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March 15, 2019

LATAM Business Weekly - Issue #9

MercadoLibre’s $1.8 billion equity offering includes $750M investment from PayPal and $100M from investment firm Dragoneer

Last week’s issue featured Latin American marketplace MercadoLibre’s outstanding success in the payments and fintech sectors.

This Tuesday, March 13, Tech Crunch reported that MercadoLibre announced that the e-commerce platform will be receiving a $750 million investment from PayPal, and another $100 million from investment firm Dragoneer, as part of a $1.8 billion equity offering to grow its business.

According to the report,

“The remaining $1 billion of the equity offering will be offered as common stock, the company said. PayPal and Dragoneer’s investments are contingent on the company raising the remainder publicly, although judging by the company’s track record as a public stock, and the fact that PayPal also announced this news on its own site, it doesn’t appear the parties are in great doubt about the deal’s completion.”

MercadoLibre, traded on Nasdaq, has a current market cap of $21.75 billion.

President and CEO of PayPal, Dan Schulman, said in a statement that

“Digital commerce in Latin America is experiencing tremendous growth and MercadoLibre is well-positioned for continued leadership. We’ve been impressed with the digital commerce and payments ecosystem Marcos and his team have built. We see great opportunities to integrate our respective capabilities to create unique and valuable payment experiences for our combined 500 million customers throughout the region and around the world.”

MercadoLibre’s CEO, Marcos Galperin, also released a statement.

“Over the past 20 years, we have heavily invested in developing the preeminent e-commerce and FinTech ecosystem in Latin America. We are excited to welcome these investments which will allow us to significantly accelerate our growth. We look forward to accelerating our leadership in ecommerce and payments and foster financial inclusion in Latin America as a result of our alliance with a global leader in the industry such as PayPal.”

Softbank invests in Colombian digital hotel chain startup Ayenda

Softbank made its first Latin American investment in Colombian startup Ayenda Rooms: LatAm’s first digital hotel chain.

Ayenda, Colombia’s largest hotel chain, operates 45 properties, generating over $1M in revenue since its launch in 2018. As a budget hotel franchise, Ayenda’s business model involves exclusive marketing of the hotel utilizing the Ayenda brand, technology and acquisition channels, taking a percentage of all hotels’ sales in return.

As reported by Lat Am List,

“Currently, 60% of hotels in Latin America are independent, creating an ample market for Ayenda to expand its franchise. With its 20-person team, Ayenda plans to use the investment to expand to 6 new cities and 120 hotels throughout 2019.”

Softbank’s new $5 billion Latin American fund looks to “invest in entrepreneurs throughout Latin America and use technology to help address the challenges faced by many emerging economies” (Tech Crunch)

Global Magnitsky Human Rights Accountability Act’s Impact on LatAm Business

In December 2016, The United States passed the Global Magnitsky Human Rights Accountability Act, allowing the president to impose economic sanctions on human right abusers and corrupt government officials anywhere in the world.

The U.S. has increasingly been using these sanctions to target LatAm government officials. Most recently, sanctions were imposed against certain government officials of the Nicaraguan Ortega regime, for accusations of human rights violations during the recent anti-government protests, killing hundreds of Nicaraguan civilians.

These sanctions are used to promote American foreign policy and national security goals. This means that these sanctions are primarily imposed upon countries, governments or individuals that are hostile to U.S. interests.

Once a sanction has been imposed, the individual or organization is automatically included in the Specially Designated Nationals And Blocked Persons (SDN) List, a “blacklist” maintained by the Office of Foreign Assets Control (OFAC): a financial intelligence agency within the U.S. Treasury.

According to Miami Herald,

“Once an individual or entity is blacklisted by OFAC, all of its assets in the United States, or in possession or control of U.S. persons, are blocked and cannot be dealt in in any way. Put simply, a Magnitsky sanction is the equivalent of a blanket prohibition to engage in any transactions with the sanctioned individual or entity.”

