Latin America sees strong activity in private equity and venture capital

The number of transactions in which private equity and venture capital firms invested in Latin America expanded 31 percent from the previous year in 2014 and activity this year is expected to continue strong, specifically in the energy industry.

According to the Latin American Private Equity & Venture Capital Association (Lavca), a New York-based membership organization dedicated to expanding the industry in Latin America and the Caribbean, the total committed capital for the region reached a record of $10.39 billion in 2014. Actual investment last year was $7.87 billion.

“The capital commitment or $10.39 billion is the money that was raised during 2014 to be deployed in the region during the course of the next years. The $7.87 billion is the money deployed in the region during 2014” in private equity and venture capital transactions, Caitlin Mitchell, an official at Lavca, said Wednesday by telephone in reply to a Latin Business daily inquiry.

According to information from Lavca, in 2014 the total committed capital of $10.39 billion was a record as it exceeded the previous record of $10.27 billion raised back in 2011. However, unlike in 2011, last year the biggest five funds accounted for only 58 percent of the total, down from 81 percent three years earlier.

“What this tells us is that the universe of managers raising capital for Latin America continues to expand and that despite regional (economy) growth projections of under 2 percent for 2015, LP (Limited Partner) demand for exposure to the region remains strong,” association president Cate Ambrose said, according to information made available by Lavca.

Several organizations project an economic slowdown in Latin America for this year. The United Nation´s economic commission projects only a 0.5 percent expansion for 2015.

As for the actual deployment of funds, in 2014 private equity and venture capital firms invested a total of $ 7.87 billion in 306 transactions. While the total amount fell 11 percent from a year earlier, the total number of deals surged 31 percent from 2014, according to Lavca.

“The overall increase in the number of transactions was driven by a significant increase in venture capital activity,” the association said. Venture capital investors deployed $525.6 million in 186 transaction in 2014. This compares with only $63 million in 2010.

“Eight large deals related to the generation and distribution of power totaling an aggregate $1.64 billion made energy the top sector in terms of capital invested in 2014,” Lavca said.

“It is expected that the Mexican energy reform, along with the increasing demand for oil and gas infrastructure in Brazil and the Andean countries will continue to drive investments in this sector during 2015,” Ambrose said.

In terms of number of deals, venture capital activity is mostly going to information technology companies, health care and retail activities. The biggest market in the region for venture capital is Brazil followed by Mexico, according to Lavca.