London-based growth investor Actis is closing in on an investment in a Brazilian financial services company.
The investment, which is expected to close in the next few weeks, will be made through Actis Global 4, Patrick Ledoux, partner and co-head of Latin America at Actis told Private Equity International, declining to name the financial services company.
Fund IV is a 2012-vintage vehicle that held a close on $1.43 billion, above its $1.40 billion target.
Last month, Actis exited its 50 percent remaining stake in Rio de Janeiro-based broker dealer XP Investimentos to New York-based General Atlantic , which also bought Actis' earlier half stake of XP in February 2013.
The firm's South American business has primarily focused on Brazil, where Actis has acquired CNA , one of the largest English language training companies in Brazil at the end of 2012, Seguros Inteligentes (IT'sSEG) , an insurance broker focused on life insurance benefits in September 2014, and Genesis , a large testing inspection and certification company focused on agriculture in December 2014.
“We are very active, like other firms, but it's not easy to close a deal because in this environment sometimes it's difficult to reach the right valuation, the perception of risk is different between the seller and the buyer,” Ledoux said. “So sometimes it's difficult to factor risk into the negotiations.”
In addition, Brazil like many other emerging markets is a domestic consumption-focused territory, Ledoux said. “To incentivise the domestic consumption you need to have consumer confidence, which is not the case today. We have 210 million consumers in Brazil with 11 million people unemployed and it's getting worse. So people are afraid to do more consumption [related investments].”
Ledoux said of the current Brazilian economy, “We are probably in the bottom of the cycle and the potential to recover is important.” He added that as new elections near and the recession gradually recedes in the next five to six years like all economic cycles, risks related to private investments will decrease, and private equity deals and exits will continue to move forward.
“We believe in emerging markets. If you are like us and look at the long term horizon, it's the right time to invest,” Ledoux said.
In times of recession, Ledoux advised to look at sectors that are resilient, including cash positive and healthy companies that need capital to fare better in the current economy, instead of big companies with fast turnaround situations.