KPMG Mexico Private Equity Case Studies - Sources ... - BVCA admin

Mexico 

Private Equity Case Studies: 

Sources of Value Creation 

November 2012 

Victor Esquivel

Mexico has 

experienced 

increased private 

equity activity in 

recent years 

Private equity case studies 

Opportunities for private equity 

Large entrepeneurial 

Small & Medium sized 

entities (SMEs) 

Scarce financing 

alternatives for SME’s 

Attractive sectors 

servicing a growing 

middle class 

© [year] [legal member firm name], a [jurisdiction] [legal structure] and a member firm of the KPMG network of independent member firms affiliated with KPMG International 

Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 

Unpenetrated but 

growing local private 

equity industry 

Improved regulations for 

corporate governance, 

minority rights 

Deregulating local 

pension funds 

1


Overview of landscape for private equity 

Diversification of funds from buy-out to venture capital, real estate and 

other alternative assets 

Local fund raising of about $3 billion US dollars 

Over 50 transactions private equity-led in the last two years 

Leverage has been available to fund deals 

Predominant exit strategy: trade sales 

Savvy, experienced local managers, but still a few 



2


HTC 



Sector: Call center, specialized in serving the Hispanic 

market in the United States. 

Fund: Carlyle, involved from 2005 to 2009. 

Strategy: Key changes in marketing and in the 

process of attracting new accounts. The fund´s 

relations and contacts were also leveraged in order to 

strengthen the company’s client portfolio. 

Impact: The company´s metrics were the best worldwide 

at the time of its sale by the fund. 

• Key elements to the success of the investment: 

• The first decision that the fund made was to replace the company´s sales 

director. 

• A new commercialization process was designed to be performance oriented. 

With this new design the company was able to increase their number of new 

accounts. 

• The fund used its relations and contacts throughout other industries to 

strengthen HTC´s client portfolio as well as income. 

3

The fund invited 

shareholders to 

become partners 

of HTC which 

aligned their 

incentives and 

facilitated the 

decision- making 

process, as well 

as the company’s 

growth 


HTC 

EBITDA HTC 

16 

14 

12 

10 

8 

6 

4 

2 

0 

Before & After the Investment 

EBITDA Employees 



5.0 

3.0 X 

15.0 

2005 2009 

Concept Impact 

IRR 78% 

Return on invested capital 3.4 x 

EBITDA 3 x 

Accounts 35% 

Employees +1,600 

Empleados HTC 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 

900 

2.77 X 

2,500 

2005 2009 

The fund immediately identified 

and made key decisions regarding 

opportunities to improve 

commercialization processes and 

the attraction of new clients. 

4


Genomma Lab International 



Sector: Personal care and pharmaceutical products. 

Fund: Nexxus, involved from 2004 to 2011. 

Strategy: A focus on portfolio diversification and risk 

administration. Restructuring commercial strategy and 

reinforcing the product development process. 

Impact: The company listed on the stock market and is 

now one of the most liquid shares on the market. 

• Nexxus worked with Genomma to diversify their portfolio, as up to 40% of income was 

concentrated in one client. 


• Focus on the management of product risk 

• Limiting the percentage of total capital invested in each product with the intent to 

diversify risks. 

5

Nexxus helped 

Genomma to 

improve analysis 

of the products 

and brands to be 

included in their 

portfolio and 

thereby maximize 

the company´s 

earnings and 

allow for growth 


Genomma Lab International 

Ingresos Genomma 

10.31 X 

millones de USD 

700 

650.0 

600 

500 

400 

300 

200 

100 

63.0 

0 

2004 2011 


Income EBITDA Employees 


Income 10.31 x 

Profitability 13.23 x 

IRR 72.9% 

Sales 18.5 x 

Product portfolio + 692 


EBITDA Genomma 

millones de USD 13.23X 

200 

172.0 

180 

160 

140 

120 

100 

80 

60 

40 

13.0 

20 

0 

2004 2011 



Empleos Genomma 

1,600 

1,400 

1,200 

1,000 

800 

600 

400 

200 

0 

240.0 

5.85 X 

1,405.0 

2004 2011 

The association between Nexxus 

and Genomma enhanced the 

company´s capacity to transform 

into a world class company. 

