VACE Partners, a boutique investment-banking firm operating from Mexico City, has been in existence for only a decade but has completed an impressive array of deals in that period of time. Built by experienced bankers with established track records from a number of top-name banks in international locations, VACE has proven itself through its results, having profitably completed several transactions—including one of the most significant M&As in the financial institutions sector, debt restructuring for key companies, capital raising for corporations of various sizes, and financial restructuring of government entities.VACE’s team members attribute their success to their collaboration and commitment to excellence. “We conduct our business according to the highest ethical and confidentiality standards, always trying to create sustainable value through independent and objective financial advisory.”
International Banker was pleased to be joined by VACE’s managing directors and founding partners, Mr. Ricardo Cervera and Mr. Carlos Vara, who were more than happy to fill us in on their growing firm’s recent activities and the reasons behind their stellar performance.
Mr. Cervera and Mr. Vara, thank you for speaking with us today….
Ricardo, are you satisfied with VACE’s overall performance in 2018? How would you say it compared to other recent years?
Ricardo: Despite the fact that 2018 was a very volatile year in which presidential elections took place in Mexico, VACE Partners maintained its leadership position and led some of the most important investment-banking transactions in the country. For example, we closed the merger between Grupo Financiero Interacciones and Grupo Financiero Banorte for roughly US$1.5 billion, which was the largest M&A (merger and acquisition) transaction in Mexico last year. VACE Partners acted as the exclusive financial advisor to Interacciones, while Morgan Stanley and Bank of America acted as co-advisors to Banorte. Additionally, we announced the sale of Salsa Cholula in December of 2018, as exclusive financial advisor to the seller, in the midst of an extremely uncertain environment due to the cancelation of the new airport in Mexico City announced by the new administration. Although the terms of this transaction were not disclosed, it represented a multi-million-dollar deal that got done at a very high EV/EBITDA multiple, which boosted the confidence of a number of corporations and investors in Mexico in a fragile environment.
VACE not only led landmark M&A transactions but also participated in significant financing deals. For example, we led the refinancing of the State of Sonora’s debt worth over US$1 billion, achieving a significant improvement in the terms and conditions by lowering the rate and extending the tenor of its debt.
Carlos, according to the VACE website, the firm has achieved success “based on its teamwork and its commitment to excellence”. What is a good example of effective teamwork that has led to success at VACE?
Carlos: I have always said that one of the key elements that distinguishes VACE from most of our competitors is the fact that we have an outstanding team of professionals with significant experience from bulge-bracket firms around the world. Our team is comprised of bankers that were trained on Wall Street in different institutions, such as Salomon Brothers, Salomon Smith Barney, Citigroup, Deutsche Bank, JPMorgan Chase, etc. VACE Partners is not just me and Ricardo; it is a true team of people who work together seamlessly, and everyone is committed to delivering excellence to our clients. The way we structure the teams to execute transactions guarantees that our clients will always have access to the resources within the firm at all levels: that is, in every single transaction, there will be a senior partner involved alongside a junior partner, a vice president, one or two associates, and one or two analysts. Every member of the execution team is 100 percent up to speed about the situation of the deal at any given time, and our clients can contact any member at any time for help. In addition, senior partners are always aware of all of the transactions that VACE is working on and cover for each other regardless of whether either of us is the senior partner in the deal (in many instances, both of us are deeply involved in the same transaction).
If I’m not mistaken, Ricardo, prior to founding VACE, you worked for more than nine years at Salomon Smith Barney and Citigroup. What is the biggest difference you have experienced between working for such large institutions and working for VACE?
Ricardo: That’s correct, prior to founding VACE, I worked at Salomon and Citigroup for many years, which was a tremendous opportunity to learn and be exposed to very interesting transactions all over the world. I spent almost eight years in New York doing investment banking for US companies, which allowed me to work on complex deals in the most developed market in the world. However, in such large institutions, it is very common to have to deal with bureaucracy, which gets in the way between you and your clients. I found that towards the end of my career at Citigroup, I was spending almost 50 percent of my time dealing with internal bureaucracy as opposed to doing meaningful work for my clients. Today, I spend 100 percent of my time originating and executing transactions, which is what I truly enjoy. Of course, we have fewer resources than these bulge-bracket firms, but we make up for that with our personal and full commitment on every single transaction that we work on. At VACE, it doesn’t matter if you are a founding partner or an analyst, everyone gets deeply involved in the execution of all transactions, and we do so from the moment that we pitch to the moment that we close the deal. In addition, once we take on a mandate, we devote ourselves entirely and put in the same effort whether it is a small or middle-market transaction or the largest M&A deal in the country.
Does VACE currently focus exclusively on business inside Mexico, Carlos? If so, are there any plans or opportunities to expand coverage to other countries?
Carlos: So far, VACE has primarily focused in the Mexican market. We have participated in some transactions in Central and South America (e.g., the acquisition of Prisa in Chile and the disposition of Eskimo in Nicaragua), but I would say that probably 90 percent of our activity has been in Mexico over the past 10 years. Having said that, we just opened an office in California (United States) in order to cover cross-border M&A and financing transactions, as well as the small and middle-market in the southern United States. We believe that this is a niche market that is not well covered and has significant potential. Additionally, we want to diversify our business and cover more geographies since we have the capabilities to do so. Southern United States and cross-border activity is a natural expansion to our already well-established practice in Mexico, and we look forward to building a successful business in that new region.
Your bio on the company website, Ricardo, mentions that you have extensive experience in M&A, having led the execution of multiple landmark deals in the United States and Latin America. What do you consider to be the biggest or most significant deal you have led at VACE?
