July 10, 2016
Interviewed by: David Snow
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The Current State of Colombian PE

Hector Cateriano and Patricio D’Apice of MAS Equity Partners reveal where to find opportunity in today’s Colombian private equity market.

Hector Cateriano and Patricio D’Apice of MAS Equity Partners reveal where to find opportunity in today’s Colombian private equity market.

The Current State of Colombian PE
With Héctor Cateriano and Patricio D’Apice of MAS Equity Partners

David Snow, Privcap: Today, we’re joined by Patricio D’Apice and Héctor Cateriano from MAS Equity. Welcome to Privcap. Thanks for being here.

Unison: Thank you for inviting us.

Snow: Your firm is currently on Fund 3. There are not a lot of Colombian private equity firms that have a Fund 3, so it shows the length of time you’ve been in the market. I’m fascinated to hear your view on how you’ve seen the market evolve over the past, let’s say, 10 years. What’s changed about the market in Colombia, Héctor?

Héctor Cateriano, MAS Equity Partners: We were the first, the pioneer firm there. That was way back in 2006, so we’re 10 years in the market today. Basically, the market has evolved. The market started with zero players and probably two or three private equity-backed companies in the ‘90s and then slowed down. As the country changed and became more attractive, also the private equity industry today, there are about 40 fund managers. Patricio will tell you more about it, as he was the initial president of the ColCapital Association of Private Equity. But the market has definitely evolved. It has changed. It has more players, but still few. And there are tons of opportunities.

Snow: Patricio, what do you see as being a major sign of change in the Colombian markets? Is it the number of GPs? Is it the attitude of some of the local business executives in interacting with the private equity firm?

Patricio D’Apice, MAS Equity Partners: Yeah, I would say that the market has matured. We used to say probably five years ago that this was an infant industry. Now, it’s an industry with 44 players, 70 funds active. There is a strong regulation around the industry. There is the Colombian Private Equity and Venture Capital Association. Most of the companies—family-owned companies, entrepreneurs—have become aware of private equity. Investment banks are also doing a good job in finding opportunities and matching opportunities. So we are very, very close to what some mature markets in private equity are these days.

Snow: Let’s talk about some of the major investment opportunities in Colombia today, starting with the energy sector. Clearly, what’s on top of everyone’s mind about energy is that the price of oil has dropped significantly. What does that mean for you as a private equity investor in Colombian energy companies?

D’Apice: Of course, because of this clean-up of the industry, this shock of the oil price, you’re starting to see who are the most efficient players. Colombia started being an oil player in 2003 or 2005 approximately and grew from [400,000] barrels per day to almost one million barrels per day to what we have today. So, Colombia became a player very rapidly. That gave way to lots of companies providing services, but now, only the more efficient companies can survive.

Snow: Where do you see interesting opportunities to invest in infrastructure related to the country’s energy needs?

D’Apice: Infrastructure is one of the most important growth drivers these days and the Colombian government has selected infrastructure of one of its main strategic drivers. There is a big plan of $30 billion for infrastructure investment. It is a mix of government and private money that will be deployed during the next five years. That will provide for lots of opportunities in growth concessions, in logistics in general, in ports, in power generation and in storage facilities basically.

Snow: There’s also an important trend taking place in Colombia, which is the rise of the Colombian consumer. Héctor, that’s a bit more of your sector. Talk about what very important things international investors need to understand about the demographics of Colombia.

Cateriano: It’s a very interesting question. Compared to other countries in Latin America, Colombia is a country with large cities. You have five cities with more than one million people, which is probably comparable to what you see in Mexico or Brazil. And there’s 25 cities with more than 300,000 people. That creates a good mass where a Colombian company can expand to geographically get coverage and get growth. You have almost 50 million people in Colombia, which creates a good size of a market. Once you conquer us, we have then in some of our investments that market, you can expand further abroad. We have a gym chain that is the leading gym chain in Colombia and expanded to Peru and Chile. We just sold our equity stake there two weeks ago.

But it was a very nice and compelling story. We also have, for example, the largest oncology hospital in Colombia, servicing about 90,000 patients a year with 320 beds. We’re adding 120 more, so you can see the scope and the size of what you can do in Colombia and in the Colombian market.

Snow: Maybe taking your gym example, what are some of the challenges of going into a market like Peru from Colombia? Is it purely regulatory or are there other issues?

Cateriano: I’m actually Peruvian. We’re very similar, culturally wise. It’s another country really, so you do have challenges from how you hire, how you train the people, how they respond and how you find locations, right? Because in the gym business, it’s pretty much as the restaurant business: location, location, location. How you deal with the negotiation and how long you take to build and deal with the construction works and all of that. The license permits take a bit longer so, what we did was put independent, local members at the Peruvian operation so they can help us also with the culture. Also, up in Chile, we did that through an acquisition where we left the original founders as minority investors. That helped a lot. You need some pool of local talent that will help you, and, of course, your knowledge of how to manage the business.

Snow: If you look at your current portfolio of investments and you were to predict a breakdown of types of exits over the next five to 10 years, where do you think those exits are going to come from?

D’Apice: Maybe the history should repeat itself. We have done an exit to a strategic buyer, which is a listed company in the U.S. We’ve done an exit to two private equity firms and we’ve done an exit to the management. So, I think that kind of mix should happen again—maybe not a listed company, but especially a strategic company buying into to the Colombian story.

Cateriano: Yeah, we don’t see IPOs from some of the public markets as a primary strategy for exit. It will mostly be trade sales.

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