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00:00:00
00:00:01
Jean-Bernard Idé Gerard
107 Plays2 years ago
We talk about going from being a cold hearted investment banker in Mexico to being a socially conscious private equity person in Mexico (via New York and Paris).
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Transcript
Introduction and Jean's Background
00:00:01
Speaker
All right, today we've got Jean Bernard Eday. Jean Bernard, thanks so much for joining. Thank you, Joe. Pleasure being with you today. All right, first question. Refresh your memory. What were you doing prior to SEAD and what have you been up to for the last 20 years?
00:00:16
Speaker
So that's a short question, also a short answer. Yeah, so basically, yeah, probably some of you remember I'm half French, half Mexican. So before INSE, I know this typical profile that went in different country and places. So I
Career Journey from Mexico to France
00:00:30
Speaker
was working
00:00:33
Speaker
I started working in Mexico. Is that where you grew up in Mexico or did you grow up between both places? Between the two places. But eventually I moved when I was 18, did my undergrad studies in Mexico. So I started working here while I was studying and then joined eventually Solomon Brothers, which was this US investment bank that since has been merged into Citibank. So I started in Mexico City and then went to New York, but to work for Latin America, so a lot of traveling to the region.
00:01:02
Speaker
very embedded in the region and then I moved to do a rotation to the Paris office which you know I had ever worked in France in my life so I wanted to know what was that like and worked there for about a year and a half right before joining INSEAD.
00:01:19
Speaker
And so
Private Equity Ventures in France and Mexico
00:01:20
Speaker
since then, you know, kind of at INSEAD was pretty clear that I wanted to move into private equity. So I did. I looked for a job. But when we finished INSEAD and started in Paris in a small mid-market font,
00:01:38
Speaker
And the idea was to spend a couple of years there, learn to trade because Europe was a pretty competitive market, and then always wanted to come back to Latin America and Mexico where this industry was more in its infancy. But then you start this job, you're on the board, you're in the first company,
00:01:55
Speaker
You do your second investment. You're on the board again. You want to see how it plays out. And you know, everything takes five years. So by the time you look back, you're already kind of a partner in your firm and been doing that for nine years in France. And and suddenly that was not the plan. So
Founding and Selling a Camping Company
00:02:09
Speaker
so in 2012, I decided to move out of France and come back to Mexico.
00:02:13
Speaker
Before we go to you just brushed over nine years pretty quickly there. What? We got more time than that. Tell us about to the extent you can, what were some of these deals, projects you did in France?
00:02:32
Speaker
Yeah, so in France, it was a mid-market private equity fund where we invested in control positions in mid-sized companies, companies with revenues between 30, 40 million euros and maybe 150. And we were pretty generalists, so we did a lot of different things in different spaces, retail, construction, industrial.
00:02:54
Speaker
lodging. But one deal in particular comes to mind, which was pretty fun because it was kind of a little bit outside the typical pattern. In 2009, I know you probably remember it was this, you know, deep, deep financial crisis and, you know, economic crisis. So deal four was very difficult because nobody wanted to sell, right? The ones that had to sell were the ones that had no cash left. And, you know, it was a completely nightmare, not bloody. And those that, you know, could wait would wait. And so no deal four. So we found an idea
00:03:22
Speaker
of starting a company from scratch, which for private equity is not normal. But what we saw is the opportunity to this camping, these campsites that are so famous in Europe now, where a lot of people go to spend their summer, we identified that that industry was completely unconsolidated. So a lot of mom and pop shops here and there, but no brand, no consolidation. So we teamed up with a great management team and started buying individual campings
00:03:49
Speaker
and created a brand, a big company. And so it was a lot of fun because, you know, the first days, it was about, okay, what, what name should we put now? And what logo should the company have? And, you know, who's going to be the employee number three, you know, and I started being kind of the CFO of the company because, you know, we were four at the beginning. And eventually, you know, we started growing.
00:04:08
Speaker
And we brought in a complete management team. But so it was a lot of fun starting from scratch something and then seeing it grow. And it's also a nice case study for private equity. There's a lot of sometimes bad press out there. But there's also great examples. And sometimes we don't speak a lot about the great examples. So this company started from scratch in 2009. When we sold it in 2015, it had six or seven campsites. And now it's been through two other private equity funds.
