Can Private Equity Say Hola? November 22, 2011 Cisco Martinez

Hispanic companies are growing at triple the rate of the national average. Just ask private equity company HCP & Company (formerly Hispania Capital Partners), which opened the first nationwide Hispanic-focused fund in 2004. Since that time alone, the Hispanic American population has grown from 35 million to over 50 million, contributing more than fifty percent of the nation’s population growth over the past decade with immigration as a significant growth factor.

1970 1980 1990 2000 20100.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Percent Hispanic of the Total U.S. Population

At 16.3 percent of the U.S. population, Hispanics are the second largest market in the U.S. This translates into over a $1 trillion in purchasing power. The U.S. Hispanic population independently makes up the third largest Spanish speaking market in the Western hemisphere behind Brazil and Mexico. Regionalization of this market within the U.S. creates a demand for businesses that serve this distinct segment.

Nexos, another private equity firm that has a focus on the U.S. Hispanic market, views this to be particularly relevant in the food, media, telecom, and financial services sectors. Within foods and other consumer goods, Nexos believes they can reposition non-Hispanic businesses to better serve this market, and they can expand the product offering of Hispanic businesses to capture the upmarket of generations of Hispanics that are becoming more affluent. Prior investments include the Southern California Food Services Holding Company, located in one of the biggest Hispanic markets in the U.S.

Nexos has also observed that within media and telecom there are opportunities for Hispanic station ownership and marketing budgets for Hispanic media are growing at over 15 percent.

LatinVision Media, in partnership with New York City’s Latin Media and Entertainment Commission, established by Michael Bloomberg to make New York the capital of Latin Media and Entertainment, plan to leverage the market of 12.95 million Hispanic television homes in the U.S. LatinVision is a company that brings together buyers and sellers of Latin businesses.

Nexos also sees opportunity in the financial services sector with increased Hispanic demand for bank accounts, mortgages, credit and debit cards, and other financial services. Three of the four principals at Nexos have a Hispanic background and they believe this gives them an edge in sourcing lucrative opportunities in this market characterized by fragmentation and family ownership.

However, Gary Nusbaum of Palladium Equity Partners says believes that the U.S. Hispanic market affects every industry. Palladium was launched by Marcos Rodriguez in order to bring “Wall Street to the barrio.” They have $1 billion invested in Latino-related small and midsized companies. Palladium, like other firms with Hispanic-focused funds, believes that they can approach this segment more effectively with their unique demographic focus and network. Specifically Palladium seeks to profit off of four themes: youth and family, underserved industry sectors, culturally targeted products, and the Hispanization of America.

Palladium’s investments include Todobebé, which translates to everything baby. Todobebé is a multimedia firm in Miami for Spanish-speaking families with kids under 5. They have developed television and radio shows, a website, a magazine, and a parenting guidebook called The Todobebé Book. One of their television shows, Viva a Familia!, was the number one U.S. network show, in English or Spanish, in its debut on Univision.

Another one of Palladium’s investments, Castro Cheese, was founded by Mexican immigrant Maria Castro in her kitchen. Its La Vaquita brand is sold to supermarkets, restaurants, and hotels worldwide. Palladium was able to acquire this business that large strategic buyers could not. Maria Castro only agreed to sell her company after Spanish born Alex Ventosa, a Palladium managing director, spent a year convincing her that Palladium would take good care of her family business. “Alex’s accent…reminded her of her grandfather” says Rodriguez. This speaks to the advantage that Hispanic focused funds can gain through the Hispanic network.

From the LP standpoint, they see the U.S. Hispanization as a long-term investment theme. Chris Ailman, Chief Investment Officer of the California State Teachers’ Retirement System (Calstrs), says that Hispanics will have as great an impact on the U.S. economy as the Baby Boomers now and European immigrants in the last century. Calstrs has committed $40 million with Palladium. Palladium has been able to attract other large investors and pension funds, such as Spanish bank BBVA and the California Public Employees’ Retirement System (Calpers).

A 2008 Census Bureau projection estimated that ethnic and racial minorities will make up the majority of the U.S. population by the year 2050, with Hispanics being the majority group. Businesses should market to the majority market segment. Historically, U.S. Hispanic businesses have been constrained due to lack of expansion financing. In 2002 there were 1.6 million Hispanic-owned companies in the U.S., but according to research group HispanTelligence there is projected to be 4.3 million Hispanic-owned companies in the U.S by next year with projected revenues of more the $539 billion.

Bibliographyhttp://nexoscapital.com/index.htm

http://www.palladiumequity.com/index.asp

http://www.latinvisionfinance.com/eb_eng/content/areas.aspx?a=introduction_eb

http://www.hispanic5.com/first_hispanic_private_equity_fund_opens_for_business.htm

http://www.usatoday.com/money/smallbusiness/2008-08-05-palladium-hispanic-investment_N.htm

http://articles.cnn.com/2011-03-24/us/census.hispanics_1_hispanic-population-illegal-immigration-foreign-born?_s=PM:US

https://secure.hbinc.com/product/view.asp?id=222

http://www.hispanicbusiness.com/research/hispanicbusinessprojections.asp

http://articles.latimes.com/2011/mar/24/nation/la-na-census-hispanic-20110325

http://www.hispanicpopulation.net/why-you-should-go-into-hispanic-marketing.html#more-31

http://www.census.gov/population/www/socdemo/hispanic/hispanic_pop_presentation.html