In recent industry developments, Actis, one of the most frequent private equity investors in emerging markets, and General Atlantic, which raised a $1.2bn fund in 2013 that incorporates Latin America in its investment criteria, both opened an office in Mexico City. This blog will take a look at private equity fundraising in Mexico to investigate whether the country’s burgeoning middle class will signal a flood of investment into the Central American state in future, as seen previously in Brazil.
So far this year there have been four private equity funds with a specific focus on the Mexican market to have reached a final close, according to Preqin’s Funds in Market database. These vehicles have raised a total of $442mn, a significant way off the $1.3bn raised last year and the record of $1.9bn seen in 2012. The chart below shows that the capital raised with a primary focus on investing in Mexico has fluctuated significantly over the last few years. It may be that an increasingly wealthy middle class, combined with an opening up of the private energy sector, will lead to a steady increase in these figures.
As mentioned above, the Mexican energy industry was opened up to private investors in mid-2014. In August 2014 a fund closed seemingly looking to take advantage of this legislation, with I Cuadrada Infrastructure Fund II collecting MXN 10bn, the largest private equity vehicle focusing on Mexico to close in 2014. The fund targets medium-sized Mexican infrastructure projects in both social and economic sectors.
Another potential investment avenue for GPs looking towards Mexico is the healthcare industry, which has seen relatively low levels of private investment; Preqin’s Buyout Deals Analyst and Venture Deals Analyst show only 13 healthcare deals have taken place in Mexico since 2008. Of these, the largest venture capital deal was a $32mn investment in Productos Medix, S.A. de C.V., a provider of anti-obesity, gastroenterology, central nervous system and metabolism products. A lack of investment in the healthcare system could exacerbate the demographic challenges facing the country, but may also prove to be a lucrative opportunity for investments – half of the current Mexico-focused funds in market include healthcare as a preference.
Looking ahead, there are currently 12 funds in market seeking $703mn in aggregate capital, and with $225mn raised so far through interim closes. These figures are unlikely to rival the record levels seen in previous years, and it may take a few years for investors to fully realize the potential of the Mexican market. If more firms follow the lead of Actis and General Atlantic in opening satellite offices in Mexico, the likelihood of increased private equity fundraising targeting the country looks set to rise.