Chilean startup NotCo’s vegan mayo receives Jeff Bezos’ first investment in South America

Chilean startup, NotCo, has convinced Jeff Bezos to make his first South American investment. The plant-based food alternatives company that makes vegan mayonnaise, milk and ice cream recently closed a new round of funding, including millions from Bezos Expeditions.

The funding round raised a total of $30 million USD. Earlier investors also joined the round, such as Kaszek Ventures and IndieBio.  

According to CEO and Founder Matías​ ​Muchnick,

“[NotCo] uses machine learning to produce plant-based food alternatives such as milk, ice cream, and mayonnaise. This month they are expanding to Brazil, where they already have an agreement with retailing giant Pao de Acucar, and they expect to have operations in the United States by the first quarter of 2020”
“Between Whole Foods, Amazon Go, and a new chain of stores recently described by the Wall Street Journal, Bezos and his executives need new private label products that can scale. NotCo expects to get into discussions with Whole Foods, said its chief executive.” (Fast Company)

LatAm Consumer Retail 2019

2018 laid important groundwork for Latin American consumer retail. Important factors include: the election of business-friendly administrations in Brazil, Chile and Colombia, economy recovery yielding increased consumer confidence, and e-commerce growth and significant development of on-demand companies such as Uber and Rappi in the region.

As economic recovery continues, consumer confidence will increase and encourage LatAm consumers to switch from savings to spending.

According to the report published by Americas Market Intelligence,

“Successful companies will need to maintain the consumer and the shopper at the center of their strategies in 2019 and beyond… Both CPG companies and retailers, must continue understanding and capitalizing on disruptive trends such as the rapidly growing omni shopping, as well as consumers’ increased expectations for convenience, simplicity and authenticity from brands as well as a clear shift towards healthier products and lifestyles.”

In terms of potential negative outcomes for Latin American retail, problems are most likely to derive from specific markets rather than the region as a whole.

In Mexico, investors may be wary of President López Obrador’s leftist policies, creating potential capital flight which would impact consumer and retail sales.

In the case of Argentina, the country’s recession will likely continue through the first half of 2019, caused by a 52% currency depreciation, therefore creating a downturn for consumer spending.

The political uncertainty of the Venezuelan regime also plays an integral factor in their local market’s retail and consumer sales, as crisis continues.

Bird announces expansion of Platform program, partnering with local operators as part of global expansion strategy

Last week, scooter company Bird announced it will be expanding its platform program, which licenses its business model to local operators in exchange for 20% of their revenue.

The $2 billion company has announced the expansion of this platform to Latin America, Canada, and New Zealand.

CEO Travis VanderZanden told Forbes that,

“We think our platform is incredibly complementary because it allows us to get into other regions around the world faster and take the Bird mission to those other regions”

According to VanderZanden, the company simply cannot expand into every geographic area at once, so its strategy for entering global markets is to partner with local operators and take share of their success, a decision that will in turn lower risks of a costly international expansion plan.

Video: MercadoLibre CEO Marcos Galperin talks e-commerce in Latin America: Insights and Trends

MercadoLibre’s CEO Marcos Galperin keynote speech at eMerge Americas 2018 discusses Latin American e-commerce.

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SoftBank's Brazilian investments, Latin American legislation's benefits for American entrepreneurs, and more...

This week, SoftBank bet big on Brazilian business, Platzi raised $6M USD in a Series A funding round, and President Andres Manuel Lopez Obrador invited Mark Zuckerberg to join him in promoting universal internet access in Mexico.

Softbank Vision Fund invests $100M in Brazil’s Loggi, Chinese ride-sharing giant Didi’s future Latin American expansion, PayPal’s Involvement in Mexican SMB lending, and more from Latin America…

This week, logistics startup Loggi became the newest Brazilian unicorn, Didi announced expansion plans for Colombia and Chile, and PayPal kicked off their new partnership with Konfio. 

Rappi announces plans to launch Visa debit card, Brazilan payments startup Celcoin raises $1.5M, Netflix collaborates with Latin American Youtubers to promote engagement, and more from the region…

This week, Rappi entered the neobanking market, Netflix tapped into their Latin American consumer base, and Finnovasta released their Mexican Fintech Report.

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