Latin American Private Equity Activity: Midyear Report

Venture Equity Latin America, a WorldTrade Executive publication, recently published its mid year report for 2008. The following are some highlights.

The first half of 2008 witnessed private equity investments in Latin America ranging from power distribution to agriculture. Investments made during this period did not match last year’s high levels as around $1.7 billion was invested in the first half of 2008 compared to roughly $2.3 billion in the first half of 2007. The level of investment recorded during the first half of this year came closer to the investment level seen in the first half of 2006, which was roughly $1.6 billion.

After significant investment activity last year, which amounted to around $7.5 billion and which was already high during the first half of 2007, it does not look as though investments this year will exceed last year’s hugely successful levels, unless there are sizeable investments made in the latter half of this year. Of course, investments during the first half of 2008 have been made against an uncertain international finance backdrop, which has witnessed and is experiencing the repercussions of the global credit crunch, the impacts of the Bear Stearns collapse, and ongoing issues with subprime mortgages and associated lenders.

Despite the lower levels of investment seen so far in Latin America, it is worth noting that demand for larger assets has continued to increase as illustrated in part by the $870 million investment in the SAESA Group of Companies (SAESA Group) by the Morgan Stanley Infrastructure consortium.

So far in 2008, 3 private equity investments of over $50 million have been made and the following 4 deals registered at $100 million or more.

• Morgan Stanley Infrastructure consortium, which includes the Ontario Teachers’ Pension Plan led an $870 million investment in the SAESA Group of Companies (SAESA Group), which handle power distribution in Chile.
• GP Investimentos invested in energy in Brazil through its investment of $112 million in Sociedade Tecnica de Perfuacao (SOTEP) and the investment was made through its fund, San Antonio Global.
• GP Investments made an education related investment in Brazil when it invested $163 million for a 20% stake in Estacio Participacoes.
• GP Investments acquired Laticinios Morrinho’s, a dairy products company in Brazil, for $189 million.

Fundraising so far in 2008 helped to offset the lower investment levels in the first half of 2008 as fundraising during this period surpassed the fundraising level seen in the first half of 2007. During the first half of 2008, fundraising totaled around $1.981 billion and there were 17 funds with closings. This can be compared to the first half of 2007, which saw around $1.5 billion in fundraising and at that point, there were 20 funds with closings.

Like last year, much of the fundraising activity was again centered in Brazil but there was also strong fundraising regionally too. There was limited fundraising in Mexico and Argentina during this period but Peru found itself the focus of multiple funds. The increased interest in Peru could be explained by insights shared in the Venture Equity Latin America 2007 Mid-Year Report, which stated that due to ongoing competition for assets, especially energy assets, some funds would probably look for assets in less-heavily cultivated areas, such as Peru.

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Upcoming Investment Opportunities in Brazilian Infrastructure

Excerpt from Venture Equity Latin America
published by WorldTrade Executive, Inc.

By María Fernanda Farall (Jones Day)

The Brazilian government is in the process of implementing a new set of infrastructure projects pursuant to its Programa de Aceleração do Crescimento (Growth Acceleration Program), which is commonly referred to as PAC. In 2007, President Silva’s administration created this program to promote the growth of the Brazilian economy through a series of infrastructure projects pertaining to logistics (e.g., railroads, roads, and ports), energy, water, and housing.

Timing for the launching and promotion of these new projects by the Brazilian government could not be better –with its long-term credit recently being upgraded by Standard and Poor’s Rating Service to investment grade status, Brazil is being perceived as a safe place for foreign investment. These projects offer many investment opportunities to foreign investors.

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