Latin America M&A and Restructuring: Family-Owned Businesses Meet Sovereign Defaults?

Or at the very least, work in a US-based coverage team for Latin America.

You’ll get to deal with stubborn business owners with delusions of grandeur, unreliable information, and even the occasional sovereign default.

On the other hand, it might also be a good way to get a work visa for the US – especially if you’re from one of the countries covered by these groups.

Today, a reader shares his story of getting into a Latin America M&A and Restructuring Team, what it’s like advising on deals in the Caribbean, and yes, even what to do if you’re an international student seeking a work visa right now:

Latin America M&A and Restructuring: Arriving in Latin America

Q: Your origin story, please.

A: Sure. I grew up in Spain and spent most of my life there, and then attended a Top 20 university in the US after studying abroad there one summer.

I was planning to graduate and then go back to Spain afterward, but the economy was in bad shape and most of my friends from university were going to work in the US, so I decided it made more sense to stay.

Getting US-based internships as an international student is not that difficult – but I wasn’t sure if I wanted to stay in the US after graduation, so I did a Restructuring internship my junior year at one of the top banks in Spain.

When I returned for my final year, I found that winning full-time offers was much more difficult.  Luckily, I found a LatAm-focused team at a bank that was willing to hire me full-time.

International students on F-1 student visas can stay in the US for 12 months after graduation without applying for an H-1B visa, as long as they are employed. So I used that to stay and work in the country.

If you’re thinking of attending university in the US, I highly recommend a STEM major because STEM graduates can extend their F-1 OPT by 24 months and stay in the country after graduation for 36 months total.

Q: …which may create problems if you want to stay even longer than that, but we’ll get to that later.

Where are most of these LatAm groups based? Are you better off staying in the US or going to Latin America?

A: Teams are mostly based in New York, with regional offices in Latin America.

US and European banks have most of the coverage teams, and they focus on M&A and capital markets.

You might think there are a lot of banks in Miami that do this, but aside from a few boutiques there’s relatively little IB activity; most finance in the city consists of private banking and private wealth management.

However, that could change in the coming years as Miami becomes Latin America’s financial center.

Restructuring offices tend to be more local, because you really need to be there on the ground when dealing with complex situations in Central America or the Caribbean.

You see the usual top banks for Restructuring there (Blackstone, Rothschild, etc.) as well as a few other firms such as Alvarez & Marsal that are known for “turnaround management.”

On the more standard deal types, you’ll see pretty much all the big European and American banks: JPM, MS, Citi, HSBC, DB, HSBC, GS, BBVA, Barclays, etc.

And, of course, the big local banks also have a presence here: Itaú BBA, BTG Pactual, Banorte, etc.

The boutique banks do not have quite as much of a presence, but that’s starting to change as they build out their teams.

Oh, and in response to your original question: if you’re a US citizen or a green card holder, you’re probably better off working for a LatAm coverage group in NY unless you really want to do Restructuring.

Q: Great, thanks.

Is there anything unusual in the recruiting process for these groups?

A: At big banks, recruiting for these groups is pretty much the same.

A lot of people come from summer analyst classes, so if you haven’t done an internship before your chances are not great.

The whole interview is often in the local language, and you need demonstrated interest in the region to have a good shot.

In practice, that means: “They are looking for people from Mexico, Brazil, or other Latin American countries who are now at top universities or business schools.”

Theoretically you can get in without an international background, but it’s very rare from what I’ve seen.

If you’re focused on a highly specific group like this, networking also tends to be much easier because these teams are quite small and everyone knows everyone else.

So you could probably narrow down your list to 10-12 firms, make a few contacts via LinkedIn and your alumni / family and friends networks, and then get introduced to a lot of other people like that.

This would be a lot more difficult if you were aiming for, say, M&A or healthcare.

Cool Runnings: Advising Family-Owned Businesses and Bankrupt Governments

Q: Right, you always gain an advantage when you aim for a super-specific group and you’re actually qualified to work in that group.

You’ve worked on a few M&A and Restructuring deals at your current firm, so what are the key differences in the process and analysis?

A: It depends on the specific country, but the process tends to take far longer than it does in the US.

In countries like Brazil, Mexico, or Colombia, it’s close to the process that US-based companies go through, but in Central America or the Caribbean it’s dramatically different.

