Private-equity financiers of ten say they want to invest in Hispanic companies but can't find any. Hispania Capital Partners, however, has a knack for finding what others can't.
Since 2003, Hispania has invested in six companies, five of them Hispanic-owned (see table, "Hispania Deals").
Victor Maruri, co-founder of the Chicagobased fund, explains its success in terms of size. Hispania has $125 million to invest, so its maximum commitment to a specific company tops out at $10 million. "That means we are looking for companies in the revenue range of $10 million to $100 million,"Mr.Maruri says, "and that's where the Hispanic entrepreneur resides."
In contrast, most private-equity funds want to make $50 million investments and look for
much larger companies. "There are virtually no Hispanic plays in that market, except in radio. In your magazine, you can count [companies in the right revenue range] on the Hispanic Business 500®,"Mr.Maruri says.
Carlos Signoret, the fund's other cofounder, refers to Hispania as a "demographic" fund.
"We search for companies with a fundamental strategy to accelerate their growth by positioning their product or services to take advantage of Hispanic demographic growth. All of our portfolio companies tap this strong 'demographic backwind' differently," he says.
In 2003,Hispania made its first investment by buying a stake in the Chicago Spanishlanguage newspaper La Raza. Fifteen months later the paper sold to ImpreMedia for what Mr. Maruri describes as "a very handsome return."
The fund's current investments include:
Hispanic Yellow Pages of America
A spin-off from the La Raza deal. Thanks to acquisitions in Nevada, Colorado, Arizona, and elsewhere, the company now publishes Spanish-language yellow pages in seven markets.
Samy Holding Co.
In 2004, Hispania took a 40 percent stake in the hair product brand. At the time, CEO Luis Delgado sold mostly through personal appearances on The Home Shopping Network. "We put [the Hispania money] into human capital – hired good people – and the rest went into advertising," says Mr. Delgado. Today, Samy sells through 33,000 retail outlets across the nation, including Target,Wal-Mart,Walgreen's, Costco, and Albertson's stores. Mr. Signoret notes that Samy's revenues tripled just 18 months after Hispania funded it.
An engineering firm specializing in water treatment, CSA has revenues of about $55 million. The investment play, according to Mr.Maruri, is to bring consolidation to a fragmented market. "There are lots of Hispanic engineering firms but they are small. The CEOs have a hard time monetizing their company because of size. So they come
into the fold, obtain shares in CSA, and the company grows," he explains. Critical mass allows CSA to bid on larger contracts and benefit from relationships with government officials and elected politicians, who are increasingly Hispanic.
Eastern Research Services
Among telephone pollsters, "language of choice"is the new catch phrase. "If you want a poll on anything in Los Angeles, or San Antonio, even if you're not targeting Hispanics, you will call them," says Mr.Maruri."More and more companies say they don't segment, but they want to go English or Spanish, depending on who picks up the phone."While a lot of U.S. polling has moved to India, bilingual polling has grown 15 to 20 percent per year, he adds. Although Eastern Research was started by two Italian Americans, most of the interviewers are Hispanic college and high-school students working at a new call center in El Paso.
World Wide Concessions
The fund's most recent investment features Chili's and On the Border restaurants at Miami International
Airport. The company also owns Burger King franchises and has rights to open future franchise operations. But the eventual strategy focuses on developing Hispanic-themed restaurant formats for the South Florida market. "It's our first play in restaurants,"Mr.Maruri says.
Discipline, Not Micromanagement
"If one thing has come from having outside equity partners," says Samy's Mr. Delgado, "it is that it
has forced us to become more disciplined in how we look at the business. It has forced us to set goals that we are forced to hit."
However, he stresses that Hispania avoids involvement in operating the company, preferring to monitor progress through quarterly board meetings and monthly financial and sales reports.
Currently, Hispania has invested about 40 percent of its available capital, and Mr.Maruri estimates the team can perform the due diligence and tracking for two to four deals per year.
The team includes Mr.Maruri, a former executive director at JP Morgan and banker at Banque Paribas; Mr. Signoret, a former principal at middlemarketmanufacturing fund CM Equity Partners in New York; and Amador Bustos, the founder of Z Spanish Media, which he sold to Entravision Communications for $475 million in 2000. Mr. Bustos serves on Hispania's investment committee.
"As a growth-focused fund, we primarily look for situations where the bulk of our investment and additional financing is used to expand the business, as opposed to help finance a leveraged buyout," says Mr. Signoret. "Since we believe that the positive demographic trends exhibited by the Hispanic population are sustainable over the long-term, we see a long-term opportunity to have a successful fund focused in this sector."
A typical Hispania investment targets a company five to seven years old that has large growth potential and an owner willing to sell five years in the future.
"Eventually – normally around five years – we need to provide a return to our investors, and therefore the company must be ready for an event that could include a sale of the business,"Mr. Signoret says. That excludes CEOs who want to retain control or pass on the company to their children.
"We realized that's the nature of the businesss – it's not unique to Hispania – so it wasn't something that scared us," says Samy's Mr. Delgado, who does not regret his decision to partner with Hispania."We talked to three or four other funds, actually bigger funds that made comparable offers, but in the end I felt a certain affinity for Victor and Carlos, and it all came down to my comfort level."
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