WestSphere Scores Equity Hat Trick in Latin America

In a flurry of recent activity, New York-based private equity firm The WestSphere Group has invested in a leading oil tanker company, a Peruvian Internet company and has received a mandate to manage half of BNDESPar’s private equity portfolio. BNDESPar is the equity arm of Brazil’s largest development bank, BNDS.

In the first deal, WestSphere Capital and AIG/GE Capital Latin American Infrastructure Fund LP have each staked a claim in Nassau, Bahamas-based Ultrapetrol Ltd.

Michael Mazzola, senior vice president at WestSphere Capital, said investing in Ultrapetrol “is a little different than our core strategy, but [the company] has significant growth potential and outstanding management.”

WestSphere did not use moneys from its WestSphere Latin America Private Equity Growth Fund II, because the investment “is outside the mandate of our existing funds. It’s Caribbean-based, [whereas] most of our investments are in South America,” Mazzola said. He added that WestSphere and AIG/GE are investing up to $50 million through a special purpose company.

That special purpose company is the newly formed Solimar Holdings LDC, which is owned jointly by WestSphere affiliate WSUP Investors LDC and AIG/GE. Solimar will receive newly-issued voting common shares that represent up to 49.9% of its issued and outstanding capital stock. The first installment is for roughly $25 million, or 33%.

Ultrapetrol said it plans to use the proceeds from the first installment to acquire additional barges, tugs and pushboats for its South American subsidiaries that are dedicated to the river trades, as well as for working capital. Mazzola said the river transportation business has huge growth potential in South America. If there are future installments, Ultrapetrol said it would acquire additional vessels and make investments in related ventures. This transaction will not effect control of the company and Felipe Menendez will continue as chief executive.

Additionally, BNDESPar, the equity arm of BNDS, is beginning to assign its private equity activity to outside sources. This month the bank apportioned $28 million in portfolio investments to both Sao Paulo-based WestSphere Brasil, and Dynamo Administradora de Recursos, a Rio de Janeiro-based private equity firm. BNDESPar will pay administrative and performance fees to both firms for managing the FMIEEs it created for them. An FMIEE is a Brazilian vehicle comparable to a publicly listed venture capital fund.

The $28 million represents 12 to 18 investments, or six to nine for each firm, most of which are in small Brazilian companies with $35 million or less in annual sales. WestSphere will manage a portfolio called FMIEE Fire, which comprises companies in telecommunications, chemical and capital goods. Dynamo will manage Brasil 21, which also has investments in telecommunications, along with data processing and consumer goods.

Claudio Pecanha, vice president of WestSphere Brasil, said not only does this transaction add to WestSphere’s portfolio – 30% of which is in Brazil – it also means “we have local eyes and ears for investments in Brazil.” The portfolio includes an aluminum can recycling company, a chemical producer and a leading washing machine manufacturer.

WestSphere will effectively act as the private equity investor in these companies by sitting on the boards as a representative of BNDESPar. For its part, BNDESPar has announced plans to double the size of the funds it created for each firm, and may do so through outside investors.

Finally, WestSphere recently invested $10 million in its first Internet transaction, backing Cabina Publica, a Peruvian concern.

“You can look at it as an Internet investment or as a Latin American regional investments,” said DeWitte Kersh, senior vice president for the firm.

Although DeWitte conceded the Internet sector is “widely overvalued right now,” he said Cabina Publica has a clear, unique strategy as a profitable Internet service center.

“This is a way for people to get connected. We see it as a distribution channel,” he said. “It’s a solution to the high barriers to entry [regarding] computer penetration in Peru.”

Cabina Publica was originally set up by a non-profit organization, which retains a large minority share, as a tool for education and information dissemination.

Kersh added this investment “gives us a great window to view” the Internet business in Latin America, and WestSphere may use it as a regional expansion platform in the sector.