Global Investment to Boost Mexican IPOsBy Gabriela Mastache | Thu, 12/26/2019 - 11:07
Q: What is Nexxus Capital’s view of the investment environment in the country?
A: Whenever there is a change in the political administration, there is always volatility that slows economic growth. This is natural. The more important consideration is the point in the global economic cycle in which the administration is entering. The current global cycle has been fairly difficult. When considering these two elements – the change in the presidential administration and the global macroeconomic cycle – 2018 and 2019 were not the best years for the country.
Overall, investment across the world has been fairly selective. The macro investment from OEMs or the investment in large plants has continued and will continue. However, private equity moves in a different manner. Afores represent around one quarter of the money that is invested by private equity in the country. The rest of the money comes from international investors. These investors compare regions, growth, and regulations. In this sense, we are competing with the rest of the world to attract these resources and other regions have been more attractive for private equity, such as the US itself.
Nevertheless, Mexico’s investment principles remain strong. The first is the potential in the country. It is a very young country that is being boosted by technology and data access and is experiencing a fundamental shift in consumption. The combination of a young population and the use of technology generates a radical change. This represents a liberation of the potential the country has going forward. These two factors alone will give the economy an accelerated dynamism in the future.
On the other hand, we have undergone a year of changes. The administration has been executing a series of changes whose objective is to improve wealth distribution. The form and speed in which these changes have been implemented have generated difficulties that were not originally considered.
In 2019, because of several macroeconomic factors, the country experienced slower growth. Several factors, however, suggest a brighter 2020. These factors include greater public spending. The second element to consider is that both Mexican society and the Mexican business community have realized that some changes are positive and these have already been implemented.
In terms of the country’s competitiveness, we believe Mexico will regain its position in the global investment world and we expect that by 2020 we will see a higher level of investment in the country.
Q: How is Nexxus Capital distributing its investments in Mexico, compared to Spain and Portugal where it also invests?
A: We have different investment vehicles in Spain and Mexico. In Spain, we participate through a vehicle called Nexxus Iberia. This fund targets investment in SMEs in Spain and Portugal. We hope to end 2019 with around €170 million, which is a sizable amount that will allow us to deliver our target investments. In Mexico, we have investment vehicles for capital and for debt. Our recent investments include a store chain, called Turistore, a next-generation IT company and a concrete-pumping company. Our debt vehicle has financed a technology company and a real estate development firm, among others. With what we have done in Spain, plus our operation in Mexico, we hope to achieve investments of over US$200 million.
Q: What are the reasons behind the firm’s move to BIVA from the BMV?
A: BIVA started operating in 2018 and we perceived it as a disruptive operation that was breaking a monopoly in the country. We subsequently moved our CKD debt listing from the BMV to BIVA and we are about to make a similar change with another investment vehicle.
The investment ecosystem in the country has not grown. There are many reasons for this, but there has not been an enabling environment for the listing of new companies. We have no doubt that BIVA is a disruptive offering that breaks many paradigms. A second option for listing generates better service, greater competitiveness, and new technology tools. In this last area especially, BIVA is clearly superior.
It is important to note that BIVA, is working on several areas and is leading an effort to change the taxes on IPOs for issuers. Moreover, BIVA is working to generate awareness in the business community of the stock market as a real financing option that is different and complementary to bank efforts. Moreover, BIVA is working to generate knowledge and information regarding the stock market itself. BIVA recently launched the BIVA Institute that aims to increase knowledge of the stock market in Mexico. The results of this initiative will not be seen in the short term, but it is a key initiative. In the US, two out three families have an account in the stock market, and the US has 19 million digital accounts related to the stock market. In Mexico, there are only 250,000 accounts in the entire stock market. Around 20 years ago, there were more accounts and more listed companies on the stock exchange than today.
Q: What role do private equity funds play in generating a more dynamic Mexican investment ecosystem?
A: Private equity funds tend to have a limited participation in companies due to time. One element we always analyze is how to exit the company we invest in. The options include selling the company back to one of the partners, or selling the company to a buyer that is interested in consolidating in a determined industry. The other option is going to the stock exchange and knowing that either a partner or an administrator will continue with the operation once you leave. Funds are the main market supplier. In the past 12 years, one out of three companies that has gone public was boosted by a fund.
The problem is that in the past two years, prices on the stock exchange in Mexico have fallen sharply, which is one of the reasons why there have not been any IPOs in the past two years. However, I am confident that this will change in the coming months.
Another element to consider is that the minimum size that a broker asks to launch an IPO for a Mexican issuer in Mexico is US$400 million, while in the US the average IPO size is of just US$80 million, meaning that Mexican companies are require to be either larger, or are asked to float a bigger percentage of its stock than in the US markets. Obviously, this situation has made it harder for potential small and mid-sized Mexican issuers to list and achieve an adequate liquidity of its stock. This is one of the things that we are trying to correct alongside the authorities, the brokers and financial regulators.
Q: What are Nexxus’ priorities for the next two years?
A: As a fund, we have taken the most companies to the BMV and we have sponsored the most IPOs in Latin America. Our fundamental priority is to obtain the best possible returns for our investors within the regulatory framework. We want the companies we invest in to end up being better when we leave them. Our target continues to be investment in Mexico and we aim to continue working in the segment of the medium-sized company, which is where we believe we add the most value.