00:04:38
Speaker
It's worth north of 600 million euros in the last buyout. And it owns something around 60 campsites throughout Europe. So
Challenges and Opportunities in Mexico
00:04:50
Speaker
a great story about several funds going one after the other, teaming up a great management team and doing these buy and build, creating a brand and creating a consolidated business that is actually thriving. And I've got some great memories, man, because, you know,
00:05:08
Speaker
When you buy these individual campsites, you can imagine how far you are from Solomon Brothers M&A in New York, right? So you're dealing with self-made people that created their business from scratch. They know how to count very fast, but forget about talking about a DCF or multiple valuation. Never heard of that.
00:05:26
Speaker
So you're back to basics, not what's the replacement cost of the asset and how much should it be worth. And so the negotiations were absolutely amazing. I think I learned more buying these companies that what I ever did in investment banking. How many nights did you spend at the various campsites of this company? Many of them, many of them in due diligence. And I actually enjoyed it. I even took my family in law, which was not so much accustomed to sleeping in camping. I took them all.
00:05:54
Speaker
And they had to travel several weekends with me for due diligence. And I had one of these stories, which was so funny. We were evaluating a camping in the south of France, in the Viterranet. And so we're sitting there on the beachfront, looking at the beachfront of the camping to see how much chalet we could put there as part of the revenue management. And suddenly, and so we're kind of in suits, because it's spring.
00:06:21
Speaker
And we just come off the plane and suddenly there's a group of about 20 very old men and women that arrive, start taking off the clothes.
00:06:32
Speaker
And suddenly they take off all the clothes, like literally everything. And we're like, whoa, where are we? What is this scene now? And we're at the nudist place that we haven't completely, we didn't know about it. And so suddenly we're feeling a little bit too much dressed up now with our suits. And you already own it. So you bought a nudist colony without realizing it.
00:06:54
Speaker
No, no, no. That was due diligence. We hadn't bought it. Eventually, we bought it. We say, yeah, no problem. There's a taste for everyone and we should be inclusive. Next time, we'll just come a little bit less dressed, maybe not new, but less dressed. For sure. That's fantastic. That's a good story. All right. I think we were at the point where you realized you spent too long in Europe and wanted to get back to Mexico.
00:07:18
Speaker
Yeah, exactly. So decided to move back. And this is also pretty much typical of INSEAD profile, where you move geographies. In private equity, everybody was telling me, man, you're a partner in your fund in France. What are you going to do in Mexico? There's no way you can switch so far in your career. It's a local business based on local connections. Very difficult to start again. Of course, when I came here to Mexico and sat with several private equity funds,
00:07:46
Speaker
Everybody said, it's interesting. You've got a lot of experience, but man, you have no connections here. You've been out of Latin America for 12 years now. So it was about taking a demotion. I went from partner to non-partner and make my proof again. But I felt it was good. It was a good moment in time where going into
00:08:06
Speaker
into the ring and start dancing again, no? I'm not being so comfortable sitting on your toes. Hold on. Let me ask you a question about that. Did you have to divest at all from the previous fund or were you able to maintain some of the positions?
00:08:21
Speaker
I sold my shares in my previous one, but the fund continued with the existing partners. But yeah, I had to kind of stop that adventure. You know, you have whatever the economics, as they're set, you know, you may get something in the future when everything gets sold and run off. But it was really about starting fresh.
00:08:41
Speaker
here in a new geography and so yeah. And you took a job at an existing fund or you started your own thing in Mexico? No, I took a job at an existing fund because clearly, you know, coming to kind of a new geography, even though I'm half Mexican and I kind of worked in Mexico until the year 2000,
00:08:59
Speaker
We were already 12 years past that, so my business contacts were much less than what they used to be, so I needed a structure to get back on the saddle and kind of make my turf. So I started with this fund called Linzor Capital, which was a spin-off of JP Morgan Private Equity a couple of years before that. A great team, very seasoned.
00:09:21
Speaker
across Latin America. So we had offices in Chile, in Colombia, and in Mexico. Great guys with super truck record. And so, yeah, very happy to join them, even though, you know, for me, it was kind of a little challenge, as always. I heard in some
Complexities of Private Equity in Latin America
00:09:34
Speaker
of the podcasts of some of my fellow
00:09:36
Speaker
insiders that they were saying after inset I took a job that was you know much less remunerated than the one I had before you know making a change and taking some some risk and and actually I did that after it's up because the job I took was was paying less than the alternative like going back to to banking and and this time again no I had to kind of take a step back and say okay let's take some risks and let's see how it plays and and eventually super happy man two two years after I became partner again
00:10:04
Speaker
in the structure where I continue to work and love the transition. It's the same industry, but it's so different when you change geographies. Now, in particular, when you come to emerging markets, you have, I know, some experiences of coming down here and doing things around here. It's a totally different trade, right? You got to look out for everything. It's kind of the Wild West sometimes, in terms of... Can you put a little more meat on that bone? Like some examples of how it's different in Mexico versus France?
