Investors Banking on Hispanic Growth

NEW YORK (By Dane Hamilton, Reuters) September 5, 2007 — Once relegated to the lower rungs of the US economic ladder, Hispanics are emerging into a new era of affluence, and bankers and investors are taking notice.

Hispanics, some 40 million US residents, are joining the middle class and demanding products and services tailored to their needs and desires.

This is a welcome trend for a small but growing group of bankers, venture capitalists, and others looking to get on a wave of economic growth driven by second- and third-generation Hispanics.

''It's the changing face of America — you can't ignore it," said Andrew De Pass, a Miami-based managing director of CVC International, a Citigroup-backed fund that aims to back companies serving the growing Hispanic market. ''The amount of buying power in the Hispanic market is going to eclipse the size of Canada in coming years."

Firms such as CVC, which acquire, build, and sell companies over three to seven years, say companies involved in media, financial services, consumer products, food, and beverages are prime targets.

''After aging baby boomers, the second-biggest demographic shift in this country is the growth of the Hispanic population," said Carlos Signoret, managing director of Hispania Capital Partners, a $130 million buyout fund formed 18 months ago to target the Hispanic market. ''We aim to invest in companies that understand this shift."

While estimates vary, forecasts suggest the roughly $650 billion market for goods and services to the Hispanic market could grow to $1 trillion by 2010. That growth, experts say, is being driven by immigration, above-average birth rates, and more disposable income. But tapping growth companies in the market can be challenging.

''All of them need investment — it's an extremely underserved market," said Carlos Gaitan, a banker with New York-based Samuel A. Ramirez & Co., the largest Hispanic-owned securities firm in the United States. ''But most are very wary of third parties coming to talk to them. They've never been exposed to this kind of capital, and it's an extremely difficult market to penetrate."

One such firm that has succeeded in the Hispanic market is New York-based Solera Capital, a $250 million buyout fund that in 2000 bought control of Latina, a magazine appealing to young, US-born Hispanic women, for $20 million.

Since then, Solera has helped to boost Latina's circulation to about 400,000, from 175,000 in 2000, and raise advertising revenue, said Solera chief executive Molly Ashby. The target market: a young, bilingual, second-generation Latina market.

''It is by multiples the fastest-growing demographic market," said Ashby. Gains in affluence and education have given the market ''all the characteristics that are really attractive to business services and advertisers."

The pace of deals in the Hispanic market appears to be picking up, particularly in media deals, bankers say.

Several years ago, the Hispanic market was dominated by two large media deals: NBC's acquisition of broadcaster Telemundo for $2.7 billion in October 2001, and Univision Communications Inc.'s purchase of Hispanic Broadcasting Corp. for $3.5 billion in June 2002. So far this year, however, there have been eight strategically significant deals aimed at the Hispanic market, although none approached the size of those involving Univision and NBC, according to Ramirez & Co. statistics.

Other sectors are fueling growth too. Boston-based buyout firm Advent International, for instance, last year sold one of the largest money transfer firms, DolEx Dollar Express.