Latin Lawyer (LL): What are the most common types of private equity transactions in your jurisdiction?
Andrés Cerisola (AC): Most private equity (PE) transactions taking place in Uruguay qualify as what in the US would define as mid-market. This has a significant impact on the complexity and type of leverage that can normally be put together in the context of acquisitions and exits.
Transactions usually involve acquisitions where the purchaser acquires 100 per cent of the target’s stock. In some high-profile deals private equity funds acquire control, but not 100 per cent of the capital. In most of these cases, the PE funds have a call option, maturing within a certain period (eventually also with a seller option).
Bringing in new management remains the rule, because of the nature of the transactions that are being closed, even with MBIs in certain lower-market transactions. However, the so-called BIMBO transactions, in which the existing management team is complemented by outside managers, is also a strategy commonly pursued.
Although PE fund managers have a preference for originated deals in which a reasonable exclusivity is agreed early in the process, some of the largest transactions have been managed as auctions, especially when the target is particularly hot or the seller is particularly sophisticated. Despite the above, some PE funds exited original auction transactions quite successfully and reaching competitive multiples. While Uruguay remains a sellers’ market, originated deals will exist, but auctions will be part of the menu, especially in the case of the hottest targets.
SPVs are used in many transactions. So far, convertible debt or hybrid instruments remain unusual. The market may be ripe for more sophisticated structures during 2011 as the pipeline of deals is growing rapidly and new PE funds are stepping in.
As to early stage financing, the market showed signs of development with the entrance of angel investors and VCs a few years ago, but the process lost steam in more recent years, in contrast with the rapid heating of the PE market. Today, VC transactions are marginal and, although probably not less frequent than a few years ago in absolute terms, they have definitely lost their visibility when compared with late stage financing transactions whose growth is snowballing.
LL: What types of investors are most active (and what jurisdictions are they most commonly from) in the private equity market of your jurisdiction?
AC: Most PE investors are international PE funds, a majority of which already have some level of activity in the region. Regional PE funds are also active. Most private equity funds in closed transactions have been American, European or Latin American, but there have also been isolated transactions and interest from other origins. Sovereign wealth funds have announced interest in quite ambitious projects but, so far, have not been able to close on them, and in isolated cases even generated reactions because of cultural misunderstandings or strategic mistakes.
Leading PE funds have sometimes brought on board so called ‘captive’ PE funds linked to financial institutions or development agencies. Thus far, these funds have always participated only in the largest transactions and in a complementary rather than a leading role.
Business angels have been active in smaller PE type transactions, and this trend may speed up because of the cycle of reinvestment of the proceeds obtained by those on the exiting side of major M&A transactions.
Strategic acquisitions, some of them providing an exit from original PE transactions, have increased steadily. Very relevant for the market, the source of these strategic acquisitions has diversified significantly as compared to the situation only 10 years ago.