00:10:34
Speaker
Yeah. So, you know, here you start doing due diligence on the company and you'll very easily find that they have a different set of books, you know, for all the cash movements that are coming in and out of the company. And suddenly you've got a different set of accountings. You know, not paying taxes is the national sport. So you'll find tax contingencies that are worth three times the value of the business. So if you don't do the calculation right and you don't get the right figures, you can be in a very messy situation. Same thing with social.
00:11:01
Speaker
employees, you know, they don't pay social taxes. So it's a lot about, you know, checking in very detail every corner of the company and making sure that you understand where you're putting your foods and then making sure that you can negotiate a deal where you're going to have the representation and warranties and, you know, from kind of a seller. And those are, you know, too ugly, just know how to pass on very quickly, you know, and not doing them. So I remember in France, sometimes we did due diligence on a company, I know, three, four months, everything out of a data room.
00:11:30
Speaker
And we're kind of doing preemptive deals for those deals that were known to be great deals and moving very fast. Here, it's nine months of due diligence. You want to be sitting next to the CFO. You want to be extracting from the systems and from the ERP, the information. So you make sure that nothing is cooked in between and that you can really understand what you're saying. And then you've got the once you've done the deal, normal life here is more complicated than normal life over in Europe. The competitors can be much more
00:12:01
Speaker
aggressive in the way they do business. Regulation can be messy, complicated, you know, the political uncertainty and kind of changes that we experience move a lot of things. So you've got, you know, to know how to withstand the storm and navigate this time of waters. It makes it a lot of fun and, you know, great, great experiences, but it does require to
00:12:26
Speaker
to do things very differently, you know, with kind of a different mindset. And at the end, for me, it was great because I always liked the part of the business where you were very close to the CEO and the management team, operating the companies. And here in Latin America, it's much more common that, you know, probably people who jump in and, you know, do stuff and work with the companies, whereas in Europe, you tend to stand a little bit more removed.
00:12:48
Speaker
And so, you know, did a couple of deals here that were very, very interesting. If you want, I can, I can give you one. Yeah. Yeah.
Impactful Investments in Education and Services
00:12:54
Speaker
Yeah. Give some examples. Well, I wanted, I had a, I had a question about, about the differences where, um, I wonder, this is probably just a dumb American question, but that is there, are there concerns around like the rule of law and sort of the enforceability of contracts in, in a place like Mexico? Or is, is that, is that, uh, was that just a thing of the past? No, no, no, that's totally true. And it's a thing of the present. So, so basically what we try to do is, uh,
00:13:18
Speaker
we try to structure our deals and sign our contracts under New York law as much as we can so that we can relay on a law that is enforceable. It doesn't give you 100%. It doesn't solve 100% of the problem because, you know,
00:13:35
Speaker
a seller could always argue that he wants to bring this back to local courts because it's a local matter. But as much as we can, we try to do that to get better enforceability. And it's a lot about structuring the deals. For example, we always have escrow accounts. Those escrows are always in the US with cash in them. So because if you want to get compensation here through a court, you can wait 10 years. If you have an escrow in New York,
00:14:00
Speaker
you can access that eventually. And you know what? It tells you also a lot about your counterpart. Those that are willing to do that are those that probably are pretty clean, right? Those that are not willing, that's a good indication that you should probably not engage too much with them anyway. Yeah. That's a good way of putting it. So before we go, I'll hold you here for some examples. Before we go in, have you been with this fund the whole time or have you bounced around a little in Mexico? Okay. No, no. I got with this fund the whole time.
00:14:27
Speaker
raising our fund number four right now and starting to deploy it. So I joined them when they were investing their fund number two. And I met my partners here, great people, very seasoned, share a lot of values, do a lot of things on the ESG impact front, which is also super interesting because in this region, if you look at mid-market companies, it's nowhere on the agenda. So when you put something on the agenda, you can really move the wheel. So that's another talk that's interesting.
