While private equity investment has largely focused on BRIC countries – especially Brazil in Latin America – the numbers reveal that Mexico is a nascent private-equity market primed for significant growth. This is already seen in the dramatic rise of private equity investment in Mexico over just the past few years, and future years look even more promising.
The Rise of Private Equity in Mexico
China, India, and Brazil have been quite popular for private equity investment for the past few decades, but over the past 10 years or so, a different picture is emerging. The annual rate of fundraising in Mexico has increased approximately six times, and the number of general partners active in the market doubled. When the global downturn occurred in 2008, while other markets declined, private equity investment in Mexico increased dramatically. In fact, in 2008, private equity investment in Mexico accounted for approximately 3% of the total investment for Latin America, dwarfed by Brazil’s 63%. But the tables have turned in a few short years. Last year, Mexico dominated Latin America with 29% of private equity investment compared to Brazil’s 26%.
Private equity investment in Mexico is growing rapidly. According to Amexcap, accumulated capital commitments have more than doubled in the past half-decade to $37.1 billion in 2015. During the first half of 2013, alone, venture capital and private equity investment in Mexico rose to a staggering $879 million USD, according to research compiled by the Latin American Private Equity & Venture Capital Association (Lavca). Lavca President, Cate Ambrose, had this to say about this trend:
The takeaway from these numbers is that Mexico has clearly become the flavour of the month…There is a shift in PE interest away from Brazil and into Mexico and Colombia.
This little understood investment vehicle is providing a flow of capital into Mexico that helps family owned businesses to span generational gaps where members of the family choose to not continue the business. Private Equity Investors seek such situations and provide a service that provides capital to the exiting family while then extending jobs and security for Mexican workers over many years into the future. The Tecma Group of Companies has gained expertise in the many benefits that Private Equity Companies and is willing to provide information to companies of Mexico who may be interested in learning more.
What is Driving Private Equity Investment in Mexico?
Mexico has many factors driving this surging investment trend. This manufacturing country has already begun experiencing the benefits of Mexican President Nieto’s aggressive reform measures that overhauled the economy over the past several years. But there are other incentives drawing PE investors as well. Mexico is very proactive in courting such investment and clearing the way for investors to establish their ventures in this manufacturing country. Currently, Mexico is considering a tax cut for private equity investors. The bill would:
- Reduce the fee to list a company on Mexico’s stock exchange
- Reduce the tax on sales through initial public offerings to 10%, in line with the capital gains rate
- Allow funds to use losses from unprofitable investments to offset taxes paid on profitable investments
Another factor boosting private equity investment in Mexico was a rule change that was implemented in 2009 regarding “Afores.” This is the Mexican name given to domestic pension funds, and the change now allows these funds to invest up to 20% of their assets in private equity. This move freed up significant capital for investment in the country’s booming economy, and many analysts believe these factors collectively ensure future growth in Mexico’s private equity investment, as the nation’s economic outlook and regulatory environment continually improve.