Funds
The View of Two Mexico Fund Managers
BY JOHN PIKE
Two of Mexico’s more prominent private equity fund
managers say now is an optimal time to invest in
the ancient land of the Maya. Mexico City’s Nexxus
Capital, S.C. in recent years exited from two funds, one
with a realized gross IRR of 44 percent and a realized
gain of $US 214 million and another with a 30 percent
IRR and gain of $US36 million. A director at Nexxus,
Roberto Terrazas, 35, says their third fund, called
Nexxus Capital Private Equity Fund III, LP, has closed
with commitments of US$142 million, with additional
commitments of approximately $32 million available.
The fund started its marketing in January 2007. The
investment period may be three to six years. It has
made one investment and expects to make between five
and eight. Fund officials intend to invest in companies
between US$20 million and US$50 million in size. A
graduate of New Mexico State University and the MBA
program at CEPADE in Mexico City, Terrazas also says
the purchase valuations for Mexican companies are
often three to six times EBITDA, compared to about
nine times in the United States.
Terrazas says the fund’s major investors include the
International Finance Corporation, HSBC, the Mexican
Development Bank, Export Development Canada (EDC)
and the German bank DEG. More than 95 percent of the
total investment comes from institutional investors. The
fund will not co-invest with other funds, just limited
partners.
One aspect of the Mexican VC climate Terrazas says he
likes is that competition with other private equity firms
is “limited, so we can often negotiate good terms. When
we do an IPO, we usually exit the company.” And he also
appreciates the “macroeconomic stability of Mexico.”
One sector the third Nexxus fund intends to invest in
is financial services, including consumer, educational
and specialty financing. Health and fitness firms are
also being considered, including hospitals, clinical
laboratories, ophthalmologic and optical clinics,
orthopedic and plastic surgery clinics, nutrition and
specialized clinics. Managers at Nexxus will also
consider investing in the housing and tourism sector,
including low and middle income housing, marinas,
tourism services, light infrastructure, medium and long
term stay apartments and hotel chains. Education is
another field Nexxus may invest in, including K – 12
and English chain schools, and technical universities.
Consumer products and services is another sector,
including branded consumer products, logistics and
distribution and specialty retail. Companies involving
private security and waste treatment and management
are also being considered.
Terrazas agrees with Luis Perezcano, 42, a partner of
the closed NAFTA Fund of Mexico, LP, that raising
private equity funding in Mexico recently has become
easier. The NAFTA Fund started in 2003. It has always
maintained some US$40 million in funding and has
not exited a company.
The NAFTA Fund has five investments, including
US$8.7 million in the manufacturing firm Cabos
Marinos/Hooven Allison. The fund also invested
US$5.5 million in Grupo Editorial Armonia/Megazines
Publications. It also invested into logistics, putting
US$3.6 million in Pacific Star. Telecom is another area,
with $US4 million invested in Road 9. And the NAFTA
Fund loves ice cream, or retail consumer goods, putting
US$4.5 million into Helados de Norteamerica, the
Baskin Robbins master licensee for Mexico.
A graduate of Mexico City’s ITAM and the MBA
program at New York University, Perezcano says
in recent years Mexican valuations have done well.
During the last five years Mexican valuations have
about tripled, he says, compared to being quite
volatile throughout much of the world. Within
the last five years, the Mexican IPC rose about 400
percent compared to the American S&P rising some
80 percent.
Perezcano says that although the Mexican trading
multiples are “substantially below” that in the US,
there are “a lot opportunities to invest in the Mexican
private equity market,” more than in recent years.
Some companies are poised to grow. He also says he
is willing to co-invest with other funds and limited
partners. The NAFTA Fund has 30 investors, including
institutional ones such as a Mexican fund of funds and
US pension funds. He adds that Mexico has “very few”
institutional investors.