Deal Mechanic: It was time to just Do It

Hector Martinez, the managing director of The Abraaj Group’s Peru office, and David Benavides, the founder of Iasacorp, go way back. “Iasacorp was a company run by a friend from school. I knew him for more than 30 years,” Martinez says.

Iasacorp began as a wholesaler, importing women’s accessories from China and selling them unbranded into small retailers. However, the sector was competitive, with low margins and no barriers to entry. Benavides soon realised that to differentiate himself he needed to create a brand.

In 2003, he opened the first Do It! store and over the following years struck up alliances with a number of department stores. By 2008 Iasacorp had more than 120 points of sale, including 50 in Chile through department stores.

“[Benavides] understood that to get into the next level and to take advantage of the opportunity to grow twice as fast as he was growing at that moment [it was important to] bring in third party, smart capital such as a private equity fund, which not only will give them the capital to grow faster, but which can also help them to improve on corporate governance, on operations, on strategy,” Martinez says.

Iasacorp was just the kind of business Abraaj’s 2008-vintage, $183 million Latin America Fund was targeting: a mid-market retailer focused on the emerging middle class. A leading brand in Peru with the potential to become a regional player, Iasacorp had an attractive multi-brand, multi-category and multi-channel strategy with an experienced management team.

In 2009, the firm invested $5 million in Iasacorp in two tranches, taking a 27 percent stake.

“We capitalised the company, and from there on we expanded the brand regionally and created new concepts,” Martinez says.

1. LOCAL REINFORCEMENT

The first step was to consolidate Iasacorp’s position as the leading company in its category in Peru. Abraaj helped the business diversify its commercialisation channels, moving into new supermarkets and new department stores.

On acquisition Iasacorp had two brands: Do It! and the lower-cost Glitter brand. Alongside Abraaj Iasacorp added two more to its offering.

“We identified that with the Do It! stores there was a market which we should separate from the young teenagers and aspirational [women], which was kids, and we created Do It! Kids,” Martinez says.

Iasacorp had already signed licensee agreements with Disney, Mattel and Hello Kitty to sell their branded products and accessories. Already a small corner in each Do It! store, Abraaj identified a market for stand-alone Do It! Kids stores.

By the end of Abraaj’s investment period Iasacorp had also launched make-up line D! Make Up.

2. REGIONAL EXPANSION

A key reason Benavides sought third-party capital for Iasacorp was the desire to become a serious regional player.

“There was this vision, but it was not structured in a way that he could do it on his own,” Martinez says of Benavides. “He needed the help of somebody like us.”

Iasacorp already had a strong presence in both Peru and Chile, but with Abraaj’s help the business expanded into Colombia and Mexico, and signed franchise agreements in Venezuela, Ecuador, Bolivia and Central America. During Abraaj’s five-year hold period, points of sale increased from around 120 to more than 480.

“Bringing in somebody like Abraaj with strong presence in the region was key for the expansion into Colombia and in Mexico,” Martinez says.

3. INFRASTRUCTURE

Abraaj helped Iasacorp make a number of improvements to its infrastructure and logistics, reducing costs and boosting efficiency.

A key component was consolidating the three warehouses, which were in separate locations and not purpose-built, to a new, state-of-the-art centralised warehouse facility. Abraaj also relocated the headquarters and administration offices.

“We moved to a modern central warehouse facility consolidating the operations that were carried out in three different locations generating significant cost reductions,” Martinez says. “We built excess capacity because we were planning for the future growth of the company.”

Iasacorp developed a plan to enhance inventory management and invested heavily in technology. Abraaj’s ESG team also worked with the company to ensure that the suppliers, mostly in China and India, were complying with international standards.

4. GOVERNANCE

Abraaj also worked with Benavides and the management team to institutionalise Iasacorp.
“We implemented a board of directors where we also brought in two independent board members,” Martinez says. “We had monthly meetings. From the very beginning we developed a strategic plan which was reviewed every year, with very strict budget objectives and KPIs. As part of that we also brought a new CFO to the company [and] we strengthened the management team.”

During the investment period revenues grew from around $20 million to around $80 million. “Definitely without the institutionalisation of the company, growing at annual rates of 20 to 30 percent could have been a real problem if you didn’t do it in an organised way, growing that fast,” Martinez says.

In the last two years of the investment Benavides moved to an executive president role and the CFO became the CEO.

“The idea was to give him more time for the expansion and development of new brands and concepts, and not for doing the day-to-day business that consumed a lot of his time,” Martinez says.

5. FUTURE PERFECT

It was clear to Abraaj from the beginning that the founding family would want to remain with the business. Therefore, Abraaj needed to look for another minority investor.

“What we managed to build […] was a retailer, but within that retail company a logistics business with excess capacity in warehousing and with an outstanding management team,” Martinez says. “We believed that the next phase of the company was to buy brands in related categories like women’s clothing and shoe brands.”

It was around this time that Abraaj was approached by MCKPITAL, the family office of the Marsano family, which made an attractive unsolicited offer.

“The important thing here was that there was a good chemistry between the two families, they really get along well,” Martinez says. “That facilitated a lot of the negotiations, and we ended up exiting at a very, very attractive return in July of last year.”

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The sale of Iasacorp was Abraaj’s first exit in Peru and, according to the firm, one of the first pure play private equity exits in the country.

“This was a really iconic deal for Peru since it represented the maturation of the PE industry,” Martinez says. “The private equity industry in Peru is young, it started in 2006, and exits such as this one made people believe in this industry, demonstrating the value that a PE fund like Abraaj can bring into a company.”

During Abraaj’s investment period Iasacorp’s EBITDA tripled, points of sale quadrupled, revenues increased fourfold and employee numbers increased from around 1,000 to more than 1,650.

“It’s a win-win situation,” Martinez says.