This historic moment will also serve as a symbol of the economic evolution the nation is undergoing. After decades of security challenges, Colombia is now fully open for business.

Photo: Lorenzo Garavito of HBI discusses the best investment sectors and economic transformation taking place in Colombia. (Credit: Loren Moss)

Lorenzo Garavito, president of HBI (Banca de Inversión Helm Group Company), says that the investment community’s interest in the country is rising, with the peace process being a key factor. While the opportunities are vast, he believes the best move is to bet on the consumer. Retail, restaurants, and grocery stores are all low-risk plays that will bring good returns. Agriculture, while less certain, is another big growth area in Garavito’s eyes. At the same time, Colombia’s traditional family-owned business structures, more suited to an agricultural and industrial age, are modernizing and internationalizing, and to do this, they are more and more seeking the help of modern investment banks, entities that were practically nonexistent in Colombia a couple of decades ago.

To learn about the most-promising sectors, rising interest from institutional investors, and how Colombia’s evolving economy is affecting traditional family-owned businesses, Executive Editor Loren Moss of Finance Colombia recently sat down with Lorenzo Garavito.

Finance Colombia: Here in Colombia, as in a lot of countries in Latin America, many businesses tend to be family-owned and family-run, sometimes over multiple generations. Even when we look at the tycoons in Colombia, we’re usually talking about families. With the recent changes in the laws and changes in the landscape here in Colombia, how do we see the modernization, if you will, of the economy affecting family businesses and the traditional structure?

Lorenzo Garavito: Colombia has always been a country where entrepreneurs have created companies, and the public markets are very small. It’s very difficult to get money out of the public market, so families tend to stick together and grow their businesses.

There have always been concerns with succession from generation to generation. Is the new generation ready? How can you protect the company from these changes?

We’ve seen companies saying, “We just want to have a professional manager and we´ll run the company at the board level.” We’ve seen companies saying, “We need an external investor to mediate among cousins and the third and fourth generations.” We’re involved right now in a transaction where the owner basically said, “Look, I want to leave some something to my kids, but I also want to enjoy my money and my retirement.” So he split the business in two. He left a part to his kids and he’s selling that other part of the business.

“I would bet on the consumer. I would definitely bet on retail stores. Not only supermarkets, but glasses or wine or restaurants — or anything that has to do with consumers.” – Lorenzo Garavito, president of HBI

What we’ve seen in the last 18 months is that the recent volatility in the market has brought up some more fears among the second and third generations. Some companies are think they need to make acquisitions outside Colombia and try to become a non-Colombian company. So we’ve seen family businesses making acquisitions in Central America — incorporating a holding company in Panama, for example.

The investment bank is always a neutral third party, and I think our role, besides doing a transaction and raising money selling a company, our paramount role is to make sure that the family relationship doesn’t suffer because of a discussion about money, right?

Finance Colombia: So, people might traditionally think that the time to call an investment bank is when they’re going to do a transaction. But you’re saying that the investment bank can also actually work as an advisor and help structure things — help mediate, help negotiate — even if there’s not necessarily an acquisition or a deal to make?

Lorenzo Garavito: Yeah. I think that our role is as mediators in those situations. Things can be taken in a different way or misinterpreted. So bringing in a third party to mediate in those money issues is always a good idea. We can make an evaluation and have plans to separate the business or give liquidity to some of the members or bring in a third party. We can analyze the situation and provide ideas to the companies.

Finance Colombia: Are there a lot of other cases like that happening in Colombia, with Colombian businesses that are looking to maybe sell out even to a foreign investor?

Lorenzo Garavito: Yeah. We’ve seen that. I think that selling today, it’s still tricky because, two years ago, one dollar was equal to 1,700 pesos. Now the peso has devalued to around 2,900 to one dollar. So, in dollar terms, your business was previously worth a lot more than what it is worth today. So the decision to sell is not there yet. I think people are very conservative and they want to know what’s going to happen the dollar, inflation, exchange rate, tax reform, etc.

But I think, as I mentioned, we have seen a lot of inquiries about helping solve family discussions where people, in these volatile times, have different ideas. Some want to grow, some want to sell, some want to make other decisions. So we’ve been getting involved in situations where people are making transactions just to solve the different views of their members, their shareholders.

Finance Colombia: At what size — whether that’s in revenues or whether that’s in capitalization — is it even worth the exploration of talking to an investment bank?

