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Enabling Business beyond Borders
The bulls are loose in Latin America as companies in the region race to meet growing demand. This has created an environment ripe for mergers and acquisitions, where both local and foreign investors may place capital and acquire assets with confidence.
While mergers & acquisitions (M&A) activity in other regions around the world may have cooled, the practice is heating up in Latin America, with both intraregional and international buyers searching for investment opportunities within the improving economic and regulatory climate in the region. Richard Lee, Director of Mergers and Acquisitions for investment bank Grupo IDC, believes Guatemala offers a particularly attractive portfolio of companies with sound fundamentals and high growth potential. “We are seeing a number of local firms successfully make the transition from Guatemalan to what we call ‘multi-Latina’ businesses. Often, it is a partnership with another regional or international company that enables that leap.”
INVEST WITH CONFIDENCE
Lee goes on to explain that while Guatemala’s local stock exchange is still emerging as a means for raising capital, a variety of positive conditions make the nation’s enterprises attractive for investment and create a robust market for private equity placement.
For the past 10 years, Guatemala has demonstrated strong macroeconomics and remarkable monetary stability. “We went through the financial crisis of 2008 and 2009 and didn’t even know it,” Lee laughs. “Because of the size of our economy, we had minimal exposure to the global financial markets.” He elaborates that Guatemala’s GDP-to-debt ratio and fiscal deficit have remained healthy, making the nation resilient and able to maneuver quickly.
Unlike more developed economies, Guatemala’s economy still has plenty of runway. Public services remain underdeveloped in many areas, indicating a significant opportunity for infrastructure investment. The free trade agreement ratified in September 2013 with Mexico, a large market for Guatemala’s products and services, is only just beginning to pay dividends. And like all the region’s major economies, the nation is narrowing the prosperity gap, unleashing a burgeoning, acquisitive middle class.
LOCAL TO GLOBAL TRAJECTORY
Much of Guatemala’s economy has been built on the strength and longevity of family-owned and -operated firms. “Guatemala is very proud of its family firms that, in addition to having distinguished histories, boast great products, great people, and great aspirations,” according to Lee. Yet these companies can no longer expect to thrive solely on local commerce; rather, they must seek growth beyond the borders of their own nation.
The first, and most accessible, stage of expansion is trade with neighbors. Firms that have developed beyond their home borders and now serve the Central American region have inspired the term “multi-Latinas.” The economy
RICHARD LEE
Director of Mergers and Acquisitions Grupo IDC
is changing rapidly, and those companies that seize the opportunity early are the ones that get ahead, Lee says. “The successful businesses are adapting at a very fast pace. Fifteen years ago, they were just local, family shops. Today they are multi-Latina, and in the next decades, some will be global enterprises.”
Lee has confidence in his fellow Guatemalans. “They know they need to bring in professional leadership; they know they must stretch and grow—they just need financial sophistication and world-class best practices. I see a lot of opportunity in this arena for investment by professional shareholders who can drive strategic plans.” Lee acknowledges the transition can be bumpy as families adjust to the corporate structure and shareholder agreements that accompany capital infusions, “but if a Guatemalan family business wants to go public or have access to world financial markets, the only way to do it is through adopting these changes.”
STILL ROOM TO GROW
Though economic development has been strong in Latin America in recent decades, Lee believes Guatemala’s greatest potential lies ahead. “I’m very optimistic. Right now we’re a US $55 billion economy, but by 2025, I envision Guatemala having a US $100 billion economy.”
As is the case in nearly every Latin American nation, growth in Guatemala’s middle class is driving consumption and the demand for transportation, energy, communication, and health infrastructure. These conditions require larger, more agile companies that can deliver rapidly and in volume. Local leaders perceive this need and many are in the market for partners who can help them grow rapidly enough to deliver. Says Lee, “The key thing for success here is to think globally but to act locally.”
The region is changing faster ... way faster than 20 years ago. Businesses must adapt quickly and think strategically, or the market will do it for you.”
INTERVIEW: GRUPO IDC
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