Latin Finance - March 2008 - 19

general atlantic interview GA Stalks Growth Firms by James Crombie eneral Atlantic (GA) made a splash in 2007 by taking lucrative stakes in MercadoLibre, the Argentina-based online retailer, and the Brazilian Mercantile and Futures Exchange (BM&F). Both went public in blowout IPOs, which produced a hefty paper profit for the global growth equity investor and highlights the opportunity lurking in LatAm for financial sponsors. “Once you have two significant investments in the region and you spend a lot of time looking at the region, you can’t but see a lot of other very interesting investment opportunities,” says Rene Kern, managing director in charge of GA’s LatAm push. “World class companies, that’s what we’re looking for. And frankly we’re looking for companies where we can add value,” he tells LatinFinance in an exclusive interview. GA manages approximately $17 billion and devoted approximately 23% of the capital invested in 2007 to LatAm, up from zero at the beginning of last year. Overall the portfolio is 50% US, roughly 40% in India, China and Europe, and the balance now in LatAm. “We have really seen over the last 5-10 years a shift from US domestic to international, I suspect there will be a continued evolution towards some of these rapidly growing economies outside of the US,” says Kern. GA is beefing up its office in São Paulo to support multinational portfolio companies and identify direct other investments. Besides Brazil, GA is surveying major markets in LatAm with stable political and economic environments. “Over a 5-10 year horizon, by all measures we’re actually quite excited about Latin America as a region, and particularly Brazil,” says Kern. “In the areas of finance, healthcare, the whole G General Atlantic expects to spend more in LatAm after triumphing with debut direct investments in 2007. The global growth equity investor foresees sizable opportunity. GA globally focuses on the following sectors: communications and electronics, enterprise solutions; energy and resources; financial services; healthcare; and media and consumer. “In each and every one of these sectors there is going to be opportunity to make investments in Brazil,” says Kern, adding that GA has a variety of dialogues with companies in those sectors. “We’re quite bullish in terms of some of the opportunities we’re seeing.” A recent success story is the BM&F, which priced late last year a blowout $3.37 billion IPO. Prior to going public, GA bought a 10% stake from equity members of the exchange for 1 billion reais. The IPO valued the exchange at 18 billion reais, yielding GA a paper profit of 80% at the time. Under the agreement, General Atlantic will not sell its BM&F shares for two years. GA invested to leverage its skills in managing exchanges. It identified BM&F as a potential powerhouse that can compete on a regional, if not global basis. GA was the largest investor in Archipelago, which was bought by the NYSE, and is the only investor in NYMEX. It has also bought into India’s stock exchange “We had a lot of understanding and perspective on the exchange landscape. One of our themes, which we’ve been pursuing actively, is the electronification of capital markets,” says Kern. “The BM&F fits very squarely into that strategy.” GA has had a minor presence in São Paulo since 1999, led by Mario Bethlehem, former CEO of IBM in Brazil. The small team is used primarily to help portfolio companies to break into Brazil. Long term growth, predicts Kern consumer area, there are going to be very interesting opportunities.” The Lure of Brazil Like an increasing band of foreign investors, GA is drawn by Brazil’s large and growing economy, which is supported by land, raw materials, and favorable demographics. It also likes the macro fundamentals, including controlled inflation, declining real interest rates, and falling risk. GA predicts investment grade this year or next for Brazil. “Clearly the macroeconomic environment is favorable. We think that over the next 5-10 years it’s going to be a growth area,” says Kern. “We like to invest in growth companies and that’s what I think that region offers up at this juncture,” he adds. March 2008 LATINFINANCE 19

Latin Finance - March 2008

Table of Contents for the Digital Edition of Latin Finance - March 2008