I’ve worked on a number of deals involving companies there, and I would strongly suggest staying far away.

Most people don’t want to disclose information or send you documents – even if they’re paying clients – so you spend a ton of time calling other contacts in the country and playing a game of telephone to get the right information.

Getting clients to actually pay fees is also an ordeal: sometimes they just “forget,” or they “lose” the invoice, or they otherwise avoid paying for as long as possible.

Q: Well, this sounds fun so far.

Can you give us a specific example of a deal with these challenges, and then explain how you dealt with them?

A: Sure. I should also mention that many companies are family-owned, which means they can be incredibly difficult to sell.

Anyway, one transaction I worked on was a sell-side M&A deal for an energy asset (think: oil/gas fields, pipelines, etc.) owned by a small family.

They called us in because they wanted to sell this asset, and we gave them a preliminary valuation of $100 million USD, heavily discounting it for geopolitical and sovereign risk.

They balked at this and kept claiming it was worth $200+ million. But even with incredibly optimistic assumptions it wasn’t worth anywhere near that range.

Owners like this family tend to be extremely stubborn, and often think they know more than bankers about valuation – even if they’ve never opened Excel once.

It’s partially a cultural issue where senior people demand “respect” and don’t like to be told what to do by outsiders.

But, to be fair, you do sometimes see this same issue with family-owned businesses even in developed markets.

Q: So what does your team do in a case like that?

A: A lot of it is just waiting around for people to change their minds and realize on their own that they’re unrealistic.

Sometimes we also spend time thinking of alternate buyers, especially other families, that have similar energy assets and might want to buy what the original family is selling.

Most US-based companies are not interested in smaller assets in this region, but occasionally foreign buyers from the US / Europe / Asia are interested in larger assets here.

Q: And what about the Restructuring side?

We’ve published a few articles on that topic before, but what are the main differences in Latin America?

A: First, note that Restructuring procedures in Latin America and the Caribbean are quite complicated as a result of different insolvency laws in the region.

Some of this is because of “regional instability” – institutions often reacted to economic cycles by changing insolvency laws, sometimes haphazardly.

So be prepared for many shades of grey when dealing with corporate restructurings, especially on the legal side.

On the financial side, the process and the possible outcomes are still similar: the company may attempt to get better terms on its debt, it may turn to other financing options, or it may attempt to sell itself.

The liquidation process is straightforward, but the outcomes of a court or out-of-court restructuring vary widely – and certain regions actually favor the debtor rather than the creditor, which is the opposite of what happens in most developed countries.

For instance, under Brazilian Bankruptcy Law in both judicial and out-of-court reorganization proceedings there is no priority rank among creditors or term for payments; in a bankruptcy proceeding, fees owed to the judicial trustee and labor-related claims rank highest.

Finally, some Latin American companies that issue bonds abroad actually end up filing for Chapter 11 protection in the US to get a better deal.

The reasoning is that most investors are US-based, so if the company hopes to regain investor credibility it should try to “cooperate” as much as possible with the creditors.

You can see this with cases like the parent company of Nextel filing for Chapter 11 in the US.

Chapter 11 procedures are more structured than in most Latin American countries, and there are better mechanisms for debt restructuring and financing options.

Q: That explains the corporate side, but what about sovereign defaults?

A: Yeah, you may also end up working with governments that have defaulted on their debt – Ecuador and the Dominican Republic are a few examples.

But very few firms advise on sovereign debt restructurings, so your chances of working on deals like this are slim.

I haven’t worked on sovereign default deals directly so I can’t comment on the specifics, but successful restructurings end with governments re-profiling their debt by extending the maturities on existing bonds.

Bondholders don’t receive face value haircuts, there’s no coupon reduction, and the maturity date is simply extended instead.

However, not all countries adopt “market-friendly” restructurings.

That results in governments threatening creditors to accept a set of lower-value options or risk getting nothing, and creditors trying to force a better deal by threatening to hold out.

Sometimes investors will also start buying claims of current creditors who want to recover something rather than sticking around hoping to recover their entire investment.

These groups (known as “vulture investors”) then intentionally try to block any deal, demanding that the borrower pay full value or face the consequences of defaulting on their obligations.

As a result of all this, creditors should generally not expect to recover much. Check out this article on vulture investors for more on the topic.

