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Study: Private equity IPOs rebound in LatAm

Despite a decline in total exit volume, GPs in Latin America are increasingly using IPOs to divest portfolio companies.

The number of private equity-backed public listings in Latin America grew to six in 2013, double the amount from 2012 and the highest figure since 2007, according to a study released last week by EY.

The percentage of IPOs that were private equity-backed in Latin America also grew last year, reaching 38 percent of all IPOs in the region, up from 20 percent in 2012. The rise in private equity-backed IPOs roughly mirrored global statistics, which indicate private equity-backed IPOs had their strongest year on record, roughly doubling in 2013, according to the study.

In terms of overall realisations, however, the number of private equity exits in Latin America declined from 28 in 2012 to 20 in 2013, including 14 exits via mergers and acquisitions.

“There is a good pace of M&A activity in the mid-market space,” Hector Cateriano, chief executive officer at MAS Equity Partners, said at the Emerging Markets Private Equity Association and International Finance Corporation’s Global Private Equity Conference last week.

Latin American private equity-backed IPOs in 2013 included financial services technology company Senior Solution SA, which Stratus Investimentos listed on the Brazilian Bovespa exchange, and construction company Empresa Constructora Moller y Perez-Cotapos SA, which Court Square Capital listed on the Santiago Exchange, according to EY data.

For larger companies with entry enterprise values of $100 million or more, IPOs represented the most common exit route, with about 82 percent exited via IPO, compared to 20 percent for companies with an entry enterprise value of less than $100 million. Trade sales are more popular for smaller companies, with 72 percent of companies with entry enterprise value of less than $100 million going to trade, compared to 18 percent of companies with entry enterprise value of more than $100 million.

While private equity activity is growing in Latin American markets outside of Brazil, the high cost of publically listing in Brazil and the smaller scale of stock markets elsewhere are among the barriers for exiting smaller companies via IPOs, according to the study.

“Beyond Brazil, the Latin American PE market is steadily maturing with more exits also coming from newer markets such as Colombia, Chile, Mexico and Peru,” EY global private equity leader Jeffrey Bunder said in a statement.

About 8 percent of smaller companies were exited to other private equity firms in 2013.

“While other options, including secondary buyouts appear to be realistic on the horizon, the industry needs to manage this development carefully,” Bunder said.

The majority of portfolio companies were exited within a time frame of between two and six years. About 27 percent of firms surveyed by EY reported an average holding period of more than six years.