2017 was a notable year for the private equity (PE) industry in Latin America. According to the Latin American Private Equity and Venture Capital Association (LAVCA), 424 transactions were completed, a 20% year-on-year increase. Deal value reached $8.4bn, the second highest amount in LAVCA records.
Brazil and Mexico were the most targeted countries in 2017, with $4.1bn, or 49 % of Latin America-focused transactions taking place in Brazil – 170 deals. Mexico was the second most targeted region with $1.7bn across 111 transactions.
After relative underachievement, Latin America saw annual economic growth of 1.9 percent – one of the strongest performances in recent years. Brazil is expected to grow around 3 percent in 2018 as efforts by the government to lower inflation allowed the country’s Central Bank to start cutting interest rates in 2017.
Local and international investors are increasingly interested in opportunities in the infrastructure space.. Improved economic conditions driven by lower interest rates, reforms, and an increase in efforts by local governments to privatize certain industries have created opportunities. North American pension funds have been particularly active.
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Furthermore, industries such as foodservice, online retail, technology and healthcare have also proved attractive to investors. Latin America has seen major technology firms establishing in recent years, including Amazon, Google, Facebook, Netflix, Spotify and Uber. 25 global investors made their first investments in Latin America in 2017. The region appears set to continue to benefit from PE and VC investment.
In Brazil, two deals which caught the eye were the acquisition of an 80 percent stake in Walmart Brazil by Advent International and the investment by Kaszek Ventures in Cartório.com.vc. The Walmart deal is significant for the Brazilian retail industry, impacting competition.
Renewable energy has offered investment opportunities to private equity investors. 2017 saw 12 PE deals worth $3.92bn. As a result, the industry was ranked the highest by value last year, accounting for 5 of the 10 largest private equity deals in the region.
Interest and investment in Latin America is undoubtedly increasing, but how can countries in the region continue to benefit?
According to Luiz Filipe Aranha, a partner at KLA – Koury Lopes Advogados, Latin American countries have taken steps to make the investment environment more hospitable. Such steps are motivated by how private equity can positively affect the economy, lead to job creation and promote overall growth of the region. Particularly in relation to Brazil, the regulatory framework is favorable since the entrance and exit of money into the country is easy and not restricted, requiring just a simple registration with the Central Bank.
However, Latin America is far from homogenous, and though some countries offer rich investment opportunities, there are still weaknesses. “Most of the region’s countries still suffer from unstable economic and political conditions,” notes Mr. Filipe. Nevertheless, Latin America continues to make important progress in fomenting an attractive regulatory environment for PE investment, especially in sectors such as healthcare, infrastructure and technology, which were the focus of most of the investments seen in the first quarter of 2018.