6


Desarrolladora Homex 



Sector: Low-income housing construction 

Fund: Nexxus, involved from 2000 to 2004. 

Strategy: A change in business model with a focus on 

sales processes, investment processes, and the 

centralization of treasury and purchases in order to 

take advantage of synergies. 

Impact: The company listed on the stock market in 

Mexico. Additionally, their construction time of a house 

decreased from 39.5 weeks to 7 weeks. 

• Nexxus´s strategy with Homex was centered on strengthening income by focusing on 

sales processes and the management of cash flow. These adjustments caused Homex 

to apply changes to the majority of their internal processes. 

7

Homex´s business 

model was 

changed in order 

to measure the 

company´s 

success in terms 

of houses sold 

instead of in terms 

of houses built 


Desarrolladora Homex 

Ingresos 

millones de pesos 

10,000 

9,000 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

0 

1,146 


Income EBITDA Employees 

7.70 X 



8,820 

2000 2005 


Income 7.7 x 

Profitability 27.71 x 


Utilidad 

millones de pesos 27.71 X 

1,000 

912 

900 

800 

700 

600 

500 

400 

300 

200 

100 

33 

0 

2000 2005 

Empleados 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

0 

1,905 

6.13 X 

11,678 

1999 2004 

During the period of investment, 

Homex´s profitability grew at an 

average rate of 94.33% per year. 

8


Laboratorios Kendrick 



Sector: Pharmaceutical, specialized in generic 

medications. 

Fund: Darby Investments (Mexican PE firm), involved 

from 2005 to 2009. 

Strategy: Applying changes to the commercialization 

model. Aligning shareholder and directors’ interests. 

Preparing the business for sale from day one of the 

investment. 

Impact: Kendrick became the laboratory with most 

growth in Mexico. 


• Darby Investments aligned interests to turnaround the high dependence on the public sector. 

• The fund realized the need to change Kendrick’s commercial strategy and contracted a team 

specialized in goods of mass consumption. 

• Instead of focusing the commercial strategy on doctors, as was the traditional business model, they 

focused commercialization on points of sale such as pharmacies. 

• A significant part of management´s compensation was tied to Kendrick´s sale price following the 

fund´s four year involvement. This aligned interests throughout the investment period. 

9

Prior to the 

investment, 

Kendrick was a 

well run company 

but Darby 

implemented 

important steps 

towards the 

company’s 

institutionalization 


Laboratorios Kendrick 

Ingresos Kendrick 

50 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 


Income EBITDA 



19.5 

2.30 X 

45.0 

2005 2009 


Income 2.3 x 

EBITDA 2.9 x 

IRR 53% 

Sales to public sector From 70% to 30% 

EBITDA Kendrick 2.90 X 

14 

12 

10 

8 

6 

4 

2 

0 

4.2 

12.2 

2005 2009 

Darby´s vision to change the 

industry´s standard 

commercialization model was 

fundamental to Kendrick´s 

success. 

10

Mexico managers have adapted the international private equity model to 

be successful 

Growth (buy-out) equity transactions 

Hands-on approach 

Variety of sectors 


Some final remarks 

Considering and implementing exit strategies earlier in the cycle 

A growing interest by companies in Mexico to consider private equity as a 

financing alternative for growth 

Favorable landscape going forward 



11

Thank you 

© [year] [legal member firm name], a [jurisdiction] [legal structure] and a 

member firm of the KPMG network of independent member firms affiliated 

with KPMG International Cooperative (KPMG International), a Swiss entity. 

All rights reserved. 

The KPMG name, logo and ‘cutting through complexity’ are registered 

trademarks or trademarks of KPMG International Cooperative (KPMG 

International). 

Presenter details 

Víctor L. Esquivel 

Partner In-charge - Advisory 

KPMG in Mexico 

+52(555) 246 8689 

vesquivel@kpmg.com

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