The Latino Investor Marketplace with Alta Growth Capital

Johanna Hoyos THE LATINO INVESTOR MARKETPLACE

ALTA Growth Capital Founded in 2006, is a private equity firm comprised of multicultural and fully dedicated group of professionals who focus on buyouts and growth stage investments, capitalizing in established companies in Mexico, Latin America (LATAM) and U.S. with growth potential. The objective is to achieve high returns through capital gains by investing in a diversified portfolio and improve margin efficiencies. Scott McDonough and Javier G. Teruel from Alta Growth Capital, explain their mission, investment objectives, fund goals, and distinguishing characteristics, setting them apart from their competitors, when helping the future of Latino-owned businesses based in the U.S.

Scott McDonough is one of the founding cofounders of the private equity firm. His has over 20 years of experience focused in private equity, venture capital, entrepreneurship, Mexico and United States law. Javier G. Teruel, is the chairman at ALTA Growth Capital, with 44 years of experience in business management, private equity investing and impact investing in various countries throughout the world. He made significant contributions during his tenure at Colgate Palmolive’s worldwide strategy, restructuring and business program, and business development group in Mexico, the Dominican Republic, the Caribbean, Central America, and New York. Currently, both Scott and Javier serve actively on Boards of several different organizations utilizing their extensive experience in Mexico and Latin America in private equity investments and extensive transactional experience in the United Sates, including venture capital investing.

The purpose of ALTA Growth is to share the collective knowledge, strategies and solutions in order to help Latino-owned businesses take informed action to help accelerate the pace at which they grow and scale. According to the State of Latino Entrepreneurship, “Latinos are starting business at a faster rate than the national average across several industries, growing 34% over the last 10 years compared to just 1% for all other small businesses.”

This statistic supports that Latino-owned businesses in the United States are growing yet the scaling of these businesses is not scaling effectively in the near future. They are growing in quantity, not in quality because they do not have additional revenue and financing to get to the next level of growth. This is where a private equity firm like ALTA Growth Capital comes in, to change that by helping Latino businesses with higher level of performance, higher growth, better futures for their businesses and family.

The Added Value Equation ALTA Growth Capital aims for significant added value from their investors to their companies who they invest in, all aligned with the interest of helping underserved Latino-owned U.S. businesses. A relationship with an investor(s), the company and ALTA Growth Capital must be a relationship of real added value. The private equity firm not only gives the company access to capital but also can help them grow their business by helping develop a strategy for growth and bring them best practices to expand their business. For instance, sharing best practices in sales, such as how to approach their customers, how to disseminate information to stakeholders, how to best present themselves to customers and investors.

ALTA Growth focuses on opportunities in sectors that are benefiting from growing middle class Latinos in the U.S. such as, retail, healthcare, financial services, education, industrial and manufacturing. Their first funds started in Mexico because of its tremendous platform for manufacturing. Part of the attractiveness of Mexico is the macro situation, with a large, stable economy and large population, strong trade relationships with the primary being with the U.S. Scott believes it’s one of the largest trade relationships in the world, and in the macro stand-

Scott McDonough

“THERE ARE NO SPECIFIC SIZE FITS ALL, OUR STRATEGIES ARE ADAPTED FOR EACH OF OUR CLIENTS.”

Javier Garcia-Teruel point, there is limited capital in Mexico which provides an interesting opportunity for investment. Most of ALTA Growth Capital’s investors come from the U.S. who have invested in Mexico in the past and some who have also invested in Europe.

In the process of investing in their first and second funds (in fourteen companies) they had now raised a third fund. While exploring and venturing in new geographies and new products to grow the business, they found a business need to invest in the U.S. Latino market. It was a natural expansion for them to use what they were doing from the investments with Mexico and apply them into the U.S. with the Latino/a market. It’s a tremendous opportunity with the fastest demographic in the U.S. Also, Hispanic businesses in the U.S. are a segment of the market, that is underserved. This opportunity would benefit this segment for additional resources of capital, to help finance their growth and expand their future. The U.S. Hispanic consumers, industrials and manufacturing markets are other tremendous investment opportunities where they foresee high returns and where they have most experience in. Retail, healthcare, education and financial services are other areas of interest. Another category is cross border opportunities because of the dynamic commercial relationships of Mexico and other parts of Latin America, which are quite robust for expansion of companies in LATAM, Mexico and the U.S.

The main sources of capital for their third fund are similar to the sources coming from their previous funds in Mexico and Latin America, which tend to be large institutions that manage various assets such as pension funds, family offices (wealthy family groups), foundations, endowments, funds of funds, typically, large institutions deploying capital from various fund strategies. Once ALTA Growth Capital analyzes particular businesses, they go out and talk to potential investors who are interested in investing in private equity. Once they reach a certain amount of capital from investors, they then are responsible to decide on how to administer that money and where to deploy those assets.

