“Private equity investors are buying into the idea that technology-backed startups can grow aggressively regardless of a country’s economic performance,” said Pedro Pereira, Latin American chief technology officer for investment banking, Bank of America Corp. But companies need to consider the turning point in their path as they schedule initial public offerings in a window where there is also growth for investors in publicly traded companies.”
Multi-million dollar startups such as delivery service provider Rappi, used-car distributor Kavak and digital real estate broker QuintoAndar said they could conduct an initial public offering. Latin American fintech companies can also go down Nubank’s path, including C6 Bank, backed by JPMorgan. Banco Neon, which is backed by General Atlantic; Or the Mexican payments company Clip, in which the SoftBank Group owns a stake.
But those companies will go public just as the Latin American economy slows and GDP is expected to grow 2.5% next year, down from 6.7% this year, and when the average global GDP estimate is 4.4%, according to data compiled by Bloomberg. . The outlook for Brazil, the region’s largest economy, is even weaker, with an expansion of 1.8%.
Despite the expected economic slowdown, the region saw an increase in private investment in start-ups in 2021, although stock markets failed to keep pace. Startups in the region have raised a record $14.1 billion in private equity this year through November 12, more than triple the amount raised in all of 2020, according to PitchBook. These companies have raised three times more through private equity markets than through public exchanges, both domestically and in the United States, according to Bank of America’s Pereira. For US-based companies, the ratio was close to 1.5 times.
Nubank is seeking to raise more than $3 billion in an initial public offering that could be worth $50.6 billion, according to regulatory documents, more than any other financial institution in Latin America. While traditional banks in the region, such as Itaú Unibanco, are making high profits, with returns on equity close to 20%, Nubank posted a loss of $99.1 million in the nine months to September.
said Eduardo Meras, director of investment banking at Citigroup in Brazil, who declined to comment on specific information agreements.
With nearly 700 million people and 8% of the world’s population, Latin America has proven to be a near-perfect environment for startups looking to replace existing businesses. Financial services are expensive and available to only a tiny part of the population, there are bureaucratic barriers everywhere, and a high percentage of people own cell phones.