Venture Equity in Mexico 2007; Projections 2008

By Venture Equity Latin America
Published by WorldTrade Executive, Inc.

Venture Equity Latin America's Year End Report for 2007 shows $717M invested in Mexico via 17 acquisitions in 2007. Areas attracting large investments in Mexico in 2007 included the transportation, finance services, and production sectors, where investments focused on steel production and chemical and industrial manufacturing. Of note was the increase in larger investments in Mexico during the second half of 2007, which provided a strong end to the year and continued growth from the prior year's activity. Investments in Mexico increased considerably from 2006 levels, rising from $388 million to $717 million.

Of the 17 investment deals over the course of 2007, Advent International and Nexxus Capital accounted for much of the activity and Nexxus' deals were focused on consumer financing and healthcare. Advent made three diverse investments in Mexico, two of which were for undisclosed amounts but one was for $317 million for Grupo Gayosso, Mexico's largest funeral services company and this was the largest disclosed amount for a Mexican deal in 2007.

Over the course of 2007, it became apparent that interest in Mexican transportation was once again on the rise in private equity circles. The interest was been spurred in part by the fact that Mexico- often overshadowed by developments in Brazil - now enjoys a decent economic state and a growing middle class. Although, this has not dispelled concerns about the future of Mexico's markets and doubts do remain. "We need an evolution in the market and the country," said Gómez Pimienta, president of the Mexico Fund, a $1 billion closed-end mutual fund based in Washington. "The lack of IPOs is leaving us with a limited menu." Looking ahead to investment activity in Mexico for 2008, the effects of the 2008 Mexican tax reform could be pivotal as the new rules are in effect from January 1, 2008. This is one area that will need to be monitored as 2008 progresses to see if the new tax rules negatively impact the size and number of investments from foreign investors, mainly investors from Canada and the United States.

The biggest change ushered in by the new tax reform regulations is the introduction of a 'flat tax' and this tax could influence investments in Mexico as it could mean greater tax burdens for some investors, while increasing the required amount of paperwork and record keeping time that other investors must devote to each deal so that they are in line with the new requirements. It is also to be seen over the span of 2008 whether this new tax will deter potential investors abroad from making investments in Mexico due to the additional financial and regulatory burdens imposed by this tax. Given the state of the US economy at the end of 2007 and the weakness of the dollar overseas, it is not clear yet if this new flat tax might create additional unwanted strain on US companies looking to invest in Mexico.

Two of the largest investment sectors to be impacted by this new tax could be the real estate sector and the mining and natural resources sector as these are main areas of investment for Canadian and US investors and multinationals during business in Mexico. For more details on Venture Equity in 2007 in Latin America, see the VELA Year-End Report,