Friday, 14 December 2012 (5 hours ago) by Rachel Hall

After a less than rosy 2012, private equity deals are likely to provide a much needed source of leverage in Latin America next year, as international investors and local PE firms continue to thrive, said a panel of lawyers and bankers at Latin Lawyer’s third annual M&A conference last Tuesday.

Machado, Meyer, Sendacz e Opice Advogados partner Carlos Rolim de Mello says Brazil is only recently seeing private equity investors behave "in an organised fashion" because previously there was a lack of a sound regulatory framework. The increased use of the Brazilian participation fund, or FIP, means the country now has a vehicle "which seems to be safe and well structured to allow foreign investors to invest in private equity in Brazil".

Although FIPs have existed in the country since 1957, Mello said that for almost 30 years they were barely used. "During the last 20 years the FIP has taken off as the main investment vehicle," he said, adding that one of the benefits is that "if you structure it in the right way, you can benefit from a tax exemption".

Another development which Mello drew attention to is a recent public ruling posted by Brazil’s securities regulator, CVM, which is subject to review by the legal community, and aims to restrict FIPs from acting as guarantor for their invested companies. "Having the FIP capable of securing the obligations of the invested company can really dilute risk and reduce the cost of raising funds in Brazil," he said. Another important legal issue to clarify, he said, was "how much liability can a FIP take over, as a co-investor, at the time of exit compared to the other investors".

Beyond Brazil
Turning to the Peruvian example, Miranda & Amado Abogados partner Roberto Maclean said that, compared to Brazil, "it’s hard to even think of [the country] as a source of competition or interest". He explained that Peru’s private equity industry is based "a little on financing source". Very few companies, for example, look towards growth or mezzanine funds. "I’ve seen some mezzanine investments in energy, but a big portion of the activity is in the purchase of control by private equity companies," he said. Additionally, pension funds have become a source of potential investment but there are regulatory restrictions on the kinds of funds they may administer, which are measured by risk.

Maclean added that Peru has been seeing more activity from local funds, with Nexus among the most aggressive and successful. Additionally, foreign funds are establishing offices on the ground to invest locally or investing from abroad. "The three categories are sort of competing," he said.

In Peru, pension funds are keen to tap into the country’s growing middle >
However, Maclean pointed out that there are setbacks as well. "Unfortunately not many business owners are willing to take the risks associated with bringing in a growth investor," he said.

In Mexico, Zucchini said that the country is "recovering from three or four tough years". He added, "The private equity competition is less intense than in Brazil", and the equity market is relatively less developed. On the flipside, however, the country has some strengths. For one, "family offices are stronger", so in Mexico it is more common to deal with local investors than typical international private equity groups, in addition to there being a very well developed debt market. "One thing compensates the other," he said.

Price is also a key differential, and Zucchini affirmed "we see cheaper deals in Mexico than in Brazil". However these are "not as cheap as we would like", he said. In terms of deal size, the country is more or less similar to Brazil.

Ending on an optimistic note, Zucchini predicted that the first quarter of 2013 will see more activity than in 2012. "I think there will be some sectors with opportunities, particularly in retail."

(Latin Lawyer 14.12.2012)

(Notícia na Íntegra)