Snapshot: Abraaj talks Latin America

On 13 August Abraaj announced its acquisition of a majority stake in URBANO Express, a courier and light logistics company operating in Peru, Ecuador and El Salvador, for an undisclosed amount.

Abraaj plans to assist the firm, which was established in 1996, to expand regionally and develop new business lines, the firm said in a statement.

Q. How is investing in Latin America different than other emerging markets?

A. It’s far too easy to aggregate multiple different markets into the category of “emerging markets” and generalise about the dynamics.

We have selected a very specific sub-set where we see similar patterns and dynamics, such as the way that corporates behave, that entrepreneurs behave, or the way that markets facilitate the growth for certain types of companies. So from a private equity perspective, the similarities in our chosen markets much outweigh the differences. We’re able to use learnings in one market in another.

For example, in the case of the logistics deal we just announced in Peru, we actually had the COO of another logistics business that we invested in many years ago in the Middle East come over, as part of the due diligence process, to help us assess the opportunity. And what he saw was huge similarities between the two businesses. Since the prior investment was so successful for us, we took a lot of comfort in hearing that.

Q. What is attractive about Latin America right now?

A. From a micro perspective, which is what private equity is all about, there’s a great opportunity right now to find companies, particularly family-owned businesses, that are looking for smart partnership capital, to scale, institutionalise and then ultimately find a new home; more often than not becoming part of a conglomerate or other strategic acquisition plan.

Q. Which sectors do you target?

A. We like consumer-facing businesses a lot partly because of the structural demand you often find for a product or service that’s interfacing with the consumer, given the predictable nature of consumers in these markets. Much consumer behavior is driven by necessity rather than discretion, at least at this early stage. People aren’t buying their third flat-screen TV on credit; it’s not that kind of consumption. It’s a much more bankable, less cyclical type of consumption.

Q. What is the general LP sentiment on LatAm? Are their interests changing?

A. It’s historically been all about Brazil, for quite a long time, but I think investors have started to spread their focus now. So the Pacific Alliance is a region investors are increasingly looking to invest in.

This is a region that together would be the seventh largest economy in the world; that we have successfully deployed and exited in multiple times. We have established what works and what doesn’t, have a very clear strategy for and we feel very confident that the opportunity looking forward is even better than it has been in the last few years.

In April Abraaj partnered with the Inter-American Development Bank and the Inter-American Investment Corporation to promote the development of and investment in the Latin American and Caribbean private sector, PEI reported.

Among its investments in the region, Abraaj has acquired a stake in Peruvian restaurant group Acurio Restaurants founded by chef Gaston Acurio, Colombian discount store group D1 and the Mexican leasing giant Liquid Capital. It has also bought and integrated, through its Mexican company redIT, two data centres, Diveo and Castle Access, in the Mexican IT sector.

Last year, Abraaj exited three of its investments in the region: redIT, ARG and Iasacorp International.

Of its regional portfolio, 34 percent is dedicated to the consumer discretionary sector. By country Abraaj invests the most in Mexico, according to the firm’s report “Our Engagement in Latin America” published in 2013.