Is It PE’s Time to Tango in Argentina?

The country’s investment market has reopened for business and private equity firms are ready

For 12 years, PE firms waited on the sidelines in Argentina while the nation’s populist presidents called the tune. As first Néstor Kirchner and then Cristina Fernández de Kirchner shackled the free market, deals became virtually impossible. But in December 2015, Argentina elected pro-business president Mauricio Macri and the dance floor finally reopened for private equity.

Among the first firms to step up was the Rohatyn Group, which is now looking for middle-market investments in Argentina. “We have been waiting for the government to change and for a pro-market administration to come into power,” says Gustavo Eiben, the Rohatyn Group’s head of business development for private markets. “There is a great amount of opportunity in Argentina now, due to the lack of investment over the last 10 years.”

PE deals in Argentina had become increasingly difficult as the country tossed aside the legal safeguards investors depend on. “You could invest in a company and you never knew if a month later the government would turn around and say, ‘OK, this is my company now,’” Eiben says.

Consequently, PE firms simply did not do deals in Argentina, although some did place offices in the country with an eye to the future. The Rohatyn Group set up an office in Buenos Aires in 2004 and kept tabs on the Argentine market while doing regional deals out of that office.

Now that the environment has changed, the firm is moving quickly to invest while valuations are attractive. The Rohatyn Group is about to do a deal in the region at an entry multiple of 2.5x—a level of pricing not to be found elsewhere in the region.

“Everything is starting to change,” Eiben says. “It’s a tremendous opportunity. Every day we’re talking with two or three new companies. This kind of deal flow is a remarkable development and very refreshing.”

The Rohatyn Group is going into several different industries. One is agribusiness, where Argentina has products recognized for quality in international markets and where export taxes on a number of key agricultural commodities were recently canceled by President Macri.

Another sector of interest to the Rohatyn Group is natural resources. The firm is looking at companies that service the mining industry, for example. Mining accounts for only about 1 percent of the GDP in Argentina, while Chile pulls 15 percent of its GDP out of the ground.

Technology is also attractive, with an active tech scene in Buenos Aires. In 2014, Argentina’s Globant became the first Latin American software company to launch a public offering on the New York Stock Exchange.

There are challenges, of course. Inflation is still high, and the currency is uncertain, as is growth. But Eiben does not foresee a return to populist rule. Meanwhile, he does see competitors entering the market, including Advent and Southern Cross, which are both making moves in Argentina.

“We can’t wait too long,” Eiben says. “If we wait too long and we see the inflation rate go down, we see a stable currency and we see a strong growth rate, then the low valuations we see now are going to skyrocket. So we believe this is the right time to get moving in the country.”