Challenges, Standstills and Gaps ALTA Growth Capital’s focus is to invest in established businesses who are operating for a long period of time, who have been able to generate profitability - to accelerate their growth. They do not invest in start-ups and new businesses. The firm looks for investments from a minimum threshold of $10 million and above, the sweet spot is $10-$30 million range. There are many types of investments, they could either do a buyout investment, where they buy the entire company or where they invest capital for growth initiatives where a minority or majority stake of the business is taken, also called growth equity.

Given the recent thriving growth in the number of Latino-owned businesses, it follows generational change, the ability to pass down ownership (family histories of entrepreneurship) and equity across generations, is an important cultural consideration. The business owners are at a standstill, where they have grown their business, they have found their market though they don’t know what direction to take to reach higher lengths. Perhaps this is due to not having access to capital and/or simply do not have the competencies in their management team to take it to the next level of growth. That is where a private equity firm like ALTA Growth Capital comes in, they seek and guide companies to grow faster so that the full benefits of their businesses can be realized. Leveraging their understanding of Latino family businesses (by seeing immediate clear gaps and needs) and having strong ties with capital providers, provides opportunities to build the relationships needed to facilitate funding and capture profit.

One of the distinguishing characteristics that stands out from ALTA Growth Capital compared to other firms is, they do not require a majority stake to invest in a company. They are aware that some business owners are

hesitant to pursue this type of capital because they fear losing equity in their business. For that reason, they are very comfortable with minority investments, allowing flexibility for the current owner(s) of the company to continue to have control of their interests, if that is what is important to them.

Strategies As private equity investors, they are long term investors, when investing in a company it’s for a period of several years. They bring to the company an effort to develop the vision while thinking about where the company is today and how they envision the company being in 4-5 years. Deciding what steps to take to get to their long-term vision. It’s a process which provides long term thinking, a benefit when working with a firm like ALTA Growth Capital, versus worrying about what to do the next month or next quarter. Teruel says, “There are no specific size fits all, our strategies are adapted for each of our clients.” Strategies are adapted for each of their clients, its dependent upon company size, capital needs, distinct business and sales needs, as well as levels of performance and awareness. ALTA Growth Capital enjoys working with business owners who have a certain level of ambition, who are not satisfied continuing with the way they are currently doing things, rather would like to take it to the next level. “It takes a certain level of ambition to reach the next level of business growth potential,” says McDonough.

Rafael Payro

“IT TAKES A CERTAIN LEVEL OF AMBITION TO REACH THE NEXT LEVEL OF BUSINESS GROWTH POTENTIAL.”

The Future There is no doubt the challenges of the COVID-19 pandemic have dramatically changed the way many companies do business. The world changes so quickly resulting in fluidity with the economic market, resulting in attractiveness, riskiness and danger with investing trends. The key question here, is how does a company adapt and stay up at top of these developments, to take a step ahead on opportunities correlated to positive funding outcomes. The benefits of partnering with a private equity firm is to be able to receive advice about macro trends, to see how those trends affect your own business and other different businesses to then know how to adapt accordingly. Certain business models have changed dramatically as well. Take shopping malls, due to this pandemic, they have found a need to change by embracing innovative ways to keep customers to come back by rethinking the role of the store. Teruel believes there are currently huge business opportunities in logistics, tourism, and service areas. Unquestionably, a business to succeed, must adapt to meet the marketing needs, have a clear business model, access to appropriate capital, strong cash flow management, and a clear direction/long term vision of where their growing business is heading.

For more information on Alta Growth Capital, visit https://altagc.com.

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‘WEALTH IS NOT MADE OVERNIGHT’:

Luiz Maizel, Co-Founder and Senior Managing Director of LM Capital Group, has grown the company into what it is now and tells us there is plenty more to come. Even after several successful decades in the business.

LUIS MAIZEL OF LM CAPITAL GROUP SHARES STRATEGIES FOR PRODUCTIVE LONG-TERM INVESTMENT

Joanne Rodrigues Courtesy Carlos Cuevas MAIZEL IS a Mexico City-born serial investor at length and he shared his journey towards becoming one of the most prominent Latino names in the world. He refers to his business style as being ‘careful, yet assertive’, and we couldn’t agree more.

Luiz Maizel has been President of LM Capital Management since 1989 and LM Advisors Inc. since 1984. Today his company is one of the most important investment funds for Mexican people and Latinos in the United States and beyond. Maizel received a Masters of Science in Industrial Engineering from the National University of Mexico in 1971 and an MBA from Harvard in 1974, where he graduated as a Baker Scholar, the School’s highest academic honor. He also had a stint at teaching for a few years at his alumni and is still a faculty member at Harvard Business School.

Maizel shares about his start as a financial advisor back in the 1980s. “When I went back from Harvard to Mexico, I was manufacturing agricultural equipment. The situation in Mexico got very difficult,” recalls Maizel about the water and irrigation crises of the 80s. “I was helping the person running the water department in Mexico City and realized that water was going to be a long-term problem. It was then that I decided that I wanted my family to live in the US. We came to San Diego and I started looking for a manufacturing operation.”

