MEXICO

30 | SPECIAL REPORT: PRIVATE EQUITY IN MEXICO
Case Study: Liquid Capital
The case of The Abraaj Group’s investment in Liquid Capital illustrates how a Mexican
business can benefit from the value creation initiatives a private equity firm brings to
the table in addition to its capital—and the knock-on effects to an economy that can
result. In Liquid Capital, Abraaj saw an opportunity to invest in a high-growth company
while supplying a critical part of the broader business infrastructure. Additionally, Liquid
Capital’s leasing operation addressed a major bottleneck in Mexico’s business ecosystem:
the scarcity of bank financing, especially for SMEs. By leasing their office equipment,
Mexican entrepreneurs could preserve and extend their precious capital.
Liquid Capital’s Story
In 1996, Xerox decided to transfer its
Mexican print equipment distribution
business to independent operators. Adam
Wiaktor, an executive of the company at
the time, decided to step in and acquire
the franchise himself, thus creating Liquid
Capital (previously named Docuformas).
One of the individuals involved early in
the history of Liquid Capital approached
members of Abraaj’s team for funding in
2007. By January 2008, Abraaj had agreed
to invest. The investment rationale was
compelling: the Mexico City-based company
was a market leader with a record of rising
profits and strong cash flow. Through its
strategic alliances with Hewlett-Packard
and Xerox, it obtained machines at a
substantial discount to their selling price.
In addition, the management team was
dedicated to continued growth through
new product lines, such as medical and
optical equipment leasing, funded by the
additional capital supplied by Abraaj.
The years leading to 2012, however, did
not entirely conform to the script, as
the global financial crisis threatened the
company’s lines of credit. Although Abraaj’s
investment team managed to arrange
additional financing for the company,
the chaos of the crisis resulted in a year
of lost growth. During 2012, however,
the new product lines and an emphasis
on franchised leasing operations put the
company on a renewed growth path.
Today Liquid Capital is the second largest
independent leasing company in Mexico. The
company has two operating units—Liquid
Capital and Liquid Capital Franchises—and
a subsidiary named ARG, a leasing company
acquired in December 2014:
• Liquid Capital: engages in sales of office
equipment and related software, supplies,
parts, service and technical support.
• Liquid Capital Franchises: offers factoring
and leasing facilities for various clients.
The Company
Essentials
Company: Liquid Capital
(Docuformas S.A.P.I. de C.V.)
(www.liquidcapital.mx)
Sector: Diversified financial services
Business focus: Providers of lease
financing
GP: The Abraaj Group, a private
equity investor in growth markets
with approximately US$9.5 billion
in assets under management
(www.abraaj.com)
Date of Investment: January 2008
• ARG: provides fleet management services
to medium sized companies.
Since the acquisition of ARG, Liquid Capital
has focused on capturing commercial and
operational synergies, and increasing top line
revenue through organic growth by opening
new franchises, increasing contract values
and exploring new sectors.
The Role Played by Private Equity
Concentrating on governance and risk,
Abraaj worked closely with the management
team to develop a viable business plan
that included a diversification strategy to
focus on new business lines. Abraaj helped
strengthen the company’s governance
processes, including the establishment of a
well-functioning Board, and a risk framework
that enhanced accounting and reporting
standards; for instance, by adopting IFRS in
place of Mexican GAAP. Furthermore, risk
analytics and the credit approval processes
were strengthened using stronger customer
data analytics. Abraaj also introduced the
company to the Balanced Scorecard and
Strategy Map to identify the company’s
strengths, weaknesses, opportunities and
threats, while improving communication
amongst co-workers and departments.
Moreover, Abraaj provided crucial support
for the company during the global financial
crisis. Lending to financial companies in
Mexico was severely restricted, and when
available, it was at uneconomic interest rates.
The Abraaj team accepted the challenge of
helping Liquid Capital maintain old credit
lines and opening new ones. In January
2009, Abraaj convinced Mexico’s National
Development Bank (Nacional Financiera) to
guarantee 30% of the company’s debt.
By 2012, Abraaj and management were
successful in shifting from leasing office
equipment, a market that was shrinking, to
providing other types of financial services
for SMEs. Most significantly, the company
purchased a master franchise for Mexico
from Canada’s Liquid Capital, resulting in the
firm’s name change and through which the
company can sell franchises to entrepreneurs
interested in establishing receivables for
factoring and leasing services.
Among other achievements, during Abraaj’s
investment period, the company has
revitalized its employee training through
an association with a local university,
totaling 8,874 man-hours with
approximately US$183,000 invested
in training in 2015 alone.