Lorenzo Garavito: Well, I think there are also tiers in investment banking here, so there are a lot of firms that cover small-size companies. We cover kind of medium- to medium-high-sized businesses, so our transactions usually start around $30 million USD to $300 million USD. But I know there are a lot of firms that do $5 million USD deals or $2 million USD deals.

“If I wanted to take a lot more risk, I think agriculture is the place to be.” – Lorenzo Garavito, president of HBI

We were actually recently involved in a transaction where a foreign company hired us to find companies in a specific target, and we found one that was very small — but it was exactly what our client needed. So it’s a $1 million USD transaction with a family-owned business where the owner is preparing to retire. The business is managed by one of the siblings, and the owner basically thinks that the person might need the help of somebody once he is missing. This person needs help from somebody to manage the company, so it’s a good idea to bring a partner at this stage.

Finance Colombia: Succession is always complicated. One of the things that I’ve seen is that a father has done very well in business and — either out of blind tradition or not knowing what else to do — is ready to retire, and he says “Well, I’ll just leave it to my kid.” And either the children have no interest in running the business or they have no capacity. So it doesn’t work and the business implodes. The business could have been saved, and I think to myself that it’s sad for the employees. They have worked so hard and given their life to the business — just to see it evaporate.

One of the things I’ve never really seen in Colombia is an employee stock-ownership program. When the founder is ready to retire, he begins to invest the stock in the employees. “You’ve been at the company for 30 years, you get so much.” Eventually, the employees are just like shareholders, and they appoint a board of directors. Is there anything like the employee-owned business or a way to transfer ownership to employees?

Lorenzo Garavito: It’s not very common, but it has happened. We, actually Grupo Helm, had an IT company that was sold to the employees, for example. I know Grupo Sanford, for example, has a stock-option plan for employees, and they distribute stocks. They actually encourage them every year and people might sell or buy at the end of the year, They even have an internal market for shares.

But that’s rare, I think. Private equity has helped in bringing those ideas to companies here as a way to align interest. Some venture capital. I think we’re seeing a change — there are interesting examples out there — but it’s still very limited.

Finance Colombia: In Colombia, as the economy changes, there has been a huge push towards the services sector. At the mid-market, what kind of interest are you seeing from the institutional investors, particularly the more sophisticated and international players? Is that rising? What kind of effects are the economic conditions having on the interest of institutional investors?

Lorenzo Garavito: I think it’s rising. Colombia has had different cycles where sometimes the internal market is more optimistic than the external market, like in the 1990s when things were difficult in Colombia and no foreign market companies wanted to come.

Today I think it’s the opposite. Foreign investors are far more optimistic about the country than local investors. I think it’s because they see the peace process with very optimistic eyes in terms of this being a country that has not been on the radar for a lot of companies and would now be on the radar — even though, in my sense, internally, this process doesn’t mean huge changes initially. I think, over time, it will bring a lot of good changes. But initially I don’t think we’ll see a big difference. But in international eyes, they see this as a boom.

I also think that what the last 18 months have proved in Colombia is that it was not an oil-based economy. Oil was very important — a very important part of our exports and of government financing. But the real ending of the economy was the consumer.

You see results for supermarkets, restaurants, and even shopping malls. They’re doing well. They’re doing very well.

Ten years ago, we had three big cities. Then we increased that to five or six additional cities. Today, if you’re a restaurant, there are 30 cities where you want to be.

Finance Colombia: If you were a fund manager, if you were going to raise a mutual fund, what sectors in Colombia are you bullish on? What is the sector that is under-appreciated and doesn’t get the attention that it deserves from the rest of the world t as far as for an investment destination?

Lorenzo Garavito: Well, I would answer two things: One, in terms of lower-risk areas, I would bet on the consumer. I would definitely bet on retail stores. Not only supermarkets, but glasses or wine or restaurants — or anything that has to do with consumers. I think the consumer will continue to grow, especially in the low- and middle-income. That’s the large bulk of the population.

“Foreign investors are far more optimistic about the country than local investors. I think it’s because they see the peace process with very optimistic eyes. They see this as a boom.” – Lorenzo Garavito, president of HBI

If I wanted to take a lot more risk, I would say agriculture. Colombia is a country that has very good land — a lot of undeveloped land — and very good economics for agriculture in terms of weather, rain, growth, and sunlight. But it has been a sector that has been very difficult to develop.

