BY: ROLF DEWENTER

For thousands of German visitors every year, Mexico means Mariachis, Mayas and holidays on the beaches of their dreams. German companies are getting a less folkloristic impression of Mexico, the important location, which they have chosen as part of their global growth strategies. A highly developed headliner in the Latin American market, which is making a name for itself away from the tourist track.

Since accession in 1994 to NAFTA (North American Free Trade Agreement), along with the USA and Canada, leading international vehicle manufacturers have expanded their local presence. In the wake of this development it has become essential for many medium-sized companies to increase their competitiveness by having their own regional manufacturing facilities.

Mexico’s significance as a manufacturing location has gained considerable ascent, not only thanks to its integration into NAFTA but also thanks to free trade agreements with the EU and other trading partners. Of course one can also add agreements as well as traditionally good trading relations with all the countries of Latin America, which currently contribute to the highest volume of trade on the continent. Correspondingly the Mexican subsidiaries of German companies see perspectives not only in supplying just to the domestic market.

As one of the top ten exporting countries, Mexico has liberal economic policies, which create optimal conditions for European companies to invest. The country has a large and well-trained labour force, and compares well internationally in terms of productivity and quality standards.

The establishment of subsidiaries by German medium-sized companies over the last few years has led to considerable improvements in infrastructure, even though there is further room for improvement.  A relatively high proportion of semi-finished product is still imported from Germany, and there is still a need to find suppliers, who can close the quality, specification and reliability gaps.

Financing

Assuming this scenario with these opportunities and conditions, the move to Mexico, as part of an existing customer/supplier relationship, can be viewed as a profitable decision. And the opportunity to finance growth is provided by the Multi Industrial Fund (MIF), which, in addition to providing the necessary capital resources, assists with the strategically important issues of choice of location, characteristics of local business practice, selection of personnel and management etc. (linked to a large human resources network).
 
The MIF takes a minority stake for a limited period by injecting equity capital into the Mexican company. The level of finance provided by the Fund relieves the German parent in part of the need to inject its own capital and provides relief from an annual interest burden.

Who is behind this idea? The founders of the MIF are leading international and Mexican institutional and private investors. The Fund is managed by the fund manager "WAMEX Private Equity Management", of which renowned specialists from industry, the financial sector and management are members.

The skills bundled here serve the purpose of complementing the German partner’s resources in a manner which adds value, and of guaranteeing smooth procedures and a profitable return on the investments. As a strategic partner the MIF thus has a genuine interest in the positive development of the local company and, within a clearly defined framework, is instrumental in shaping this development.

With two mandates, Wamex accompanies the local management of the German-Mexican subsidiary on the local supervisory board. Besides the above-mentioned structural support, this is as far as an active contribution to increasing the value of the company goes. Participation in operations or in the management of the company is not permitted. As is a stake in two competitors within the same market segment.

In conclusion: the concept of the MIF and WAMEX in this form is probably unique. A division of corporate risk on the basis of a minority stake without interference in daily business represents a particular kind of starting block. From the investor’s perspective this risk is limited to a maximum injection of USD 12m as well as to the provision of specific skills, which provide a "soft landing" in an unfamiliar location. The experience of lucrative exits from their financing model indeed gives the suppliers hope that they will find new partners.