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PE Firms Look For Opportunities Ahead of Latin America’s Elections

PE Firms Look For Opportunities Ahead of Latin America’s Elections

WSJ Pro:  PE Firms Look For Opportunities Ahead of Latin America’s Elections by Luis Garcia 

Uncertainties about the outcome of presidential elections that Brazil and Mexico will hold in 2018—both featuring left-wing candidates who potentially could replace the current center-right governments in each country—are threatening to fuel volatility in Latin America’s two largest markets.

The uncertainties, however, won’t stop local private-equity firms from looking for new deals during the period leading up to the elections. In fact, some of them even expect to benefit from the potential instability, as competitors less familiar with the ups and downs of Latin American markets may instead decide to wait on the sidelines.

“I want to invest next year because, with less competition, I invest better,” said Álvaro Gonçalves, a managing partner at São Paulo-based private-equity firm Stratus Group, which is seeking to raise $250 million to invest in Brazil’s middle market. He added midmarket businesses have less access to other sources of capital during periods of uncertainty, and thus may be more open to investments made by private-equity firms.

“With the speculations about what the new government will do, volatility increases and [asset] prices usually fall…It’s a good moment to buy,” he said.

The precipitous drop of the Mexican peso after the 2016 U.S. presidential election provided an example of how volatility triggered by political uncertainties can create investment opportunities for some private-equity firms. Real estate-focused Jaguar Growth Partners, which operates throughout Latin America, took advantage of the peso depreciation to invest in Mexico at lower entry prices, said Elizabeth Bell, a principal at the New York firm.

“The pricing in public markets went down, and we were able to make two investments last year,” she said, referring to her firm’s purchase of stakes in two publicly traded Mexican companies: hotel operator Hoteles City Express SAB de CV and industrial-property developer Corporación Inmobiliaria Vesta SAB de CV.

On the other hand, the coming elections could bring fundraising challenges to private-equity firms; investors may hesitate to make new commitments until the political scenario becomes clearer.
Mexico City firm Nexxus Capital, for example, will wait until after Mexico’s presidential election to begin raising its next flagship fund, said Arturo Saval Pérez, Nexxus’s senior managing partner.

“We don’t make a practical point of going to the market before the election because noise is going to be there,” he said.

Whether looking for deal opportunities or waiting for political uncertainties to dissipate, private-equity firms certainly will be more watchful of Latin America during 2018.

“We’re cautiously monitoring the political landscape,” Ms. Bell said.

Write to Luis Garcia at [email protected]