00:14:55
Speaker
And also my partners, I think we're all in alignment in terms of we don't only want to do private equity to make returns. Also, for example, we'll stay away from these industries and companies that are great investment platforms, but they don't have a positive spillover in the economy. So we are naturally aligned.
00:15:13
Speaker
We pass on these opportunities. And I think at the end, we're happy that if you look at our portfolio of the last fund, the seven companies, they all have a direct impact in the community. One example is, for example, we invested in an online university called Utah. That online university was created in 2011 between Pearson, the UK listed company, and a local family office that was very knowledgeable about education. Started up from scratch very early on. Nobody was talking about online education in 2011, much less so in Mexico.
00:15:42
Speaker
They break even in 2016 and we invested in 2017, taking a control position in the company and teaming up with the CEO and founder of the company. And that guy is a great visionary, Argentinian guy that moved to Mexico 20 years ago, that serial entrepreneur that had a great vision. And we knew a lot about education. We had invested before that in other universities.
00:16:06
Speaker
And so suddenly this online university that had 20,000 students in Mexico, basically by today we have about 110,000 students. So, you know, five, five years later, and we're present in, you know, almost every country in Latin America, we're selling and giving undergraduate bachelor degrees and master's degrees to probably the lower segment income population.
00:16:31
Speaker
And guess what? These are the people where the penetration of higher education is the lowest, right? If you look in Mexico, in the total workforce, about 19% of the population has a higher degree. So, you know, 81% is left on the side and they're left on the side because when they were 18, they couldn't study, they had to work. And then when they are 28 or 30, and eventually they're stabilized from an economic perspective, they want to study, but
00:16:57
Speaker
They can't afford high-tuition diversity, and they don't have the time to go and sit on a bench because of the traffic jams that we have in Bogota or in Mexico City or in Lima, no? And so online is the perfect response. We brought a product that's very affordable. It's about $100 per month. Compared to what would it cost if they were at a real university? What would it cost to Mexico? So for example, the best university in Mexico, it costs probably $1,000 per month or even more, $1,500 per month.
00:17:26
Speaker
15x difference, more or less. And it's a three-year degree. And what we track is the payback, right? So these guys, it's out of pocket. So they pay because they work most of the time while they're studying. And then we can measure. And basically, their salary increase basically pays back the full tuition in about 24 months. So you've got this very direct and immediate payback from having the title versus not having it.
00:17:56
Speaker
in economies such as these ones where penetration is low. So when you have a title, you can make a difference. Almost every one of the 110,000 students that we have, it's first generation. So it's people that it's the first people in the family that will achieve higher education. So so that's, you know, great businesses, because they're good financial businesses. But it's also, you know, good impact, no good impact for society, you're bringing a product that was not there, that really unlocks a lot of value. And
00:18:23
Speaker
And as always in Latin America, when you're capable of coming out with products that go after the largest chunk of the population, which are the lower income segments, with something that is affordable of good quality, you find a lot of impact and you also find a lot of growth. We have an NPS, super high NPS. And in education, I've been looking at a lot of universities. Normally, students are very harsh when they rate their own university, not NPS.
00:18:47
Speaker
tend to be in the mid 30s, 20s. We have NPS in the 60s or 70s. So it's nice when you come up with kind of this equilibrium in service, price, quality, and things start to grow. More even in the US, servicing the Hispanic community in the US, and we recently launched our programs in English,
00:19:06
Speaker
for the second generation of immigrants in the U.S. that want to have more in English education, but at an affordable price. And we have an equivalency for the U.S. where our undergrads are recognized in the U.S.
00:19:18
Speaker
And we now just started to incubate some students in Indonesia and Vietnam. And remember, to all this population, I'm selling Mexican undergrad bachelor degrees. So what you get is a Mexican bachelor degree. So it is kind of pretty interesting to see that education can eventually be exported when it hits right the price, the quality, and the experience, right? That's very cool. That's inspiring. What else have you guys done?
00:19:48
Speaker
So we've done a financial institution. We go, for example, in Mexico, we have a huge asset back lending company that goes after the on banked medium segments company market. So a lot of medium sized company, they're not banked in Mexico banks won't lend to them because there's too much fraud going on. And
00:20:06
Speaker
They're uneasy with that. So these people, they have to find themselves with only equity and cash flows. So we have like an asset back lending. So we only land on a very real asset and we own the asset eventually. So if you don't pay me, I'll take the asset back. That allows me to lend to SMEs that otherwise would not be lending to. So that's pretty nice also growing fast. We have also a couple of
00:20:30
Speaker
We had a telecom fiber optics company in Chile, also super interesting. You know, you had these big incumbents sitting on the market with the older technology, HFC and DSL, charging very important ARPUs and getting 40% TBA margins. We came in with fiber optics. We underpriced 30% the market.
