Carlyle Moves Into Mexico –

When Singer James Taylor croons the praises of Mexico, one of the driving themes he hits on is its alluringly insouciant draw. However, for The Carlyle Group, its move into the Mexican market may not be as carefree as James Taylor had in mind, although the firm does believe the opportunities for private equity there may be more attractive than they have ever been.

To target Mexico, The Carlyle Group has-in Carlyle fashion-filled its new Mexico City office with a number of high-profile additions, who are well known in Mexican political circles and well versed among the business crowd. Luis Tellez and Joaquin Avila have been named managing directors, while Thomas “Mack” McLarty III has been appointed a senior advisor with an emphasis on Mexico.

Tellez comes to Carlyle from Desc, S.A. de C.V., where he had been employed as executive vice president and CEO of the Mexican conglomerate. Prior to that job, Tellez had served as Mexico’s Secretary of Energy and the Chief of Staff to Former President Ernesto Zedillo, and also held other high-ranking positions in the Mexican government. Avila, with more of an investment banking background, was previously the head of Lehman Brothers’ Latin America Investment Banking Division and before that a managing director at VA Investments/Compass Group.

McLarty, meanwhile, is best known for his tenure as President Bill Clinton’s chief of staff, and he also served as Clinton’s Special Envoy to the Americas. Since those appointments, McLarty has been serving as president of Kissinger McLarty Associates and also serves as chairman of McLarty Companies, both positions he will retain while at Carlyle.

Carlyle’s stride into Mexico comes at time when buyout firms are increasingly looking outside of the U.S. to pursue transactions. And Mexico, which largely saw international investment flee during the economic downturn, now has an enormous demand for capital.

Carlyle believes that with the new stability in the Mexican economy and the country’s increased need for capital, the time is right to start investing in the country. Carlyle Co-founder and Managing Director David Rubenstein described the region as “fertile terrain for private equity investing.”

The new stability in Mexico primarily derives from the implementation of NAFTA 10 years ago, Tellez told Buyouts. “It has been 10 years since NAFTA was approved and the way of doing business in Mexico has changed drastically. Companies have integrated into the domestic and international markets and the Mexican economy has converged with the U.S. to some degree,” he said. “For the first time in decades the inflation rate is above that of the U.S. and interest rates have also decreased substantially.”

As Carlyle is fairly new to the Mexican market, Tellez and Avila will help guide the firm through some of the intricacies of working south of the border. “The market is less liquid in Mexico. You have to know the market and the different players very well and understand where the market is moving. Because of this you need to think about exit strategies from the beginning [of an investment],” Tellez said.

Carlyle does not intend to focus on any particular industries in Mexico, although Tellez pinpointed that at the moment he expects to see some opportunities in the transportation, entertainment and real estate sectors. He added that the restructuring efforts of some of the country’s larger businesses should provide ample deal flow for the firm.

Additionally, he noted that because of the recent downturn, there should not be any shortage of companies that need capital. And unlike the past, he does not believe that investors today need to worry about a less-than-stable Mexican economy. “There have been three difficult years due to the recession, and companies haven’t had access to credit or capital. There will be good opportunities to find investments and at the same time the risk will be more in the assets than in the economy. In the past, it was the other way around,” he said.

Carlyle will use existing funds to invest in the region, although the firm has not ruled out eventually raising a fund dedicated specifically to the area.