DemmaCap set to launch debut US-Mexico fund

The Mexican private equity firm will focus on buying small companies in the US and moving their manufacturing operations to Mexico.

DemmaCap Manager is talking to investors about its debut fund, which will target around $100 million to buy mid-market manufacturing companies in the US and move operations to Mexico, according to a source close to the firm.

The firm has talked to investors in Mexico, including family offices and a fund of funds. DemmaCap is expected to officially launch the fund internationally in September. Depending on the receptivity, the target could go as high as $150 million, the source said.

SRA Securities is acting as a global placement agent for the fund.

DemmaCap Fund I will target US mid-market manufacturing companies with revenues between $20 million and $70 million and high human resource costs, with a focus on companies that produce metal-based products, electronics and machinery.

Mexico

The firm plans to target companies that have a need for workers, a seemingly unusual problem in an uncertain economic environment. While other industries have been forced to cut jobs during the economic downturn, the retirement of baby boomers combined with a small incoming population of skilled labor has left many manufacturing firms struggling to fill positions, according to US Census data cited by the firm.

“US manufacturing industry executives will face a sharp reduction in the availability of skilled workers in the next five years, with some companies estimating that 40 percent of their skilled employees will be of retirement age by 2015,” DemmaCap said, citing data from The Wall Street Journal and US National Science Foundation. “Adding to the problem, manufacturers say the US education system doesn’t produce enough students in math, science and engineering. About 5 percent of all bachelors’ degrees in the US are in engineering, compared with an average of about 20 percent in Asia.”

“Countries like Mexico, with young populations and inexpensive labor, engineering and management, are expected to continue benefitting from these trends.”

The Monterrey, Mexico-based firm was founded in 2010 by Eugenio Solorzano, Salvador Alanis and Eugenio Padilla. The managers’ previous firm, N&N Capital, had focused on sourcing deals within Mexico