Ricardo: Every single deal that we work on at VACE is important. Some are more visible or considered landmark deals given the size or the relevance of the transaction, but we treat every deal with the same commitment. We understand very well that most of the transactions that we work on represent the most important deal ever for our clients. For example, if you are the owner of a business, it doesn’t matter if the business is worth US$50 million or US$500 million, for you it is everything you have and have worked for. Therefore, we deliver the same level of quality, commitment and professionalism to all transactions regardless of size or visibility. Our fee may be different, but the quality of the work you should expect from us is exactly the same. In the end, our reputation is the most important asset that we have, and we are extremely careful taking care of it. In addition, consistency in the quality of work delivered pays for itself because not only do we have a number of clients who give us repeat business all the time, but also, we get a number of recommendations from past clients. Luckily, since we started VACE 10 years ago, we have always had a constant and healthy pipeline of new transactions.
Your bio on the company website, Carlos, mentions that you have played a leading role in many of Mexico’s landmark equity transactions. What do you consider to be the biggest equity transaction during your time at VACE?
Carlos: That’s correct, I have been very lucky to participate in a number of landmark equity deals since my time at Salomon/Citigroup but also in VACE. I think the most meaningful equity deal that we have done at VACE is Jose Cuervo’s US$915-million IPO (initial public offering) in 2017. The IPO was very successful; it got done at the high end of the valuation and was multiple times oversubscribed, with participation of the most important institutional investors in the world. This was a very meaningful transaction for VACE, not only because it was one of the largest IPOs out of Mexico in the last decade but most importantly because it represented the transition of Cuervo from a family-owned company, in existence for over 250 years, to an institutional, publicly traded company. We were honoured to work with the company and its shareholders in preparing them for this once-in-a-lifetime transaction and to accompany them throughout the process until the successful pricing of the IPO. Our role as structuring agent demanded from us to be deeply involved in all aspects of the transaction, from preparing the investment thesis and financials, to hiring the underwriters, to helping the company with its corporate governance.
Ricardo, as a founding partner, what do you consider to have been the single most challenging aspect of building and developing VACE Partners into a successful investment-banking firm?
Ricardo: We are extremely proud of what we have accomplished at VACE over the last 10 years. We are currently celebrating our 10th Year Anniversary, and looking back, we couldn’t ask for better results than what we’ve seen in this period. The response from our long-time clients has been spectacular, and we have built a number of new relationships that we value tremendously. However, as you may imagine, our success has not been challenge-free. The competition in investment banking worldwide, and particularly in Mexico, is fierce. You compete on a daily basis not only to win transactions but also to attract the best talent on the street, and believe me that beating names such as Goldman Sachs or Morgan Stanley on both is not an easy task. Having said that, we never look at the League Tables or measure ourselves against others; we simply work with the mission to provide the highest quality of work possible and let the results speak for themselves. We follow the philosophy of never looking at the scoreboard during the game and just focusing on the play at hand to make sure that we excel on that play at that exact moment.
Top talent comes to work with us, despite the fact that we can’t pay the same salaries as some of the large institutions, because we have created a real family: a non-hierarchical structure in which young bankers are exposed to very important transactions from the moment they join VACE, and we provide them with a platform to thrive, learn and succeed. I believe that an important part of our success and why we beat the competition is the personal involvement and attention to detail of all of the bankers within VACE, including the founding partners.
How are responsibilities divided among founding partners at VACE, Carlos? Are you responsible for specific business areas, or does it work in a different way?
Carlos: VACE Partners is a truly generalist investment bank. With the exception of capital-markets underwritings—since we are not a broker dealer—we work on all traditional investment-banking products and cover all industries. That is, we work on mergers and acquisitions, fairness opinions and valuations, debt structuring, debt restructuring, debt and capital raising, private placements, IPOs and follow-on structuring, and other general corporate advice (including corporate governance). In terms of industries—despite the fact that we have been more active in certain industries—as I mentioned before we cover almost all of them. Amongst them, we have been particularly active in consumer goods, retail, financial institutions, infrastructure, media and telecommunications, and lodging and real estate.
Within VACE, there is certain specialization amongst the partners given our personal backgrounds, but we are all generalists as well. We have decided not to present ourselves as specialists in any sector but rather as specialists in executing and closing deals, particularly M&As.
Which single factor, above all others, do you consider the most important in order to successfully maintain long-term client relationships, Ricardo?
Ricardo: I think that for any investment banker, the most coveted words that you aim for are “Trusted Advisor”. As a banker, I have devoted my career to becoming the Trusted Advisor of all my clients. Therefore, I believe that the single most important factor to develop long-term relationships is trust. In order to gain trust, you always have to put your client’s interests first and always need to talk openly, straightforwardly and truthfully. Sometimes, your client may not like what you say, but the only option is to say what you believe is best for him or her. Obviously, sometimes what you say is not also in your own best interest, but regardless your advice needs to be always unbiased and direct. It is not easy to stand in front of a board of directors to present a transaction in which you have been working for the last five or six months and recommend not to proceed with it! But if that recommendation is the best course of action for the client, they will always appreciate your honest feedback and most likely you will be in front of them again in the next transaction.
I think that working at your own investment-banking boutique makes it significantly easier to deliver such objective advice versus working at a large institution that commonly faces more conflicts of interest. Large institutions have many constituents to cater to; for example, in an equity issuance they work both for the issuer and for the investors, while we at VACE always work exclusively for the client who hires us and have a steadfast commitment to them.
Well, gentlemen, it sounds as if your dedication to your clients is paying off in spades. Thank you so much for talking with us today.