Finally, the International Monetary Fund and World Bank play a big role in these types of sovereign debt crises / deals, so you need to understand them quite well if you work in this area.

Again, it’s not my area of expertise, but you can check out a few links on the topic here:

• Proposed Changes to Sovereign Debt Restructuring Reform
• The Role of the IMF and Other Institutions in Sovereign Debt Crises
• The Purpose of the IMF and the World Bank

Q: Thanks for explaining all that.

And then outside of Restructuring and M&A deals, what other deal types and industries are most common?

A: The top industries historically have been natural resources, financial institutions, telecom, and consumer goods.

Equity capital markets in Latin America haven’t been doing well because the markets are quite volatile, so IPOs are often delayed repeatedly and most of the activity consists of secondary offerings.

Overall there is more activity on the debt side here.

Many banks, even the big ones, will have 10-12 person DCM groups covering the region but only 4-5 person ECM teams.

ECM teams tend to be mostly senior bankers since the coverage group is in charge of all modeling-related tasks. So don’t be surprised to find groups with just one MD, one VP, one Associate, and an Analyst.

Some regions here are becoming more stable with more of a growing middle class, but I still recommend avoiding Central America and the Caribbean.

If you really want to work in Latin America or advise on Latin American M&A deals, I would recommend Brazil, Colombia, Peru, or Mexico.

How to Win a Work Visa for the US

Q: Thanks for sharing all that.

In the beginning, you mentioned the difficulty that international students encounter when applying for work visas in the US.

We’ve featured tips and articles on this topic before, but what’s your take on it?

A: Well, as we speak I’m in the middle of the application process so you might want to ask me after I get the results from that…

But the way the system works is the following: international students on F-1 visas get an extension that allows them to work for 12 months without actually obtaining a “work visa.”

And if you major in something STEM-related, you get 12 months plus a 24-month extension, which is more than enough to cover the typical 2-year analyst program at banks.

But to take advantage of these extensions, you need to find an offer quickly – within 3 months of graduation – so you really need to do an internship and then convert it into a full-time offer to maximize your chances.

Q: So the two main problems are the time limitation and the expense / difficulty of getting the visa at smaller firms?

A: The problem isn’t the cost of the visa (which is about $4,000 – $7,000, so only a small percentage of your salary), but the fact that there’s a quota of only 85,000 H-1B visas each year… and last year, for example, there were almost 180,000 applicants.

So it’s a lottery with a ~40% chance of winning, and you can’t do anything to improve your odds.

Most companies that apply for visas are actually technology firms seeking workers from Asia, so sometimes banks stay far away and don’t even want to be involved if you require sponsorship.

There’s a chance this could change in the future because of a proposed bill aimed at increasing the quota to nearly 200,000 per year, but there’s no telling if it will be approved.

Q: So what do you recommend for international students dealing with this issue?

A: I would say:

1. Focus on large US-based banks and the big, established boutiques (Lazard, Rothschild, Evercore, etc.) because many European banks don’t even offer this option of visa sponsorship.
2. If you’re still in school, you need to get an internship at one of those places or it will be almost impossible to stay in the country afterward.
3. If you have already graduated and/or you are currently working in Latin America, recruit for the local offices of large banks and then ask about transferring to the NY-based offices once you have proven yourself.

You could always get lucky and convince a random company that you’re useful enough to justify the time and money spent sponsoring your visa, but I wouldn’t recommend that.

Q: Thanks for the tips. What are your own plans?

A: I’m going through the visa application process right now, so we’ll see what happens there.

Ideally I would like to work at a large bank in NY, but my “Plan B” is to move to Mexico City, work at a large bank there, and transfer to NY a year into it.

As previous interviewees have mentioned, Mexico is a great market if you know the language and you have IB experience because there’s a lack of qualified professionals and hiring has been very good.

Q: Sounds like a plan. Good luck! And thanks for your time.

A: Un gusto!

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If you liked this article, you might be interested in reading:

• From Quant Trading in Singapore to Fintech in Mexico: How to Enter a More Exciting Jungle
• The Definitive Guide to Equity Research Internships
• Equity Research in Brazil: The Best Way to Apply Economics to Real Life?
• Investment Banking Latin America: Never-Ending Internships or Never-Ending Bonuses?