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On December 4th and 5th Euromonitor was invited to attend 9th Annual Private Equity Brazil & Latin America Forum. During two days, the conference brought together several panels and presentations to discuss sectors, due diligence, and private equity investment opportunities in Brazil and Latin America.
The overall feeling of panelists revolves around the return of private equity investment after few years of low market activity. Many local and international funds are investing in infrastructure due to greater economic conditions provided by lower interest rates, reforms, and privatization efforts from the government. Similarly, other pro-market government activities in countries such as Argentina and Peru are also helping to bring investments to the entire Latin American region. Others discretionary industries are getting attention from investors, such as foodservice, internet retailing and technology, and healthcare.
Latin American has faced over the recent years great political instability. On top of the largest corruption graft in Brazil, the Car Wash Scandal, involving a great number of politicians, the country’s 2018 elections presents candidates with different economic views that could jeopardize the undergoing economic reforms. Venezuela is at the eminence of a debt default leading to a potential financial instability. Finally, yet importantly, Mexico has problems with the US over immigration controls and commercial agreements.
Despite all political turmoil, the overall feeling is that the region, or at least its largest economies, are slowly recovering, indicating strong resilience of the internal market. For example, Brazil has finally shown growth with real GDP estimated to reach 2.1% in 2018, according to Euromonitor International. In fact, the entire region’s GDP is expected to grow by 2.2% in 2018. Mexico, Argentina, and Paraguay are among are the fastest growing economies in the region. The only country that is set to continue facing economic downturn is Venezuela with GDP set to decline 4.8% in 2018.
According to many panellists, the recession revealed good investment opportunities. Many companies adjusted their operations, enhanced financial controls and now are ready to invest in expansion again. Investors are expecting better returns as interest rates are at its lowest levels, leading to a fertile field for private equity activity. The key message from two days forum is “private equity is back”.
Private equity firms invest in all sorts of segments, however, during the conference, some industries were emphasized including: infrastructure, technology, and healthcare.
Latin America still demands large investments in infrastructure, from roads to energy facilities, ports, and airports. Recent changes in legislation and new government concession of public services has attracted both local and international funds. However, recent graft cases involving large construction companies and several Latin American governments have changed the way companies conduct business with public entities. Investors are seeking partnership with well-established companies, taking compliance controls as a priority in order to guarantee that no shortcuts are taken and all the legislations are followed.
Regarding technology, the main focus of the event involved disruptive solutions from start-ups for operational efficiencies, such as logistics, e-commerce and personal services (e.g.: job search, education and medical services). According to Euromonitor International, digital purchases (made by any digital device, such as mobile phones, computers, and tablets) in Brazil and Mexico are forecasted to present CAGR of 6% and 24%, respectively, in the bext five years. These growth rates are linked to the incrising usage of mobile devices and access to internet within the region. For instance, average possession of smartphones in Latin American was 53% of the population in 2016 and is expected to reach almost 76% in 2021, meaning a fertile ground for investments in technology within the region.
Another broadly discussed topic was healthcare as this is becoming an increansingly important topic as Latin America’s population is aging rapidly. According to Euromonitor International, the median age will increase from 29,3 to 34,8 years between 2015 and 2030. In fact, the 65+ age group will increase by a huge 79.1%, more than six times as fast as total population growth. This group’s share in total population will also increase from 7.7% in 2015 to 12.1% in 2030. As the elderly population grows, so will the demand more medical attention, hospitals, and routine exams. The health issue becomes an even more important in Brazil as the overall country’s population is becoming more concerned about health. Brazilians’ expenditure on health goods and medical services has reached R$324 billion (USD93 billion) in 2016 which is 9,8% higher than in 2011. This partially helps to explain why private health insurance is on the rise. Even family offices started to partner with funds to acquire regional hospitals or health laboratories. However, this segment has its own challenges, such as strong government regulation and changes in health insurance rules, requiring experience to play in this field. As it seems by the discussions, however, the potential of the sector overcomes the barriers.