March 23, 2018
What are the plans of Victoria Capital, the owner fund of Los Grobo
Carlos García, number one in the fund that acquired Los Grobo in 2017, is preparing the launch of his third vehicle to invest in the region. It is defined as generalist but does not look at regulated sectors.

It goes unnoticed, hidden behind the common name and surname. But Carlos García is not someone else in the world of private equity: he leads Victoria Capital, a firm that raised two funds for US $ 1,700 million, focused on Latin America and created in 2002 by almost the same management that Donaldson Lufkin & Jenrette -known in the industry by its initials, DLJ-, a company to which García joined in 1995 and in which he led all the investments for Latin America. But that's history: last December, Victoria Capital completed its second fund, US $ 850 million, and prepares the third, which apparently will not be neither the defeated nor small.

Low profile in Argentina, Victoria Capital raised land in 2016, when it took over 70 percent of Grupo Los Grobo and injected US $ 100 million with the International Finance Corporation (IFC), UTIMCO (The University of Texas Investment Management Company) and the FMO, Dutch Development Bank. The purpose of the operation, as specified in the formal press release, is to double the size of the company in the next four years. "It is not that we are investors oriented to the agricultural sector, but we see in it that Argentina has a competitive and sustainable advantage," says García, although he clarifies: "It is not the first. In 2014 we bought control of a company, Satus Ager (NdR: dedicated to producing seeds against season, then sold in the Northern Hemisphere). " Last July, Grupo Newsan joined Grupo Los Grobo as one of the trusted men in Victoria Capital, Jorge Arpi - public accountant, MBA abroad, 56 years old. "He was one of our key executives in Peñaflor," García recalls. He left his place Horacio Busanello, who in 2017 had served six years in the firm.

But beyond that his last bet in Argentina has been Los Grobo, Garcia defines Victoria as a "generalist" firm, although the exception to the rule are regulated industries. "We have never wanted to get involved in these businesses. It has been a 'no' throughout the entire region and since the creation of the firm, "he says. Nor does he feel the obligation to invest a certain amount of times per fund, even though the numbers have been almost the same in the first two (nine companies). "We have absolute discretion to choose at every moment of the fund's life - or the funds - where to invest and what types of transactions to make," he says.

Victoria is not a third sector, and Garcia wants to make it clear. "The objective as a private equity firm is to generate a capital gain for our investors," he admits, and speaks of the property rule that rules the US market. "It's 500, 600 basis points above the public markets, that's a long series of 10, 15, 20 years. If one looks at the historical series, it should give in the order of 13, 14 percent in the developed world, "he says. But he is in Buenos Aires; at most, in San Pablo. "We, to invest in Latin America, aspire to generate returns above 20 percent in dollars," he says.

It speaks of longing, which does not always come true. "In the life of a professional manager there is always an ugly duckling and a pretty babe." Of the nine investments that Victoria made in the first fund, García recalls that he had a half failure - he does not specify what it was - and the second one has not yet been born. "Of the nine transactions of the second fund, there are two that are likely to show clear signs of success and partial realization of the investments soon."

Next crop

January and February are months of work for García and team, who are already thinking about the lifting of the third fund. "Our last fund was US $ 850 million. It is not resolved, but I would say that, given the circumstances of the region, it will not be greater than that amount, for sure, because I do not believe that the appetite for the region allows us to go much further than that, "he says. The investment period of the second fund ended on December 29. "With which, we will go to the market sometime in the first two months of the year," he adds. It will look for the model to be institutional. "All international pension funds, international insurance companies, endowments of universities, sovereign funds," he explains. If you want a change: the place of origin of those funds. "We would like to have institutional Latin American investment funds: Chilean, Colombian, Peruvian pension funds ... or insurance companies. We did not have them in the second fund, because it got up very quickly and very quickly we were oversubscribed with people from outside Latin America, "he recalls.

That it comes out now is due to circumstances and situations of internal organization of the firm. "This is a business where the fundamental decision made by investors is to bet on what is called track record. And we have a couple of transactions to the point of being made, which will generate very attractive returns for our investors. So, from the point of view of timing, maybe it's better to wait a little bit and take them closed, agreed. " He has already prepared a preliminary pipeline with companies in the region, but he is cautious. "It is a very low rate of success business. We ended up closing 0.75 percent of the number of operations we evaluated in the life of the fund. In round numbers, of nine investments, we look at 1000 opportunities over five years ". In the future, the question will not change much. "Surely, we end up closing 1 percent of what we are looking at," he says.

