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N+1, Mercapital seek to fund Latin American growth

by Taina Rosa | Published July 31, 2012 at 3:50 PM

Spanish private equity firms Mercapital SL and N+1 Private Equity, which expect to complete their recently announced merger in early 2013, have plans to raise about €500 million ($615 million) for their first fund as a merged entity, according to a person close to the firms.

The merger, announced July 10, will create Spain's largest private equity house with assets under management of more than €1.7 billion. The new firm will be known as N+1 Mercapital and be co-chaired by N+1's Jorge Mataix and Javier Loizaga of Mercapital, who will also be CEO.

The new fund will invest in Spain-based midmarket companies seeking to enter or expand in Latin America. It will focus on healthcare, consumer retail and business services such as outsourcing.

"The standard return on investment in private equity is around 2 or 3 times equity invested," the source said. "But considering the growth in Latin American markets, investing there could bring returns of over 3 times," the source added.

Latin America's economy is expected to continue growing even as it combats external shocks, mainly from economic pressures in Europe and the U.S. The International Monetary Fund's Regional Economic Outlook report notes that "growth in Latin America remains solid, although it slowed during the second half of 2011 under the combined effects of policy tightening and global uncertainties." The IMF projects that growth in the region will slow to 3.75% in 2012 and strengthen to about 4% in 2013.

The source explained that portfolio companies will more likely expand in Latin America via acquisitions rather than organically, although the latter is always an option. "Latin American companies have become very sophisticated and competitive. It would be quicker for a Spanish company to expand in the region by acquiring companies."

In its latest deal, announced July 27, Mercapital invested €46 million in equity to take a 70% stake in Madrid-based upscale restaurant company Grupo Rubaiyat, the firm said. No debt was used to finance the transaction, a source said.

The sellers were the family of founder Belarmino Fernández Iglesias, who established the company in 1951.

Rubaiyat already has operations in Brazil, where it operates three restaurants. The company plans to open 10 restaurants in four years, it said. One restaurant is being built in Brasilia, Brazil, and others are planned for Rio de Janeiro, Mexico City and Bogotá, Colombia. A source said each restaurant should require a $2 million investment.

The Rubaiyat acquisition is going to be one of the last deals done through Mercapital's €550 million Spanish Buyout Fund, which closed in 2007. "Maybe two more deals will be made via this fund before it is completely deployed," the source said.

The firm, in conjunction with N+1, has plans to open offices in Mexico City and Bogotá. It already has a presence in Miami and São Paulo, in addition to its headquarters in Madrid.

Mercapital, which initially only invested in Spanish companies that were not necessarily expanding internationally, shifted its focus to companies with operations or seeking to expand operations in Latin America, especially Brazil, Mexico and the Andean region, about three years ago, as it sought to invest in more geographically diversified companies.

The merger between Mercapital and N+1 will also give N+1 the opportunity to enter the Latin American market. Until now, the firm has invested in Europe. N+1, which is mostly focused on asset management and investment banking, has offices in the U.K., France, Italy, Germany, Luxembourg and Turkey, in addition to Spain.

While Mercapital was eyeing Latin America, N+1 was busy expanding in Europe. On July 24, the firm said it merged N+1 Brewin, its advisory affiliate, with London-based capital mark

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Tags: fundraising | Mercapital SL | N+1 Private Equity | Private equity

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N+1, Mercapital seek to fund Latin American growth

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