Advent raises biggest-ever Latin America fund(3)

The global buyout firm has raised $1.3 billion for the biggest Latin America-focused private equity fund ever. Advent’s Latin America CEO told PrivateEquityOnline that investments in the service sector will be the fund’s sweet spot.

Advent International has closed its Latin America Private Equity Fund IV on $1.3 billion (€950 million) – $400 million more than the combined capital of the fund’s three predecessors.

The fund exceeds other Latin America-focused funds raised by private equity rivals – such as Aureos Capital’s $300 million fund raised in April and GP Investimentos’ $1 billion fund raised in July.

The fund attracted commitments from 38 investors – 12 existing LPs and 26 new investors.

Advent raised its debut Latin America fund in 1996 with $230 million of committed capital. It raised another in 2002 with $265 million and a third in 2005 with $375 million. The new fund brings Advent’s total capital raised for the region to $2.2 billion.

When explaining why Advent has been able to raise larger and larger funds over the years, Advent’s chief executive in Latin America, Ernest Bachrach, cited several factors contributing to investor enthusiasm. Currency devaluations, increasing political stability and improved access to capital markets have improved the macroeconomies of Brazil, Mexico and Argentina. Consequently, those economies have been able to respond to rising demand for food and commodities from Asia, and outsourcing in the service sector from the US.

Advent’s new fund will focus on the service sector, whose growth, Bachrach said, is not to be underestimated.

“There is very strong growth in service sectors in Latin America, which you don’t see from the GNP numbers, which are dominated by the agricultural sectors,” Bachrach said. “But if you strip out agriculture, particularly in Brazil, you see underneath there are these service sectors that are growing 30 to 40 percent compounded per year, and have been for the last ten years.”

The fund will primarily target Mexican, Brazilian and Argentinean companies in the airport services, financial services and business outsourcing sectors. It will typically invest between $50 million and $150 million in each deal.

The fourth fund has made one investment to date – it has bought the housing business subsidiaries of Corporativo Javer for an undisclosed amount. The deal is Advent’s biggest Latin American investment to date – trumping its $500 million buyout of Brazilian retailer Brasif in 2006.

Corporative Javer is a low income housing developer, a sector Bachrach said is now booming. Overall economic improvement in the economies Latin American countries, particularly Brazil and Mexico, has led to a rise in per capita income and a subsequent increase in demand for housing that outstrips supply.

“[Mexico] is still trying to catch up to provide homes,” Bachrach said. “We’ve been monitoring that for years now and we finally went ahead and acquired one of the largest low income housing companies in Mexico, and expect it to continue to show a lot of growth.”

Some of Advent’s more high-profile deals in the region include its investment in Mexican discount fashion retailer Milano and its investment in Uruguayan Nuevo Banco Commerical – Latin America’s first private equity-backed buyout of a commercial bank.

Founded in 1984, Advent has raised $12 billion of private equity capital to date and has offices around the globe.

[Jennifer Harris contributed to this report.]