TTR In The Press
Business News Americas / BN Americas
April 2020
Private equity funds circling Chile as energy sector shows resilience
Drawn by a strong dollar and weakened valuations, private equity funds are sniffing around potential investment targets in Chile, a local lawyer said.
Private equity players are studying the market, particularly energy and infrastructure assets – and an uptick in activity could materialize in the second half of the year.
Activity in the Chilean private equity space ground to a halt in the first quarter, with no deals reported. Overall deal-making decelerated amid coronavirus and social protest resurgence fears.
“Private equity funds with capital are already analyzing which assets they like best,” Francisco Guzmán, a partner at law firm Carey, said in a special report on Andean region deal-making produced by research firm Transactional Track Record (TTR).
“When the coronavirus passes, there will be opportunities, he said. “There’s going to be a significant reactivation, and that’s where I dare be more optimistic.”
Regional venture capital company Magma Partners told BNamericas recently that Chile, along with other Latin American markets, was also drawing attention of potential investors in fintech and insurtech startups but that the crisis had slowed the pace of overall deal-making.
Guzmán said both private equity and venture capital funds had been contacting Carey to register their appetite for deals, particularly in the energy and infrastructure sectors.
The water and electricity industries are seen as among the most resilient to the current economic turmoil.
Indeed, in terms of overall deal-making, Gúzman said that renewable energy transactions Carey was working on had advanced and even closed during the travel restrictions.
According to Chile’s national energy commission, 89 non-conventional renewable energy (NCRE) projects were under construction at the end of February. That month operational NCRE plants accounted for 20.6% of electricity injected into the grid, led by solar and wind. In Chile, as of February, 33.7GW of NCRE projects had been given the environmental nod and 8.96GW of plants were being evaluated.
Meanwhile, In the infrastructure space, deals are still being negotiated but the pace has decelerated.
This month Chilean financial advisors Hudson Bankers said the natural resources, energy and basic services sectors continued to drive M&A activity in Chile as well as in Colombia and Peru.
In the first quarter of the year, deal-making decelerated sharply in Chile, in line with a regional trend fueled by heightened uncertainty and logistical problems generated by the health crisis.
Lower valuations in Chile and beyond may spur deal-making but could also cause some sellers to hang on to assets - if they can - until their price tags improve
ALSO READ: Latin America a ‘great opportunity’ for investors post-coronavirus
Thirty-eight deals were reported in Chile over the first quarter, with M&A accounting for 24 of them. Deal volume was down 45.7% while total disclosed deal value was down 60.3% to US$969mn. No private equity deals were disclosed.
Chile - along with all other major economies in Latin America - is forecast to enter recession this year amid dampened demand and low commodity prices, with green shoots of recovery expected in the second half.
COLOMBIA
The Colombian private equity market had already “lost steam” in recent years because of exchange rate issues and other challenges facing the asset management industry, Darío Laguado, a partner at law firm Brigard Urrutia, said in the report.
He said there was no deep financing or private equity funds dedicated to distressed assets in the country – adding that the crisis could change that.
On the general deal-making front, he said activity had slowed down but that deals, including the sale of Electricaribe assets, were signed, a trend seen in other sectors with limited exposure to fallout from the coronavirus crisis.
On the outlook, Laguado said deal-making activity could accelerate in the second half of the year, depending on how quickly economic activity picks up again.
“We do see that there will be large M&A deals, but they will be more strategic.”
Twenty-five deals were reported in Colombia in Q1, with M&A accounting for 13 of them. Volume was down 62.7% while total disclosed deal value was down 75.8% to US$368mn. One private equity deal was disclosed.
PERU
Ian Fry Cisneros, CEO of local investment bank UNE Asesores Financieros, said companies with strong liquidity will have many investment opportunities in the current environment.
“The most audacious are the ones who capitalize most in times like these,” Fry said in the report, adding that more aggressive funds could be more active. “There are those who wait, but prices will recover. The time to invest is when the situation is most critical.”
On the M&A outlook, Carlos Arata, head of local law firm Rubio Leguía Normand’s banking and insurance practice, said quarantine measures had put many deals on hold.
“I don’t expect to see any large deals wrapping up in the next six months, except those that were already very close to closing,” he said in the report.
“They’re still interested, but they’ll want to have another look once the storm has passed.”
He added, however, that deal-making in more resilient sectors like energy and construction could continue.
On the infrastructure front, Arata said firms in the sector will be looking for strategic partners amid a forecast uptick in government spending on infrastructure to help spur economic activity.
Sixteen deals were reported in Peru in Q1, with M&A accounting for eight of them. The number of deals fell 57.9% to 16 while total disclosed deal value was down 64.0% to US$519mn. Three private equity deals were reported, with a combined disclosed value of US$277mn.
Source: Business News Americas / BN Americas - Chile
