SAO PAULO While domestic end-user Internet companies have found this summer that they are little more than an afterthought for infrastructure-focused investors, the Latin American end-user market has been privy to a steady stream of executed offerings and expects several more before year-end.
Most notable was a $100 million transaction completed in August for free Internet access provider Internet Group do Brazil (iG). The funding was provided by TH Lee.Putnam Internet Advisors and UBS Capital Americas.
Through a joint venture, Brazilian private equity firms GP Investimentos and CVC Opportunity Equity Partners launched iG in January. Since then, several partners have come on board, including two large Brazilian telephone companies – Telemar, which took a 22.9% stake, and Brazil Telecom, which took an 11.1% stake in the company, representing $8.5 million. However, GP Investimentos and CVC continue to manage iG.
According to information provided by the company, iG is approximately 1 percentage point ahead of the other leading Brazilian free Internet access provider, UOL, in terms of usage, with about 2 million people logged on so far.
UBS Capital Americas, a subsidiary of UBS Capital Corp., made the investment through its $500 million UBS Capital Americas III fund. Although the fund’s primary focus is still in later-stage financing, it also invests a minority of its portfolio in early-stage investments in the technology and telecommunications sectors.
GP Investimentos manages two funds totaling more then $1.3 billion, and is currently in negotiations to raise a new technology fund with a target of $150 million to $200 million, said Managing Partner Roberto Motta-Thompson, who expects the first round of financing to close by the year-end. GP has focused investing on Internet-related projects this year, including investments in Lokau, Webmotors and Submarino.
CVC has the $1.1 billion CVC Opportunity Equity Partners LP, and is also in negotiations to raise a $300 million fund to invest in Internet, technology and telecommunications projects. Of the $300 million, it plans to raise $200 million locally. Together, GP and Opportunity plan to invest an estimated total of $120 million in iG.
Most recently, iG has moved into e-commerce so as to diversify its revenue stream. Through an alliance with Brazilian beverages company, the firm recently launched iG Pizza, a pizza delivery service. IG launched its flower delivery service, iG Flores, in May.
Additionally, the company has also created iG PC to Phone, allowing calls from personal computers to fixed and mobile telephones worldwide. IG said customers will receive up to a 50% savings on traditional long distance calls; they will also be charged automatically every time they use $20 worth of call time.
Meanwhile, the aforementioned UBS has also recently invested a total of $45 million in IFX Corp., a major provider of Internet services in Latin America. Under the Unete brand name, it offers ISP services in roughly 100 cities throughout Latin America. UBS invested $25 million in IFX through its UBS Capital Americas III, LP fund, and an additional $20 million in IFX’s subsidiary, Tutopia.com, the company’s consumer-focused brand that provides free Internet access and content.
The market for corporate Internet infrastructure services in Latin America is expected to reach $15.5 billion by 2003, up from $4.4 billion this year, according to numbers cited by IFX.