As Maizel spent his first few weeks looking for a venture to purchase, his contacts started approaching him for advice instead. He quickly noticed a pattern. “In July of ‘84 there was a dramatic change in the law,” he said. “They stopped withholding taxes on fixed income for nonresident aliens. All of a sudden, US brokers decided that Mexico was fertile ground. And they went there looking for clients.”

Mexicans who knew that Maizel was in the United States immediately started reaching out for his opinion on what they were told by their own brokers. Luis Maizel found that this trust and relationship could be turned into something more lucrative.

“It started out small. First friends and then family and pretty soon it became a full time business,” Maizel shared. “99% of them were Mexicans all high net worth individuals. It grew and turned into LM Advisors. In five years we raised about $600 million of assets under management.”

Maizel is quick to differentiate the split between being a broker and an investor. “We decided from day one that we were going to be on the side of the investor. We were not going to be brokers of anything,” he asserts. “I got a license

for broker dealer and a license for advisory. I have never used the broker-dealer license.”

Throughout our conversation with Maizel, it is evident that his relationships with the right people live at the forefront of his work ethic. “It's very hard to demonstrate to people that you are offer-ing them something that's best for them if they think you're making money along the way,” he said. “So we sit on the same side of the table as them. We don't sell insurance. We don't sell annuities. We don't sell mutual funds.” This approach led to huge opportunities and growth for Maizel, as he worked towards establishing LM Capital.

In 1989, congresswoman Maxine Waters was pushing hard for minorities to start managing money and set up institutions. A broker from Merrill Lynch, who Maizel had a good and long-standing relationship with, brought up the topic of Maizel starting his own institution. “It was not a market I was familiar with and I didn’t know where to start,” he recalls. “I asked him to join me, but he didn’t want to leave his high-income role at Merill. John helped me part-time for three years and joined fulltime as soon as we nailed the first client.” And a big first client it was. MTA, formerly known as the Rapid Transit District in Los Angeles, gave Maizel $5 million, and today the firm manages about $6 billion at LM Capital Management. “It's the largest Hispanic, fixed income manager in the country,” he proudly declares and rightly so. Some of LM Capital’s biggest investment management projects include managing $1 billion for Illinois Municipal about $600 million for CalSTRS.

The firm is stirred by a consistent and active senior management team, led by Luis Maizel and co-founder John Chalker, to manage an ever-expanding portfolio of more than 31 clients comprising of foundations, hospitals, public funds, and corporations. With this in mind, we definitely needed to know how he splits his time and resources between the two major companies and keeps the scales balanced.

To this, he answered, “The nature of both companies, and their ownership, is different. LM Advisors is closer to my heart because I don’t have clients there - I have friends.” Maizel tells us that once you have the trust and friendship of somebody who is a high net worth individual, you be-come their advisor, their consultant, and their partner. This is a crucial piece of advice to keep in mind when managing other people’s finances for them. Even when times are tough, Maizel has a plan to keep things moving for the long term.

“2008-2009 were disaster years in finance. But our accounts remained positive,” he opened up. “We've created an image of getting good results with little risk. And everyone in the institutional markets knows that we’re the safety blanket you can depend on.” Maizel goes on to explain how this is mirrored in the firm’s real estate division, which was started during this time of recession.

“We’ve done 86 transactions over 12 years now – A little bit over $2 billion in the acquisition and about 800 million in equity. We have already closed 49 out of the 86, and they’ve either been sold or the money has been returned to the investors. And the returns have been extremely good. We’d rather pass ten deals to find a good one than make three mediocre ones,” he added.

Maizel finds opportunity in almost every market he turns to and is optimistic about the future, yet overtly cautious about whom he does business with. “We don’t do investments in countries run by a dictator that can change the financial markets by design,” he stressed. “I’m also a firm believer of diversification.” Maizel advises us to allocate different percentages to different ‘buckets’. “If you do this, then when one goes up, the other goes down and you diversify your risk.”

The businessman does not shy away from big international names either. The FAANG giants (Facebook, Apple, Amazon, Netflix, and Google) are on his radar as ones to watch in recent times of distress. “I find biotech, FinTech, clean energy, artificial intelligence, and everything to do with the cloud very interesting right now,” he added. Maizel also recently drove a Lucid and is eager to see where EFTs and the electric car markets go.

With no shortage of items to do on his list and ventures to invest in, Maizel says the key thing to remember is “Don’t try to become wealthy overnight”. He is astutely careful yet resilient with whom to work with, and his advice to those looking to invest is this: “If you aim for home runs, you tend to strike out more often. Make sure that you hit a lot of singles and doubles along the way, and eventually, you're going to hit a couple of home runs.”

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