Why Investment Bankers are looking to Latin America
July 31, 2023
Local and global investors alike are eager to tap into demand for nearshoring from U.S. and Canadian businesses, which remains high. Investors are also starting to back companies that serve local markets. In this episode of Deal Talk with 7MA, host Ben Bruggeworth talks with 7MA colleagues Horacio Yenaropulos and Daniel Siller, both Managing Directors at 7MA.
Investors are “looking for nearshoring advantages and for good businesses with good capabilities inside the region,” says Horacio. Horacio and Daniel explain why investors are so excited about Latin America, the factors affecting supply and demand, and how they expect the growth of private equity in the region to play out. Investor interest has increased following the pandemic, and both Horacio and Daniel expect it to grow further as the region develops the language and technology skills that U.S. and Canadian companies desire. They warn, though, that founders and owners should expect lower valuations and increased scrutiny during due diligence as investors look more closely at business fundamentals than they did over the past couple of years. Daniel also notes that governments in the region need to clarify legal and legislative issues that impede investor confidence. Regardless, Horacio and Daniel are both confident that the future for the region is bright. “It’s a nascent region with nascent private equity,” Daniel says, “I think that over time, a lot of the larger and midsize players will start to look at the region as a great place to invest.”
Featured on the Episode
Name: Daniel Siller
What he does: Daniel is a Managing Director with 7 Mile Advisors based in Boston, Massachusetts. Across more than 25 years of experience in investment banking, he has closed over $35 billion in equity raises and $50 billion in M&A transactions. Daniel, who is fluent in English, Spanish, and French, previously worked at several banks including Credit Suisse, Lazard, Morgan Stanley, and Goldman Sachs.
Organization: 7 Mile Advisors
Words of wisdom: “There are many years, if not decades, of potential growth in Latin America.”
Name: Horacio Yenaropulos
What he does: Based in Mendoza, Argentina, Horacio is a Managing Director with 7 Mile Advisors and leads the Latin America sector coverage team. He has 25 years of financial experience and previously worked with Globant’s corporate development group, where his responsibilities ranged from due diligence to SPA closing. He’s also held financial leadership positions with several key Latin American companies, including PricewaterhouseCoopers, Hidronor Chile, Viña San Pedro Wine Group, and Belatrix Software.
Organization: 7 Mile Advisors
Words of wisdom: “A lot of good things are going to continue happening in this market.”
Name: Ben Bruggeworth
What he does: Ben is a Vice President at 7 Mile Advisors based in Atlanta, Georgia. He previously served as an associate on the M&A team at Harris Computer and spearheaded business development at Caymus Equity Partners. Ben, who has five years of financial experience, was a scholarship athlete in soccer and football at Wofford College.
Organization: 7 Mile Advisors
Top takeaways from this episode
- Strategic investment in Latin America is booming. Initially drawn to companies that provide services in the U.S. and Canada, investors from the U.S. and Europe are now looking at homegrown companies that serve local markets. At the same time, wealthy families from across the region are entering the market as investors.
- Investors are becoming more discerning. Investors who were satisfied with a company’s capabilities and talent pool now want to see recurring revenues, corporate clients, and a plan for sustainable growth over time.
- The future for companies in Latin America is bright. As investors flock to Latin America, Horacio and Daniel expect a wave of deals and consolidations in the medium term. Daniel further predicts that as companies mature, midsize and larger PE players will start to invest in the region, driving additional growth.
[1:02] Three reasons investors are excited about Latin America: Over the past couple of years, investors from the U.S., Europe, and beyond have invested in businesses that offer nearshoring services. At the same time, Latin American companies are looking to grow in the U.S., and investors are looking to invest in businesses that operate within the region.
[2:25] Why nearshoring is a boon for Latin America: Daniel describes the confluence of factors driving the growth of nearshoring in the region: U.S. and Canada-based businesses want to outsource IT services to providers in similar time zones, reduce their reliance on China and India amid geopolitical tensions, and make up for the loss of local labor.
[6:19] Multiple paths to nearshoring: Horacio describes how different companies have developed nearshoring businesses. For example, Globant started in Argentina to provide services to the U.S. and has grown to 25,000 employees around the world. U.S. company Perficient built their nearshoring business by acquiring companies in Uruguay, Colombia, and Mexico.
[7:39] The bar is rising: Investors’ expectations have risen over the past couple years as they look more closely at business fundamentals. “We do not expect to see the premium valuations that we’ve seen in the last couple of years in the near future,” Horacio warns.
[10:33] Change is on the horizon, but it will take time and cooperation: Daniel thinks that this “profound secular change” will take years to fully materialize. Universities need to teach technology and language skills to align supply with demand. Governments need to provide legislative and legal clarity to ensure that all parties benefit from this growth.
[13:20] M&A is poised for growth: Horacio describes a new trend toward regional and local private equity (PE) in the region. “There are a lot of wealthy families from countries like Mexico, Brazil, and Colombia entering into the market and investing in IT services companies,” he explains, adding that venture capital is likely to start seeing liquidity activities in the near future.
[14:16] “The fundamentals for the industry are extraordinarily strong”: Daniel thinks that with so many entrants into the PE space, consolidation is likely on the horizon. This “will eventually result in larger, more professional, better-run companies,” he says — companies that may one day go public or receive investment from larger PE firms as investors realize that the region is a great place to invest.
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Deal Talk with 7MA, a podcast by 7 Mile Advisors that aims to give listeners a look behind the curtain of the middle-market Mergers & Acquisitions world. 7 Mile Advisors is a middle-market M&A firm based out of Charlotte, NC, that provides investment banking services and advice on mergers, acquisitions, and private capital transactions around the globe.