00:20:50
Speaker
internet only took out all the TV paid TV, which is very expensive, and went out for the middle and lower income segments in secondary cities of Chile, where they had no alternative. And suddenly we were offering them 200 megas for 20% or 30% less than what they paid to the incumbents. And in two years,
00:21:07
Speaker
we multiply by three the size of the company we went from one million home pass to three million home pass there six million homes in chile so move the market and eventually all the competitors have to bring down their prices twenty to thirty percent to compete against us and we sold the company to a global private equity fund dedicated to.
00:21:25
Speaker
telecom infrastructure. And we've got also healthcare deals and a software and technology deal, but most of them with the same ideas. Let's get a nice product, a little cheaper, and go after the mass market with something they're not getting at the right price, at the right value.
00:21:41
Speaker
That's fantastic. The
Importance of ESG and Social Impact
00:21:43
Speaker
rare private equity guy with a heart. I'm speechless. Nara, please. Not all private equity is evil. That's why we have to tell more of the good stories, because what you read on the news is always the bad ones, no? Almost never the good ones. Yes, yes. Well, I was hoping you were laughing there, saying, oh, no, no, I don't have a heart. Don't worry. I'm still on brand. Hey, last question.
00:22:10
Speaker
with where you are professionally personally, is there anything that we as the community can do to help you and vice versa? What is it that you're able to provide?
00:22:22
Speaker
Yeah, the community right now, Latin America, because it has had a lot of political turmoil and because it's a volatile region, about 10 years ago, everybody wanted to invest in Latin America, and we were getting much more money than what we needed. And now we're going in the other cycle. Very few people are willing to invest.
00:22:41
Speaker
People got scared or don't know enough the region. And so right now we need to attract more capital from outside showing that there are these great opportunities, you know, how to navigate locally.
00:22:55
Speaker
the cycles and
Fundraising Challenges and Call for Collaboration
00:22:56
Speaker
the economy. And there's, you know, a bad press for because of many funds that did very poor performance. And that would be the issue of another podcast to explain that. But the result is, you know, the kind of the overall returns are not that good. But that doesn't mean that there's not many funds that are doing very, very good things. So I think we need to bring more attention. And this is about also vintages, right? This is a great moment to invest because
00:23:19
Speaker
Basically, there's not so much money coming in, and so that gives great opportunities. And when I can give back to the community as kind of the other way around, I've developed over 20 years a little bit of experience investing in companies and in different sectors, as the one we mentioned. So, you know, everybody in the community that wants to brainstorm because they're looking to invest or they're looking to build or to grow, and that touches upon education, financial services, telecom, healthcare, software and technology.
00:23:46
Speaker
Again, with my two cents, super happy to engage brainstorm. And if we find any similarities and I can share any experiences that are relevant.
00:23:54
Speaker
always super happy to do it. Of course, if anybody comes to Mexico, happy to give them a mezcal and taco store, which I have pending with you in particular because you're so close. We'll definitely be doing that. Hold on. Let's back up there a second. Did I hear you say your fund is raising right now? Yeah, we're raising right now. Let's be obnoxious. What's the minimum check size you're looking for?
00:24:20
Speaker
Normally, we go after institutional investors, but we can take some physical persons if I know them. And this community, by definition, is in that bucket. So we can go down to probably two, three million, maybe one million, because there is a... Are they going to pay those or pay those or dollars here?
00:24:43
Speaker
dollar, dollars, dollars. By the way, we're a dollar fund man. So we invest in dollars and we give our returns in dollars. So yeah, it's meant to be for a qualified investor, right? You know, it's not because we do buy us, we buy large companies, we buy control positions, and then we grow. We're not in the VC space, writing sometimes smaller checks.
00:25:03
Speaker
Fair enough. All right. Well, thanks for sharing a number. And thank you very much for the time. This has been really, really interesting. And if anybody is in Mexico City, they need to look you up. Absolutely. It was great catching up, Joe. And I don't know who's going to make your podcast, but you have to have yours back there also. There's many more interesting people to talk to before that happens. You're too humble. We'll get to you. Thank you. Bye bye.