Based on continued growth in consumer demand, private equity groups active in Mexico are continuing to seek access and cash in on retail companies in the country. One example was last month’s Controladora Milano deal, which involved the sale of 100 percent of the discount clothing retailer from Newbridge Latin America – a private equity fund affiliated with US-based Texas Pacific Group, Blum Capital Group and ACON Investments – to global buyout firm Advent International. The $200 million (€159.2 million) transaction was particularly notable for its use of leverage – which to date has rarely been seen within Mexico’s private equity context – as well as the fact that it was a private equity-to-private equity transaction.
According to Michael Fitzgerald, a partner at Milbank, Tweed, Hadley & McCloy that represented Famsa in structuring and executing the offering, the Famsa shares were over eleven times oversubscribed. He said in a press statement, “The success of the Famsa IPO…indicates investors’ confidence in the long term growth prospects for Mexico’s economy and consumer market. While there has been recent turbulence in emerging markets, Famsa proves the resilience of the market for companies with solid fundamentals and attractive growth prospects.”
The Milano and Famsa transactions took place after the tumble in Latin America’s public markets in the latter part of the month of May. They also followed a fairly quiet period for M&A activity for private equity-backed retail companies in Mexico, with the last significant transaction being Actis Capital’s exit from Mexican housewares company Betterware last June, which reaped 100 percent IRR and three times the emerging markets-focused private equity firm’s initial investment.
Both Famsa and Milano plan to use their recently-raised capital to fund expansion – and perhaps consolidation – activities. As Mexico’s domestic economy continues to expand and the local capital markets continue to develop, there will likely be increasing opportunities that private equity funds can access within this sector.