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Never Squander a Crisis!

This is a great time to be investing in Latin America, with attractive companies for sale.


The current headlines are daunting: bad assets, toxic derivatives, bank failures, corporate bankruptcies, and government bailouts.  Market turmoil has spread like wildfire from the United States throughout the world.  Latin America has been buffeted by external events beyond its control.  Commodity prices are plunging, stock markets are volatile, and local currencies are devaluing as global investors flock to the U.S. Dollar and Japanese Yen.  Capital is expensive, debt is scarce, IPOs are unviable, and strategic buyers are skittish.  But, here are a few indications of potential opportunities in the midst of the turmoil:   


Many businesses in Latin America took advantage of the global liquidity boom to pile on high levels of debt on attractive terms.  In fact, more than $60 billion of corporate debt in Latin America is scheduled to mature during 2009.  Not all of these borrowers will be able to roll-over this financing on similar terms.  Some of these companies may require private equity injections to address impending debt maturities; others may seek equity capital to fund add-on acquisitions and expansions plans.   


Public companies throughout Latin America are trading at attractive cash flow multiples.  Valuations of high-flying Brazilian IPOs have fallen back to earth.  Private equity funds are already picking through the wreckage.  Savvy investors can take minority stakes in these targets and generate attractive returns as markets recover.  If public valuations remain depressed, Latin America may experience a wave of “going-private” transactions sponsored by current shareholders in partnership with financial investors.


Multinationals and local conglomerates will likely shed non-essential business units to focus on core operations, raise cash, and pay down debt.  These “orphan divisions” have often been starved of capital and management attention.  Many of these targets are able to prosper on a stand-alone basis with the support of a private equity fund and an entrepreneurial management team.  As competition from strategic buyers wanes, private equity funds may find attractive opportunities to adopt some of these orphans.     

Warren Buffet has famously advised, “Be fearful when others are greedy. Be greedy when others are fearful.”  This is a great time to be investing in Latin America.  

Matthew Cole is a Managing Partner of North Bay Equity Partners. 

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