TBY talks to Arturo J. Saval, Senior Managing Partner of Nexxus Capital, on maintaining an international emphasis, targeting the middle-income segment, and betting on Mexico.

Arturo J. Saval
Arturo J. Saval has over 35 years of experience in private equity and commercial and investment banking. He is the former chairman of AMEXCAP and serves on the board of numerous companies that cater to the Mexican middle-income market.

How much interest have you seen in international investors coming to Nexxus?

We have seen great interest. We are both one of the largest and oldest private equity firms in Mexico. We are celebrating our 20th year doing private equity as Nexxus Capital. Mexican pension funds have only been allowed to invest in private equity via tailor-made securities called capital development certificates since 2010. Before then, almost all our investors were foreign. Still, we have raised in the aggregate, including our fund in Spain and our recently raised Nexxus Mezzanine Fund, a little more than USD1.5 billion, of which two-thirds is foreign. The remainder is funded by Mexican pension funds. Interest from foreign business is, and always has been, crucial.

What financing market are you introducing with Nexxus Mezzanine, and what companies do you hope to target?

I am conscious of what Mexican banks offer, and there is still a gap for mid-sized companies. Mezzanine targets the same tier of companies: mid-sized growth entrepreneur or family-owned companies that lack or have a hard time accessing banks. Mezzanine encircles a series of possibilities that either substitute or complement financing by banks through two alternatives: equity and debt. That is where, especially in Mexico, the added value of private equity comes in. We are confident we will have enough pipeline to fill this and future mezzanine funds.

How are SMEs in Mexico different from those in the US or elsewhere in the region?

The first differentiating factor is the informality. Tax and labor have historically been issues, though that has changed significantly in Mexico because the authorities have been far more diligent in their tax and labor fiscalization. The second difference is management. When a company goes to a developed economy, it is easier to find the right marketing or operations guy; here that is not the case. The third difference is information. Companies that want to enter an industry in the US or UK will find a large amount of data. It can receive an extensive study on the industry, trends, and competitors. In Mexico, this is more difficult.

What changes do you see coming for the Mexican middle-income group?

The greatest challenge in this business is that companies have to think three to five years ahead as that is the average tenure of our investments. We have to predict how things will be when we want to exit. Clearly, it is hard to predict correctly in many cases, and in Mexico in particular. It is a young country with an average age of 27 years old, which makes the market extremely dynamic. The second factor is mobility. When Mexican mobile competition expanded and lowered the cost of Wi-Fi, data, and bandwidth, it facilitated the penetration of smartphones and mobility. E-commerce penetration in Mexico is now becoming a reality. This is part of why we will continue to bet on the growth of the middle class, though in a younger fashion. I see a dynamic, modern market and any investment one does should consider this.

What are your goals for 2018?

Our three main goals are reaching the target for Nexxus Iberia, start investing Nexxus Mezzanine, and complete the deployment of Nexxus VI to start raising Nexxus VII. Our goal is to have a clear route where we are aligned with a team that is young and motivated. We have both the honor and the responsibility of being a benchmark for the industry in Mexico. Our goal is to maintain ourselves as a benchmark, not only in terms of results, but also in the way we do so: through our mix of investors and our contact with sovereigns from the Middle East, Europe, and North America. This keeps us sharp as they transfer best practices and the new things that evolve worldwide.