Private equity in Latin America has, to date, been largely focused on Brazil. Last year, for example, it accounted for 38 percent of the capital raised, according to Private Equity International’s Research and Analytics division, and 83 percent of aggregate deal value in the region during the first half, according to the Latin American Private Equity & Venture Capital Association.
However, both fundraising and deal value have declined in Brazil this year, as many private equity investors have shifted their focus to other areas such as Colombia, Peru and Argentina, which show potential opportunities despite their uncertain economies.
Just a single private equity fund closed in Brazil during the first three quarters of 2013 (although that did account for 22 percent of all capital raised in Latin America during the period), according to PEI data.
Brazilian deal value slipped during the first half of the year too, from $2.25 to $1.9 billion, according to LAVCA, even as deal value across all of Latin America grew from $2.7 billion to $2.8 billion.
Brazil’s slowdown is partly due to its sluggish gross domestic product growth, which reached 2.7 percent in 2011 but was less than 1 percent last year. Brazil’s economy is “trapped in a poor equilibrium” which includes high inflation, a misaligned currency and eroded external competitiveness, according to Goldman Sachs research shared by abvcap, the Brazilian private equity industry trade body.
But local players remain optimistic. “I think Brazil could pick up if [it] can get [its] act together,” says Francisco Alvarez-Demalde, founder of Riverwood Partners, which invests in middle-market technology companies across Latin America.
GDP growth of 2.6 percent is forecast for Brazil this year, followed by 2.3 percent in 2014—the year the country will host the FIFA World Cup and conduct presidential elections. Certain industries like food and agribusiness continue to fare well. And Brazil remains nearly “a decade ahead” of other Latin America markets in terms of industry regulation, the pool of managers with track records and the number of “mid-market and large cap companies ready to work with financial advisors”, according to LAVCA.
“We remain opportunistic about Brazil,” says Alvarez-Demalde. “In general we are excited about 2014 and 2015”.