It does not occur to him to devote himself solely to his country: it testifies with the regional strategy. "In 2007 we had an office in San Pablo and one in Buenos Aires. In 2011 we expanded our presence to Bogotá and in 2012 to New York, more for a question of administration and relationship with investors ", he highlights. But that's not all, since Lima is in the plans. "It's one of our five markets, a relatively large one: we have a Peruvian working a long time with us in Buenos Aires and the time has come to open it. To capture the opportunities one has to be close to where they happen, "he says. With less certainty, Garcia speaks of Santiago de Chile, where strangely they are not yet. "Eventually, one day, and that we have a presence in the five countries that we define as objective markets," he says.

Look at the region. However, he knows that it is not the same as a couple of years ago. "Until 2013 it was extremely attractive and there were fundraising records to invest. The statistics have substantially reduced the funds that have been raised, because the region, in itself, as of 2013, entered a period in which it has lost appeal. " But to devote exclusively to Argentina would be crazy today, he believes. In any case, he outlines hypotheses if he did: "If today I would want to raise a fund dedicated exclusively to any country in Latin America, except Mexico and Brazil, I probably would not. It is also a question of size. Today you can go to a regional model, like ours, that includes Argentina and raise capital: yes."

With $ 1700 million in tow and the confidence of heavy funds behind their backs, Garcia or one of their own never stayed silent at a board meeting, whatever the company they entered. "In general, in three of four transactions we do we take control of the companies and in a quarter we do not take it, but we share it with someone else, with a shareholder agreement that allows us to reserve a certain number of decisions. What we never do is to be a passive minority partner: it is outside our philosophy, "he reports. In order to decide to share decisions, certain requirements must be met. "The character and personality of the partner: for us that is a determining issue. Because if the quality of the partner is not adequate, it is very likely that we will end up in some problem ". The well-known comment in the industry summarizes the dangers: "With good partners one can solve the problems of the businesses that do not go wrong. With bad partners, can not solve the problems of business that are good", he recites.

When he wishes, Garcia is elusive and speaks difficult; uses the mechanism when it comes to the valuations that Victoria Capital prints on the contracts. "We set them based on a price that allows us to generate an adequate return, based on a perception of reasonable risk." And it simplifies the explanation: "We are, by definition, conservatives. Normally we tend to be acidic about the realization of a business plan. " For an old speaker, few words: "Throughout my 30 years doing this, I rarely saw that they stick to a long-term plan as it was presented. That makes me, inevitably, skeptical. " He was not blinded by the Internet bubble in 2001, when DJL was a shareholder of Editorial Atlántida. "We had a huge amount of opportunities to invest in Internet businesses," recalls Garcia, who did the same as now: he gathered the troops, put the papers on the table and began to do accounts. "We took the 100 projects that we had seen that were based on advertising revenue, we took the size of the largest advertising market that those projections gave, we added the shares that said the 100 projects, and gave 30 times the size of the market." The investor heard the "pum" ahead of time and escaped. "Here is something that does not work," he said, back then.

With or without a bubble, García receives the numbers and turns them over, always in his favor. "We elaborated an adjusted business plan, modified to what is our perception of the potential risk of concretion of the business. Then, based on that, we take a vision of how and when you can get out of that business. And the how is very important, because I implicitly define which multiple or what valuation I think will be able to sell. From there I define the price at which I can enter, to generate a rate of return like the one I want, "he explains, and accounts for the total antagonism that exists with the venture capital industry. "It's a much more business to identify opportunities that do not necessarily correlate with history. They are much more disruptive things. Our business, originated in the model of buyouts and growth capital, is one that deals much more with building the bridge that explains why the current reality is going to change to a different one".

The manager sees that the international firms will walk with Achilles heel for Argentina. "The big problem, for my taste, is that by definition they leave a number of opportunities that they can not capture. That makes the megafondos are giving rise to a huge opportunity for the mid market buyers. " There are many new signatures that appear created by ex-members of the big ones. "They seek to capture the opportunities that remain," he says. And he asks himself something logical, when citing the new fund of Apollo, of US $ 24,000 million. "How do you get interested in Latin America? How many transactions can you find where to put a US $ 1 billion check? That space is the one that will capture other signatures, more girls, which we hope will be us, the Latin American firms. " But he says he does not trust, since others stalk: "There is a large universe of investors that is still interested in investing in Latin America."

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