Where PE should deploy capital in LATAM

Ángel Estrada and Juan David Taboada, EY-Parthenon Partners in Mexico City and Bogotá respectively, join Winna Brown to discuss industries of interest for PE in LATAM.

 

Contact Ángel: Angel.Estrada2@parthenon.ey.com Contact Juan: Juan.Taboada@parthenon.ey.com

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The number of Limited Partners (LPs) with exposure to Latin America (LATAM) continues to trend higher. According to the latest survey from the Latin American Venture Capital Association (LAVCA), about two-thirds of large LPs currently have exposure to LATAM, up from less than half five years ago. Moreover, allocations are rising: LATAM investments account for nearly 25% of LPs’ emerging market investments, up from about 15% five years ago.

LATAM is a heterogeneous region with a growing population and household income but is not yet mature, therefore providing attractive opportunities for private equity (PE). Industries with especially high potential for growth include:

• Agribusiness
• Renewable energy
• FinTech
• Education
• Health care
• Third-party logistics

In addition, one of the biggest regional opportunities is the consolidation of businesses into truly regional “multilatinas.” While this has proven to be a daunting aspiration, the size and scale of the opportunity remains compelling for PE investors.

A few critical data points PE investors must understand before investing in LATAM include:

• Each country has unique political, economic, regulatory and cultural factors to understand and navigate.
• Every country of interest should be analyzed separately.
• Reliable data is elusive, therefore increasing its value and importance.
• Many companies are family- or entrepreneur-owned.
• Corporate governance is less mature than in the US or Europe.
• Investors must be flexible in dealing with stakeholders.