While the long-term trend remains positive, however, 2015 also witnessed somewhat slower private equity activity in Latin America as the regional economy faced various headwinds. Regional output declined 0.9 per cent during 2015 as commodity prices fell, interest rates rose and consumer confidence weakened. New private equity investments decreased in 2015 when compared to the prior year, with some reports estimating that annual investments in Latin America fell about 18 per cent to US$6.5 billion on a year-on-year basis. Fundraising also declined in 2015 after peaking the year before. In addition, the exit environment for private equity investors remains a particular challenge in many Latin American countries, affected by depreciating currencies, tepid equity markets and political uncertainty in several countries. In response to these concerns, some private equity firms have responded by extending the life of their funds and delaying exits until a more favourable time. As we noted in years past, for these and other reasons trade sales remained the most favoured exit route for private equity investors in the region, representing 55 per cent of all private equity exit transactions according to some estimates.
Despite these challenges, both global and regional private equity funds remained committed to investing in Latin America. A number of industry surveys have indicated a strong and continuing interest among limited partners in pursuing opportunities focused on Latin America. While limited partners active in the region have traditionally preferred smaller funds focused on Mexico, Peru and Colombia, 2015 also witnessed a number of global funds open several offices throughout the region.
The continued high levels of private equity interest, in spite of shrinking economic output in much of the region, suggest that private equity players have confidence in their ability to navigate the region’s challenges to unlock its many undervalued investment opportunities (especially for those making investments in dollars or euros). Investments in infrastructure and oil and gas, widely pursued across the region by a variety of private equity investors in years past, became a less marked activity in 2015. Instead, the largest transactions in 2015 fell across a diversity of sectors, continuing a recent trend of investments in sectors that have been historically underdeveloped and that are less dependent on the economic performance of the respective country’s trade partners, including telecommunications, financial services, consumer or retail products, healthcare and education, among others. The growth opportunities of these newer sectors as well as important opportunities in traditional industries, such as energy and infrastructure, will likely offer many opportunities to private equity investors in the coming year.
In the current environment of emerging opportunities and challenges, international legal services providers will continue to add value by contributing their expertise in transaction structuring, implementing innovative solutions, and analysing overall industry trends. Their deep experience in cross-border debt financing and leveraged buyouts that have been mainstays of private equity in more developed markets may also prove essential, as private equity investments in the region are likely to increasingly rely on these types of financing. As always, effective partnerships with experienced and sophisticated local counsel in the region also remain critical in helping navigate the regulatory environment and developing tailored solutions to country-specific legal issues. Strong partnerships between international and local legal counsel are uniquely positioned to help private equity investors effectively navigate the region’s current challenges in order to maximise investment opportunities and local entrepreneurs’ potential.
Sergio J Galvis
Latin Lawyer Reference
Recognised as Latin Lawyer ’s 2015 International Lawyer of the Year, Sergio Galvis is head of Sullivan & Cromwell’s Latin America practice and a member of the firm’s management committee. He advises on significant matters in a wide range of practice areas and industry sectors for parties from more than 25 countries in Latin America, Europe and Asia. Mr Galvis writes frequently on international legal and financial matters and recently co-authored “Alternative Financing of LatAm Projects” with Inosi Nyatta, which was published in Project Finance International. This 2016 article discusses potential alternative project financing sources and structures for projects in Latin America in light of decreased cashflows resulting from the drop in global oil and gas prices. Mr Galvis is a three-time recipient of the Burton Award for Legal Achievement including for his article on the issues, challenges and requirements Latin American companies face in international M&A. Mr Galvis was born in Colombia and is fluent in Spanish.
Werner F F Ahlers
Latin Lawyer Reference
Werner Federico Ahlers is a partner in Sullivan & Cromwell's M&A, corporate and finance and project development and finance groups, where his experience includes a wide range of cross-border mergers and acquisitions, corporate, project and asset-backed financings and securities offerings. Mr Ahlers’ practice is primarily focused on private equity, joint venture and project development and finance transactions in the natural resource and infrastructure sectors in Latin America. He has been recognised for his work by leading legal publications, including Chambers Latin America, Chambers Global, The Legal 500 Latin America and The Legal 500 United States and has also received recognitions from The American Lawyer, M&A Advisor and Law360. He is chair of the Inter-American Affairs Committee of the New York City Bar Association, member ex officio of the Vance Center and a term member of the Council on Foreign Relations. Mr Ahlers was born in Nicaragua, is a native Spanish speaker and is proficient in Portuguese.
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