Latin Finance - July 2008 - (Page 22)

colombia investment banking Locals Join M&A Wave by Julio Urdaneta C olombia’s investment banks are reaping the benefits of a surge in M&A after years of conservative corporate management. A growing number of domestic firms also seeks access to local and global capital markets, and several domestic boutiques compete with foreign heavyweights for this business. “The Colombian macro economic landscape has favored the overall business dynamic,” says Mario Rodríguez Díaz, director of Colombian investment bank Inver Value, a boutique specializing in company valuations and M&A. “This demands being more competitive. M&A is one of the main resources to improve its competitiveness,” he adds. Besides Inver Value, Capitalia Colombia, Nogal Asesorías Financieras, Trígono, Incorbank and Agora are among the local boutiques vying for business with foreign giants like JPMorgan, Credit Suisse and ABN AMRO. Local heavyweights Bancolombia and Banco de Bogotá are also going head-to-head with the likes of Rothschild, Goldman Sachs, BNP Paribas, Scotia Capital, Citi and Santander. This year, several Colombian companies have joined the seemingly unstoppable regional M&A bandwagon. “M&A and project structuring, these two sectors are pretty dynamic at the moment,” says Jaime Ricaurte Junguito, a director at Incorbank, a boutique based in Bogotá. He notes that sectors like pharmaceuticals and logistics are seeing considerable consolidation. Other bankers see M&A opportunity in textiles, financial services, pharmaceuticals, food, real estate development and manufacturing. As local firms expand to compete in global markets, Colombian investment banks are profiting from the associated M&A wave. The trend looks set to continue. the typical size of a family owned company [in Colombia],” he says. However, the country has also seen billion dollar business, such as the Bavaria-SABMiller transaction, which closed at $6.6 billion, and the acquisition of the Cerrejón thermal coal mine by Swiss miner Xstrata for $1.7 billion. (See Chart.) Among deals in the pipeline are Bogotá-based moving company Mudanzas Chicó, which is looking to sell itself to two Mexican moving companies. Colombian lubricant and grease manufacturer Lloreda meanwhile wants to sell 65% of its equity, and Bucaramanga-based palm oil producer Palmeras Monterrey is also said to be close to selling. Both deals are in the 150 billion peso ($88 million) size area. Local investment banks offer guidance to companies entering a more sophisticated business environment, after years of conservative ownership structures, typically by families. “We want to help those entrepreneurs that because of their size haven’t had the opportunity to establish contact with New York, London or Zurich,” says Rodríguez Díaz. “This market is about entrepreneurs who are selling a company for the first and probably the only time in their lives, as opposed to buyers who see the purchase of a company as a frequent alternative to improve competitiveness,” he adds. There is still a lot of room in Colombia for consolidation through M&A, says Javier Vargas, a New York-based managing director in the LatAm group at Credit Suisse. “There are many PE funds that are looking at Colombia and acting as consolidators, to later exit through a sale to a bigger international investor or, when the consolidated companies get big enough, in the stock market,” he adds. There has been an influx of PE funds opening offices in Colombia, such as Palm and Tribeca, says Daniel Díaz Giraldo, director of Trígono Banca de Inversión in Bogotá, which specializes in distressed assets and M&A. Tribeca operates the Tribeca Fund I, a $115 million fund with investments in LatAm companies. Other investors have teamed up with local institutions, such as The Global Emerging Markets Group and Colombia’s Fidubogota, which created a $220 million PE fund aimed at investments in LatAm. As in Brazil and Mexico, after Colombian companies gain critical mass, Vargas expects targets to eventually be abroad, yielding business for big international banks able to support such transactions. “Depending on sociopolitical developments, this could happen in a couple of years,” adds Vargas. However, deterioration in macroeconomic indicators and change of political direction could make Colombia less attractive to foreign investors, thus decelerating M&A, Vargas says. While M&A booms, equity activity lags, according to Daniel Isaza, manager of Bogotá-based boutique Agora. “Many M&A deals end up with the acquired company being delisted after the acquisition,” he adds. Isaza cites as an example Colombian brewer Bavaria, which was delisted right after its acquisition by SABMiller in Family Sales Colombian M&A deals are often around $50m in size, according to Daniel Isaza, manager of Bogotá-based Agora. “That is 22 LATINFINANCE July/August 2008

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Latin Finance - July 2008 Contents Investment Banking Outlook Compensation Survey Colombia Investment Banking Borrowers vs. Investors Banorte Profile Braskem Financing Strategy Brazil Hydro Finance Peru Port Privatization Panama Money Flows Argentina Local Markets Guide to Banking Technology Who Said That?

Latin Finance - July 2008

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