to 2010 levels, LAVCA added. Exits at private-equity
and venture capital funds raised $3.8 billion in 44 deals last
year, driven by robust mergers and acquisitions in Latin
Concerns about a flagging economy and a state cap on
investment returns in certain sectors dragged M&A activity in
Brazil down to a three-year low last year, but bankers have
expressed confidence a revival is brewing.
For most of last year, President Dilma Rousseff put pressure
on banks, telecommunications companies and power utilities to
lower rates for consumers, sparking fears that she was imposing
caps on financial returns in those sectors. Those worries should
fade as economic growth gains momentum this year, bankers say.
As has been the rule for years, Brazil was the largest
recipient of buyout investments in Latin America, accounting for
72 percent of the total invested and 62 percent of all the
deals, LAVCA said. In 2011, about 50 percent of buyouts took
place in that country, where 64 percent of the region's capital
commitments where invested.
BRILLIANT VENTURE CAPITAL
Takeovers of consumer-related companies represented 40
percent of total investments in the region last year, LAVCA
said. Retail attracted $2.2 billion, with the rest coming from
financial services, food and restaurant services, education and
healthcare. Information technology deals measured in U.S.
dollars more than doubled from 2011, LAVCA added.
According to Ambrose, feeble growth in Brazil has helped
tame the value of potential takeover targets, which "has been
good for private equity." She pointed out that Mexico is
increasingly luring funds, but there are not enough experienced
players in the industry, as opposed to Brazil. In Mexico, the
total number of deals was on par with 2011, but the amount of
U.S. dollars committed rose 50 percent over 2011.
In recent years, jobs and wages across Latin America have
surged, allowing millions of people to join the emerging middle
class that is now buying everything from cars and homes to plane
tickets and beauty-related products.
Last year, buyout and venture capital firms raised $5.6
billion in 42 transactions. Managers targeted fund sizes under
$500 million, a welcome sign of diversification as more players
enter the market, Ambrose added.
She said a notable development last year was an expansion of
venture capital into IT companies in Brazil and other markets.
Global and Latin American venture capital firms raised new
funds, bought start-ups and sought exits with relative success.
"Valuation of start-ups has gone up a lot since many U.S.
players started entering Brazil," Ambrose said.
Mexico saw a significant increase in deals and the amount of
capital committed. Companies in Latin America's second-biggest
economy completed 21 deals worth $456 million, an increase of
117 percent when compared with 2010, the group said.
Other regional markets saw increases in deals or the amount
of capital invested, including Argentina, Colombia and Peru, the