Private equity interest in Mexico remains solid despite Trump

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Private equity and venture capital funds are “certainly not wholesale pulling out of Mexico” despite the uncertainty sparked by Donald Trump’s election, according to the region’s industry association.

Mexico saw a 46.5 per cent increase in the number of private equity and venture deals, to a total of 129 from 88 in 2015, writes Jude Webber in Mexico City.

While the deals added up to only $1.8bn in 2016, down from $2.3bn recorded the previous year, it still placed Mexico second by capital deployed behind Brazil, and accounted for 22 per cent of investment in the region, according to the Latin American Private Equity and Venture Capital Association.

“Brazil is typically the largest market for investment activity,” said Cate Ambrose, Lavca president. “It’s interesting that Mexico is top [by number of deals in 2016], particularly in the current context and given that [private equity and venture capital] is relatively underdeveloped given the size of the economy.”

The election of President Donald Trump and his protectionist rhetoric and plans to wring a new North American Free Trade Agreement more to the US benefit have sent Mexico into turmoil, slashing the value of the peso by as much 14 per cent in the days after the election.

Although the currency has since clawed back some of its losses, the cheaper peso has boosted the buying power of funds with dollars to spend in Mexico, said Lavca.

Ms Ambrose said the mood was now uncertain – “I can’t say there hasn’t been nervousness and skittishness” – but definitely not dead.

“Of course we have heard voices of concern, there’s no getting around that it’s a scary time,” she said. “I wouldn’t wager today on what 2017 investments are going to look like.”

But she highlighted that “in real estate, logistics and infrastructure, we continue to see deals … we are not seeing investment activity paralysed – quite the opposite”.

One undeterred investor was Jorge Dickens, managing partner at Acon Investments, which bought out Grupo GMI, a company specialising in modular building kits used for rural housing, schools and airport hangars for an undisclosed amount in mid-December.

“I absolutely anticipate that activity among international players may slow down a bit,” he said. “But we have talked to many peers and exchanged notes and no one I spoke to was pulling out of deals or calling to cancel transactions in any way … people are paying more attention to what the [Trump] administration does and not what it says.”

Scott McDonough, managing director of Alta Growth Capital which invested an undisclosed sum in Maskota, Mexico’s top pet shop chain in December, agreed.

“In the space we are investing into – long-term investments – we continue to see it as a very good investment,” he said. “Ultimately, our thesis is that Mexico is an attractive place to invest. There’s going to be volatility for the near term, that’s probably not over, but things are calming down,”

The size of Mexico’s economy, its growing middle class and young population were “powerful-term trends that we see as favourable for investment,” he added.

But the amount invested by venture capital and private equity funds in Mexico remains dwarfed by the $4.7bn invested in 121 deals in Brazil in 2016.

Among last year’s highlights in Mexico, there were six telecoms deals worth $476m, four energy deals for a total of $297m, 11 in financial services adding up to $169m and 13 in the consumer or retail sector for $168m.

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