Of course coffee is one of the best examples of the transformation. But I think that because of all the investments in 4G, the peace process, and a lot of knowledge that is easier to acquire today, if I wanted to take a lot more risk, I think agriculture is the place to be.

Finance Colombia: What does the government need to get right? We all talk about education and we talk about security. What area does the government really need to focus on strategically to improve? What do they need to support over the next decade?

Lorenzo Garavito: In agriculture specifically I would say it is rules. It’s to make sure the rules are there and that you have the same rules for the long term.

Los Llanos is a good example. A lot of people wanted to invest in that region, but then the government wasn’t clear about the rules and nobody knew what was going on. And everything stopped. So today nobody is investing in Los Llanos because there is no security in terms of ownership of the land

And second is infrastructure. Of course, Los Llanos is in the middle of the country and you have to take that product to the ports. Infrastructure is key. I think the government is fixing infrastructure. I hope that once the peace process is done, they will work on security — on legal security — in the long-term for investors.

This comes when Colombia’s investment banking sector is enjoying a period of growth as more firms and private equity funds are on the hunt for merger and acquisition targets. “2014 and 2015 have shown lots of dynamism and an appetite for investment at both the local and foreign levels,” said HBI President Lorenzo Garavito. “For example, during the month of April, we were finalizing two M&A transactions in diverse sectors including advising BVC in acquiring 51% of Sophos Banking Solutions, and the sale of a majority stake in IBIS Hotels, with a financial commitment to expand the [hotel] chain in Colombia of over $30 million. Also in project finance, we obtained approximately 85 million for the Los Molinos hydroelectric project in Antioquia.”

HBI has also revealed that it is working on more than 20 transactions in key sectors throughout Colombia such as infrastructure, food, health, real estate, education, and public services; domestic deals that balance the investment bank’s over $1.5 billion dollars worth of  activities in Brasíl, Peru, Chile, Ecuador, Panamá, and the Dominican Republic.

“This year, the number of HBI transactions has doubled. We are confident that investment banking is a strategic ally for different industries and companies in Colombia. Our role is primarily to attract capital, develop competitive and fair negotiations, and to provide specialized teams and advice to large projects and transactions,” said Pablo Bickenbach, Executive Director of HBI.

ABOVE: Helm’s Executive Director Pablo Bickenbach (l), and President Lorenzo Garavito (r)

Finance Colombia’s executive editor Loren Moss recently sat down with Loreno Garavito, HBI’s President, and Pablo Bickenbach, the bank’s Executive Director, to discuss the state of Colombia’s finance market, CorpBanco’s recent purchase of the majority of Helm Group’s commercial banking operations, and HBI’s future.

Finance Colombia: Banco CorpBanca purchased Helm Bank, the commercial banking arm of Helm Group. Could you explain where Helm Group was at a business, and what precipitated the transaction with CorpBanca, and now where that leaves HBI?

LORENO GARAVITO: Of course, Helm Bank was a very strong corporate bank in Colombia. One of the banks with the best clientele, with very low bad debt, and it was a very conservative bank. It has always been a very trustworthy bank in Colombia. CorpBanca was interested in growing outside of Chile. They had recently purchased Santander’s operations in Colombia and they wanted to continue growing their presence here, so they approached Grupo Helm and the group decided that it was a good time to sell the bank, as the other Helm group businesses were growing at a very fast pace, including the machinery distribution business, and the energy and engineering business. So it was a good time for the group to capitalize all the other businesses, to be able to grow and to be able to give the bank also enough capital to grow the bank itself. It has proven true that CorpBanca is a very good partner for us and for the bank, to help grow the bank and they have done a very good job in the time they have been with Helm. The group still owns 20% of CorpBanca Colombia, which is the sum of Santander and Helm, and the bank is doing very well.

Finance Colombia: So tell me, with the restructuring HBI has had, with Helm Banca de Inversiones now, what does that investment and restructuring allow the investment bank to do? And what kind of deals are you now free to pursue? Also, what clients are you able to serve in ways that you could do perhaps better than before? What new reach does that give you?

LORENO GARAVITO: Well, I think HBI has always been an independent entity from the bank. We were never a subsidiary of the bank, we were always owned by the same shareholders, but an independent company. We focus on three types of business. One is project finance, we are very good at structuring projects, especially in the infrastructure area and we finance those projects. Two, we are very good in syndicated loans, so pulling a group of banks together to finance large companies, and three, M&A (Mergers & Acquisitions).

