Our acquisition and value-creation strategies are based on identifying, analyzing, acquiring and, once the Initial Business Combination has been completed, continuing to develop the acquired company with the objective of increasing its medium and long-term market capitalization.
Each target business will be analyzed pursuant to the categories listed below. Each category represents the investment opportunity profile and looks to provide a comparative and analytic base for each of the companies to be assessed. This framework will be used as part of our analysis and selection process of the companies that represent an attractive investment due to their potential capital appreciation in the medium and long term. The target entity may not necessarily fall within all or any of these categories. The four categories are as follows:
Focus on Growth. There are cities within Mexico that have been subject to significant investments by large Mexican and multinational companies. We consider them secondary cities as they are not the main urban centers of Mexico, but are growing at a rate exceeding the Mexican GDP and, therefore, have more dynamic job generation activity. In these cities, such companies, through their investments, develop the presence of different industries in each of the components that comprise their value chain. Normally, in economic downturns, these companies focus on achieving operational efficiencies to maintain profitability despite adverse conditions. As a result, our business strategy in this category will be focused on product expansion, geographic expansion and consolidation of existing players.
Focus on Business Models with Low Penetration. There are traditional product and services industries in Mexico where new business models are being developed to capture the additional demand resulting from middle-class growth. The rise of salaries coupled with the expansion of the formal economic sector in Mexico, has prompted a need to cover new geographic areas in Mexico. Our business strategy will be focused on accelerating growth through a consistent contribution of capital and through initiatives that obtain returns greater than the weighted cost of capital.
Focus on the Capital Redistribution. If there is volatility in Mexico, we think that there are companies controlled by Mexican families or multinational companies that will look to reduce their capital investment exposure in Mexico. In the case of (A) family-owned companies, this potential reduction to exposure in Mexico leads to conversations regarding: (i) the role of family members within the business, (ii) investment in other industries or sectors, (iii) family wealth management, (iv) the strategic direction of the company, and (v) the search for financial and strategic partners; and (B) multinational companies, there are entities (i) that need to replace their local partner with one that has the financial capacity to fund investment initiatives and/or has a proven track record in negotiating with government authorities and communities, or (ii) that have decided to relocate their invested capital in Mexico to other global opportunities. Our business strategy in this category will be focused on providing liquidity opportunities to these companies’ shareholders through a partnership with Promecap Sponsor’s execution and value creation abilities. The target industries in this category will include, among others, those with a profile that is resilient to periods of volatility and which exhibit growth in-line or above the Mexican GDP growth.
Focus on Seasonality. Mexico is a developing country with a significant number of companies in cyclical sectors. Growth at these companies is based on demand driven by internal consumption, as well as by exports. These companies are characterized by their competitive advantage based on having the lowest production costs in the world, as well as production capacity similar to comparable markets. These companies usually have permanent capital requirements, which are usually covered in part by their cash flow, with the remainder being provided by the capital markets. Our business strategy is to search for companies focused on construction materials and mining that have a track record of maintaining sustainable competitive margins (based on their low extraction or production cost), and those that may withstand high volatility in global price levels.