When EFM Capital emerged in 2013, at the initiative of a group of national investors, their owners thought it would operate as a traditional private equity fund.
Under the original plans and with the resources of its partners, the fund thus carried out, for four years, several typical transactions of so-called private equity funds, such as the purchase, transformation and sale of companies.
Such was the case, at the beginning of its operations, of the fast food restaurant chain, Gorditas Doña Tota, which subsequently acquired and sold to the Mexican Economic Development conglomerate (Femsa), owner of Oxxo convenience stores, gas stations, pharmacies and from the Coca-Cola Femsa bottling company.
However, despite the success that the fund had been having, its management team, headed by Manuel G. Martínez and Óscar Morales, realized that if they continued with the same business model, the possibilities of accelerated growth of EFM Capital were very limited before the shortage of companies in the country that met the minimum requirements that foreign investors, who turned out to be the main buyers of the companies acquired by them, demanded.
In general, a foreign capital fund only allocates resources in Mexico to companies that have at least annual sales of 100 million dollars and that meet certain minimum levels of institutionalization, no longer corporate governance.
“It’s not that [those companies] don’t exist in Mexico, but it’s hard to find them”, Morales, CEO of EFM Capital, said in a telephone interview with Common Sense.
Faced with this lack of opportunities and the frustration of not being able to grow or scale the business, the partners of EFM Capital chose to radically change the way they had been doing business.
As of 2017, the company, based in the city of Monterrey, the capital of the state of Nuevo León, decided to leave behind the restrictive investment thesis that it initially adopted, to move towards making its business model more flexible. This in order to take advantage of the strengths that its partners saw in multiple small and medium-sized companies and that could, as a whole, become attractive to large private equity funds.
What we said was “if there is no company that bills 100 million dollars, Let’s build one, given that what is in abundance in Mexico are small and medium-sized companies”, Morales added. Thus, “our pipeline opened. . . since we realized that each and every one of them had something to contribute something of value. They probably didn’t have the size, but they sold at best in dollars; They probably didn’t have the size, but they served a sector in which they charge every day generating flow. Each and every one of them had some attribute”.
The change of model, which was also accompanied by a flexibility in the way of approaching those who might be interested in selling a share of the business to institutionalize it, yielded results immediately.
Last year alone, EFM Capital, through its Unities Alliance Group acquisition platform, made 13 purchases or mergers of companies, instead of the two maximum acquisitions it had been making year after year from 2013 to 2017.
Thus, the company does not try to become an industrial conglomerate that manages various companies, in different sectors and forever. The difference is that today unlike yesterday, EFM Capital has a platform, much more versatile and agile, to buy, group, transform and sell companies.
“The goal at the end of EFM Capital accounts is still buying and selling companies,” Morales said.
Of course, the next step for EFM Capital’s partners is to try to make even more liquid and profitable the investment made by those entrepreneurs who chose to deliver their companies to the Unities platform and from which those companies are being transformed for eventual disposal.
For this, the company is already contemplating going public, in Mexico, abroad, or even only outside the country.
“We are in that process of seeing if [we list] in the Mexican Stock Exchange (BMV) or in Biva [the Institutional Stock Exchange], the two exchanges have recently contacted us,” Morales said, adding that he also plans to list the company abroad and if it only happens there, it plans to sell its securities in the country through the International Quotation System, or SIC.
If it’s able to go public here, something that its partners contemplate being able to do in October of this year, EFM Capital will become the first Mexican company specialized in the purchase and sale of companies to have shares listed in the Mexican stock market.
“The moment we make the company public, each of the businessmen, and the futures that their company contributes following a process, will receive shares from a public company”, Morales said. “That way the entrepreneur makes his company liquid, now literally liquid, because he has shares that are listed on a public market”.
If that goal is achieved and if something does not happen before on the road, EFM Capital may end the 33 months drought that will have existed by then in terms of equity placements in the Mexican stock market.
The last placement of business titles in Mexico was that of the GMéxico Transportes railway company that took place in November 2017 and with which it collected 19 billion pesos (996.8 million dollars).