Key Takeaways: 1st LatAm Search Fund Conference

Key Takeaways from the 1st Search Fund Latam Conference last week, organized by Spectra Investments. It was a pleasure to participate!

🌟 Growing Popularity:

The number of Search Funds in Latam has risen significantly. Currently, 26 Search Funds are fundraising and 44 are in the Search Phase.

📊 Attractive Valuations:

Search Funds in Latin America are acquiring companies at an average multiple of 5.9x EBITDA—lower than the U.S. average of 6.4x. Even better, these companies show an average revenue growth of 32%, compared to just 15% in the U.S.

💡 The "Owner-CEO" Advantage:

In Latin America, exceptional Private Equity returns often correlate with businesses led by owner-CEOs rather than hired executives.

In the Search Fund model, the concept of an "Owner-CEO" is much more common, as Searchers can hold up to 25% equity in the acquired company, becoming its largest individual shareholder.

📈 Returns:

Although there have been few exits so far, market-to-market valuation of local investment funds (FIPs) indicate that Search Funds have outperformed other asset classes over the past five years.

💰 Liquidity:

In countries like Brazil, the DPI (Distributed to Paid-In Capital) in Private Equity is only slightly below that of the U.S., meaning large discounts based on liquidity may no longer be justified.

According to Voke CEO Rene Almeida, in periods of low liquidity, like now, the best strategy is to focus on strengthening systems, people, governance, and processes.

⚖️ Economic Cycles:

The investor Rob LeBlanc said "The investment horizon is longer then a 4 year political cycle. Then, buy something that is resilient to political and economic cycles". For example, a recruitment software company may struggle in a recession, whereas ERP software or automation companies are likely to fare better.

🏢 Culture:

Transforming culture in an acquired company is challenging, but over time, you can build a strong team. Nicolás Lulli, who exited his company in Peru, mentioned: "Giving team members ownership over a portion of the P&L is a powerful way to enhance engagement and foster a winning culture".

Guilherme presenting information on a deal in advanced stages at Scala Capital

If you want to discuss more, feel free to comment or reach out!