Why Committed LPs Beat Committed Capital
“Eat infrequently, eat well,” says Ramiro Alfaro, whose Paltus Capital goes slow, strikes big, and is pioneering deal-by-deal private equity in Central America. They have had to overcome stigma, educate market participants, and obtain creative financing to close deals. As a first mover, however, they enjoy favorable market dynamics (e.g., good valuations, inbound deal flow, cold outreach success) and ample whitespace for continued growth, while customizing a long-term hold strategy to solve for the lackluster exit opportunities in the region.
Juan Aguilar, who has previously been a guest on our sister podcast Acquiring Minds, had successfully completed a search deal, enticing his best friend and BCG/HBS alumnus Ramiro Alfaro to return to their motherland, Guatamala, to try his luck in deal-by-deal private equity.
Reaching and persuading business owners is a different game in a nascent market. In Guatemala, selling a business is even stigmatized and viewed as a failure by some business owners (“don’t have you anyone to take it over?”). So, deal sourcing takes time. It’s not just about building a brand and reputation, but also about educating sellers and allowing them time to get comfortable.
That said, cold outreach is effective. Where US business owners are bombarded, it is still a novelty for business owners in Central America. Paltus Capital are experts on how to connect with business owners and expanding their regional network.
It took five years to close one deal, which underscores the long-term nature of doing business development in M&A. A big part of the BD effort is trust building.
With a long career in the United States behind him, Ramiro is perceptive in contrasting deal-by-deal PE in Guatemala versus the US. In his market, he sees good valuations, first-mover advantages, and market leadership potential. All hinges on building a good reputation in what is, after all, a small country, where everyone in business seemingly have heard about each other.
Towards the end of the conversation, Ramiro shares the advantages of having a homogenous cap table across multiple deals. It’s still deal-by-deal private equity, but by having the exact same investors, and ideally also in the same proportions, across multiple deals, one can seamlessly do cross-platform strategy that mimics portfolio management.
Check today’s new episode of the Minds Capital Podcast with Ramiro Alfaro.
