News Column

The Private Equity Deal Flow

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"Deal flow" is how investment bankers measure the volume of opportunities for matching businesses with equity capital. And right now, the deal flow in the U.S. Hispanic market is very healthy.

"The deal flow that we are experiencing is extremely good," says Carlos Signoret, co-manager of the Hispania Capital Partners fund in Chicago. "Compared to the dot-com environment in 1999 to 2000, it's different. Then you had deals coming down the pipeline that were Internet-related and many were start-ups. Now the volume is comparable to back then, but it's varied in terms of size and sector and maturity of business."

Juan Carlos "Jay" Garcia, managing director and head of global research at Samuel A. Ramirez & Co. in New York, says in today's environment good ideas will get funded more likely than not. "That wasn't true a generation ago, but it is today. People are seeking Hispanic companies to invest in."

Investors often go the private-equity route because of limited public opportunities in the Hispanic market, according to Mr. Garcia. At one point, Ramirez & Co. tried to identify public companies that were either 51 percent Hispanic-owned or derived 51 percent of their revenue from the Hispanic market. The project yielded only 20 such firms.

"If you ask any asset manager, he'll tell you that a 20-company universe is not enough to build a fund around," says Mr. Garcia. "Having said that, they take a look because these companies grow much faster than the average in Corporate America." In fact, an index based on the most-liquid Hispanic stocks has grown in value by 150 percent since August 2000, while the Dow Jones and Standard & Poor's indices have lost money, according to Mr. Garcia.

Funds or corporations with a strategic interest in the Hispanic market also prefer equity deals. And increasingly, these investors are coming from other Hispanic countries. Recent deals include investments by Spain's Marco Polo fund in film distributor Arenas Entertainment (see Hispanic Business, March 2004), and Spain's Recoletos in newspaper publisher Mexicamerica Media. Also, Mexico's Televisa is interested in buying U.S. Hispanic media properties.

"With the Hispanic market, you get the fast growth without the risk usually associated with [Latin America]. You're seeing that more and more," says Thomas Castro, CEO of Border Media Partners, a radio broadcaster that recently received $85 million in equity and debt financing, in part from Mexican investors, Vestar Capital Partners, and Spanish bank BBVA.

Experts say hot industries for investors today include media, banking, health care, and food. "Any company providing services to the Hispanic market – be it customers, businesses, finance, or distribution – is attractive," says Mr. Signoret.

Select M&A Deals in the Hispanic Market
Date Purchaser Target Industry Deal Type

The Washington Post El Tiempo Latino Media Acquisition
Atlanta Journal-Constitution Mundo Hispanico Media Acquisition
Recoletos Mexicamerica Media Media Acquisition
March 2004 Banco Popular Quaker City Bancorp Finance Merger
March 2004 Hispania Partners Samy Cos. Hair Prod. Minority Investment
March 2004 Molina Healthcare Healthcare Horizons Health Acquisition
March 2004 Molina Healthcare Primera Blue Cross Health Acquisition
CPK Media La Opinión Media Merger

Source: Ramirez & Co.

In the past two years, many of the largest deals have involved print media, a development Mr. Castro attributes to relatively few barriers to entry compared with the foreign-ownership restrictions in broadcasting. But he also notes a larger strategy behind BBVA's announcement in September that it would buy Laredo National Bank in Texas. BBVA already has shares in Mr. Castro's radio operation along the border as well as Mexican bank Bancomer. "They're buying that bank with footprints in South Texas as an entry into the Hispanic market," he says. "Now they can work [banking] on both sides of the border."

From the entrepreneur's perspective, the need for private equity usually arises when the company reaches a critical point in its development or the owner wants to sell. Mr. Signoret sees "companies that were local and now want to sell regionally. That's a reflection of reaching a critical mass." He also sees CEOs who either want to cash out completely or turn part of the company over to their children.

"Hispanics in the second and third generations are taking over companies," says Mr. Garcia. "They have a more market-oriented approach and are less attached to their company." But "the first step is for the owner of the company to decide [to relinquish] control," Mr. Garcia says. Some buyers want full control, while others will take a minority-ownership stake, but that determination must come early in the process.

Mr. Castro estimates he has signed $250 million in debt and equity capital deals since starting Border Media Partners in 2002. But he admits his company is the exception; most entrepreneurs face limited access to capital.

"Access to capital for Latinos continues to be weak," concurs Mr. Garcia. "But we can bring them capital on public and private markets. Twenty years ago there wasn't a Ramirez & Co. Today people have more choices than a generation ago."

Mr. Castro advises CEOs to begin their search for money with well-heeled friends and relatives. Although Mr. Castro has started three other companies, he raised the first $2 million for Border Media Partners from individual investors. As for the time involved, Mr. Castro says it took him nine months to land the latest $85 million investment. "However long you think it's going to take, double it," he warns.

And Mr. Garcia thinks CEOs should hurry to start the process, given the market's brief window of opportunity. "One thing I can tell you: Right now there is capital chasing deals," he says. "It will be short-lived, it will subside, so people should take advantage of it."

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