How do private equity investors create value? A study of Latin American exits

Great expectations: what’s next for Latin American private equity?

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Executive summary

In contrast to last year’s study, which was set at a time of more promising economic conditions, this year’s research into Latin American private equity (PE) exits has a more challenging backdrop. The year saw GDP growth forecasts revised downward for many of the region’s

uncertainty prevailed in the public markets following the US Federal Reserve’s announcement of a tapering of quantitative easing. Meanwhile, in some countries, such

remained an issue.

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4 Great expectations: What’s next for Latin American private equity?

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6 Great expectations: What’s next for Latin American private equity?6 Great expectations: What’s next for Latin American private equity?

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The exits

Figure 2. Number of PE-backed IPOs by year

Figure 3. Performance relative to Ibovespa

0

10

20

30

40

50

60

70

80

90

All IPOs PE-backed IPOs

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Actual Relative to Ibovespa

9%2%

-5% 7%

Non-PE-backedPE-backed

Figure 1. Exit route by year

IPO M&A

0

5

10

15

20

25

30

2007–2009

14

7

13

2010

9

14

2011

3

25

2012

6

14

2013

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Sub-US$100m US$100m

72%

18%

Trade

20%

82%

IPO

8%0%

PE

Figure 4. Deals by exit type, 2007–13

Figure 5. Value and volume of PE-backed IPOs as % of total

Volume Value

7% 7%

18%

3% 3% 3%

8%

33%

22%

10%

0

5%

10%

15%

20%

25%

30%

35%

40%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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Volume Value (US$m)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

0

5

10

15

20

25 23

2

6

2 2

Brazil Mexico Argentina Chile Peru

US$

m

Figure 6. PE-backed IPOs by country since 2004

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3.5

4

4.5

5

5.5

6

2009 2010 2011 2012 2013

Figure 8. Average holding period (years)

11%

30%32%

27%

0%

5%

10%

15%

20%

25%

30%

35%

Less than 2 years 2–4 years 4–6 years More than 6 years

Figure 7. Average holding period of study sample

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Figure 9. Deals by provenance

18%

32%Consumer goodsand services

23%Financials

9%Health care

11%Industrials

2%Oil and gas

Technology

5%Utilities

Figure 10. Latin American PE investment by sector

Sub-US$100m Deal type Over-US$100m

88% Private 53%

4% Corporate/listed 40%

8% Private equity 7%

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50% 47.0%

Geographic expansion

0.8%

Price increases

13.2%

Improved selling

1.7%

Change of offering

15.2%

New products

22.1%

Growth (shrinking) in

market demand

All deals

Figure 12. Breakdown of organic revenue growth — all deals

–10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

66.8%

37.4%

–4.4%US$25m and less

78.0%

17.0%

5.0%

US$25m–US$50m

59.1%

35.7%

5.2%

US$50m–US$100m

68.0%

28.9%

3.1%

Over US$100m

Organic revenue growth Acquisitions Cost reduction

Figure 11. EBITDA attribution by entry EV

Value creation in action

Percentage of EBITDA growth driven by organic revenue growth

68.2%

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Larger deal sizes are more likely to go for geographic expansion

Domestic expansion

94%International/regional expansion

47% CFOCEO

Figure 13. Frequency of management team changes by type and percentage

Kept51%

Changed49%

Kept21%

Changed79%

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Selling and performance

0%

10%

20%

30%

40%

50%

60%

2%

Other

49%

Strong business performance

8%

Related to fund-raising

35%

Favorable market

circumstances

6%

Buyer came to the table

unexpectedly and made a good offer

PE return

PE strategic and operational improvement

Market return (Ibovespa index)

2.6

1.0

1.6

Figure 14. Exit timing triggers

Figure 15. PE return relative to the market

Higher cash multiple from IPOs when compared with exits to trade buyers

9.8%

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Outlook

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18 Great expectations: What’s next for Latin American private equity?18 Great expectations: What’s next for Latin American private equity?

ContactsJeff Bunder

Michael Rogers

Carlos Asciutti

Andres Gavenda

Olivier Hache

Daniel Serventi

Special thanks to:Flavia Araujo Private Equity Analyst

Peter Witte

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