Latin American Private Equity Looking Good

January 31, 2001 (PLANSPONSOR.COM) - Plan sponsors considering some southern exposure for their private equity investments should consider Brazil or Mexico.

You’re likely to find yourself in good company, according to the PricewaterhouseCoopers Latin American Business Center’s just released results of countries that should have positive economic performance in 2001. Survey participants include some of the nation’s largest private equity funds.

About 44% of investors said Brazil would rank in the plus column in terms of economic progress, while 22% favored Mexico.

Survey respondents also noted that they were generally satisfied (67%) with Latin America’s return on investment. Problems noted by the remaining respondents include:

  • economic changes
  • post-deal integration
  • competition

About 29% of respondents said the best performing sectors in 2001 are expected to be entertainment, media, communications, and information technology. Financial services (25%) should be the second most active sector for investors, followed by:

  • energy (8%)
  • retail (4%)
  • consumer products (4%).

The U.S. private investors surveyed said they would like to sell to a strategic buyer when they exit their current or future Latin American investments. More than half, (60%), ranked selling to strategic buyers as the preferred exit strategy. About 40% said they want to sell to a domestic strategic buyer. International IPOs were preferred over domestic IPOs by the survey respondents.

When considering investing in a particular country, respondents focused on:

  • economic stability
  • political stability
  • quality of the workforce

These factors were slightly different from those surveyed in 2000, who said foreign investor treatment, not the labor market, was a critical issue.

When analyzing a company for investment, the most important issues were:

  • quality of management
  • viability of business proposition and strategy
  • quality of and accessibility to information

Price expectation is the number one impediment to closing a deal, with absence of a strong management team, acceptability of business practices and the seller’s desire for majority control also high on the list of obstacles.