Despite 2018 being a year of significant political and economic uncertainty for several of the largest markets in Latin America, as well as for the region as a whole, it was also a year of economic resilience, significant growth and development, and the continued maturation of private equity markets. Political and economic collapse in Venezuela, the unpredictability of elections in Brazil, Mexico and Colombia, and the unexpected turnover of the government in Peru, all contributed to the background challenges that the deal environment in Latin America confronted in the political realm in 2018. Through all these transformative events, however, the massive potential of the region’s consumer base, markets, and business activity have provided a great incentive for key players to continue identifying opportunities and deploying the significant amount of private capital that has been raised in the past few years for investments in the region.
With economic growth in almost every market in the region in 2018, and a relatively stabilised political environment overall, international investors and companies based in the region welcomed 2019 with a positive outlook for expanding private equity activity. Sectors that have traditionally been the focus of private equity, such as infrastructure, energy, and natural resources, have continued to draw on robust international attention from investors ranging from pensions funds and sovereign wealth funds to traditional private equity firms. At the same time, both international and domestic investor appetites continue to diversify and remain strong in other sectors based upon the prospect for growth in consumer demand. These rapidly evolving and developing markets include healthcare, real estate, consumer products, and financial services, among others. In the past year, this diversification of investment activity seemed to be particularly pronounced in the technology and fintech spaces, with many prominent and sizeable investments dominating headlines, demonstrating the notable promise that international capital continues to see in these growing sectors.
This diversification of sector activity is only one of the many trends that has given shape to a landscape of private equity and venture capital deals that continue to increase in number and size. In particular, a positive IPO environment has provided tangible opportunities for realising profits or exiting investments that had been relatively unavailable in certain markets in the past. In addition, a highly mobile and responsive financing environment has permitted some high-profile deals to utilise acquisition financing structures that, though the norm in US and European deals, had previously been a relative rarity in Latin America. The apparent growth of intra-regional activity has also been noteworthy, with both funds based in the region and family offices starting to foray across borders in search of returns and diversification of risk. In the meantime, trends observed in prior years of increasing interest by sovereign wealth funds, from China and elsewhere, along with institutional investors, such as Canadian and other pension fund investors, continued to be dominant themes among the region’s largest deals. Finally, amid all of this activity, some of the deal technology that has become common in many US deals, such as the use of representation and warranty insurance, has started to establish a firm foothold in LatAm’s deals as well.
With all of this diversification of sectors, investors, and deal structures within the region’s landscape of private equity deals, one thing that is certain is that legal issues will continue to become more complex, multi-faceted and nuanced, particularly as investors and their counsel grapple with them in markets that face some shifting policy environments or political instability. With this complexity, the need for appropriately experienced and sophisticated international legal services providers is also bound to continue to grow. Professional insight into how legal and contractual issues interact with market trends, as well as regulatory, judicial, and political environments, can be a key factor to the prospects for any deal. International lawyers continue to add profound value and set the structural foundations that allow for deals to succeed, and for conflicts to receive resolutions that align with their clients’ objectives. Close coordination and legal and market expertise, combined with all the positive elements of a boots-on-the-ground approach provided by strategic partnerships with local legal counsel, allows for international lawyers to not only adapt to local legal environments, but also to create customised deal structures that may be necessary for successful investments.