Impressively fast growth in the Latin American IT services market is drawing interest from both local and global private equity investors. Claudio Muruzabal, CEO of global business/IT consulting firm Neoris, says this trend will likely accelerate in the near future. “Depending on which statistics you look at, the Latin American IT services market is growing at twice the speed of the global IT services market,” said Muruzabal. “Per se, it is a bigger opportunity in terms of growth.”
Muruzabal said some of this activity has been driven by Latin American companies getting acquired by private equity funds and then consolidating other Latin American businesses, and some has been driven by outright acquisitions. In addition, he said there has been an increase in IPOs from Latin American IT service providers in the last year or so.
National and Regional Players Targeted
According to Muruzabal, private equity investors are targeting both IT service providers which specialize in one specific Latin American country and ones with regional or super-regional markets. “Latin American private equity funds are tending to go after single-country, lower-end providers,” he said. “Larger regional and super-regional players are drawing a lot of attention both from private equity funds and the strategic buyer market.”
In addition to offering entry into the larger Latin American markets, such as Brazil, Muruzabal said regional and super-regional IT service providers based in the region also offer a stronghold for companies looking to enter the growing Nearshore services market serving the US and Europe.
Interest Goes Beyond “Usual Suspects”
As mentioned above, companies offering private equity buyers entry into the booming Brazilian market are getting heavy attention, and private equity investment is also targeting companies doing business in other Latin American “usual suspects” such as Mexico. “There isn’t a day that goes by where I don’t see a fact sheet about a Brazilian company up for sale,” commented Muruzabal.
However, Muruzabal said service providers doing business in many of the secondary Latin American markets are also drawing increased attention from private equity investors.
“Investors are looking at other markets such as Argentina, Colombia, Peru, Chile and Costa Rica,” said Muruzabal. “The potential is seen there.”
Regulations Not an Issue
Although some Latin American countries may have intricate regulations affecting how business is conducted once an IT service provider has been purchased, Muruzabal said the regulatory environment in the region generally does not impede private equity investment. “I’m not aware of restrictions,” he said. “I’m not an (legal) expert, but I haven’t seen any real roadblocks. Some countries’ fiscal models could create challenges to activities such as exporting IT services to the US.”
Consider the Region
Muruzabal concluded his comments by reminding potential investors in Latin American IT service providers that countries throughout Latin America offer great potential. “You can’t look at the Latin American opportunity as being (based in) one country,” he said. “Especially larger players who want to create a super-regional infrastructure.”
By Dan Berthiaume