Leveraged finance: Latin American private equity pushes on with local funding
Private equity in Latin America is set to remain buoyant next year despite global credit problems because of the lower levels of leverage that the market demands compared with the US and Europe. With the leveraged loan market still effectively shut in developed markets, investors are turning their attention to the emerging markets in the hope of locking in growth stories.
"Before the credit crunch a US company could be levered by 10x ebitda, which made it hard for a Latin American company that was 2x leveraged to achieve the same returns. Now it is difficult and more expensive to obtain financing for highly leveraged deals in the US – the differentiating factor for returns becomes growth – Latin America has a lot of great growth stories," says Nicolas Aguzin, head of Latin American investment banking at JPMorgan.
Matthew Cole, managing director of North Bay Equity, a Latin America focused private equity firm in Miami, agrees. "I think, in the current financial climate, there will be better private equity returns coming from business growth and shareholder value creation rather than through financial engineering," he says.
Fundraising in the region for 2007 is estimated at $4 billion, according to the Latin American Venture Capital Association, a healthy increase from the $3.2 billion raised in 2006.
One of the largest leveraged buyouts in the region was completed by São Paulo-based GP Investments in its acquisition of Pride International’s Latin American Land Drilling and E&P Services business in August.
"For the Pride deal, $600 million of the $1 billion transaction was debt.