I think that we are starting 2015 with the best pipeline that we have had in the history of the firm.

I would say syndicated loans, being more independent from Helm Bank has helped us broaden our reach with other banks. We always have worked with all the banks in Colombia but now being even more independent from Helm Bank has helped us grow in that area. We have also in the last couple of years, since the group sold the bank and we became a more independent entity, been allowed to make more alliances with international players to be able to bring more ideas to our clients, as well as innovation. For example, we have alliances with Sumitomo Bank in Japan for project finance and the growth of investment or financing infrastructure projects in Latin America. We have a partnership with Neuberger Berman, the asset manager in New York. We are in a partnership with them in a fund of funds for Latin American private equity and we have alliances with a Peruvian investing bank called Capia. In Brazil, we are working with another global investment bank called Moelis on different transactions, so we are able to broaden our reach in the region and bring more ideas to Colombian companies and we see that from the M&A side, there is a lot more interest in Colombian companies going abroad. A few years ago we had the very large companies, banks buying outside Colombia. Now we see a lot of medium-sized companies also growing outside Colombia, focusing on Peru, focusing on Brazil, on Central America and we are broadening our reach to able to bring ideas to those clients.

Finance Colombia: Colombia has seen strong and consistent in economic growth; it’s now the third largest economy in Latin America and with only 50 million people that says quite a bit because number two is Mexico with 120 million people, so that’s pretty impressive. We have seen a successful ADR offering of group Aval, for example, in the New York Stock Exchange. How is this growth translating into the local investment climate? And when I say that, I mean for your local small institutional investors, for those that are investing in the Colombian stock market or commodities market, the Colombian private equity landscape? How does the macro-economic growth that Colombia has experienced–how is that changing the local institutional investment climate here in Colombia?

LORENO GARAVITO:I think there is a lot of appetite to invest here in Colombia. People are looking for opportunities to increase their exposure to the Colombian market. The stock exchange, I think, has done a very good job in bringing in new listed companies and more opportunities to invest, but the stock exchange is still a relatively small part of the economy. So I think that people are definitely looking at alternative investments, investing directly into companies or through private equity firms. So what we have seen in the last six or seven years is a boom of private equity firms and even international private equity firms opening offices here in Colombia and we are starting to see large deals, billion dollar deals in Colombia. Private equity deals that were unthinkable a few years ago, now they are happening. We see more interest in reaching different sectors of the economy, where it’s difficult to invest for the public companies.

Finance Colombia: How much of that investment appetite is domestic and how much of that is interest from outside the country in the Colombian economy?

LORENO GARAVITO: I don’t have the data, but I would say that still more than half are Colombian investors. Pension funds are very, very active. They have big savings, and compared to the capitalization of the stock exchange, they are pretty large. So still I would say that foreigners trade more and they are…

Finance Colombia: Traders and speculators rather than investors?

LORENO GARAVITO: Well, there are two kinds of them and I don’t want to say that they are short term because I think there are very long-term investors in Colombia, but they move more quickly, I would say, in their investment portfolios. Part of it is because the Colombia pension funds have a mandate to be (invested) here for the long-term. That’s our mandate, versus foreign investors that have global mandates. But I would say that of the total investors, more than half are Colombians, and I would also say that there are days were the trading is more foreign-driven than Colombian-driven.

Finance Colombia: Colombia is one of the only, maybe the only country in the region that has no history of nationalization. So I think that the benefit of that is, just like people want to go to the dollar as a safe haven, people who are invested in Latin America or emerging markets see Colombia as a relative safe haven.

LORENO GARAVITO: I think that people that say “I want to have money in Latin America” consider Colombia safe. There is no Chavez to come and take your refinery away from you! [laughs] I think that with a long history of safe economic environment and respect for foreign investors, Colombia is one of the few countries that over the last 100 years has maybe had 2 or 3 years of negative economic growth. The rest have always been positive GDP growth. It’s very stable and Colombia has done something for the last 60 or 70 years, which is to separate the economics, from the politics, so you may have politicians fighting and fighting, but the central bank and the ministry of finance is always managed by technical people.

Finance Colombia: That’s critical and then the rule of law, you know, I mean it’s not perfect but it’s not perfect anywhere. If you look at Panama’s judiciary system, companies don’t want to go there because their courtroom is arbitrary, you know it’s going to be “I’m friends with the judge, so I won.” [laughs] You know, that’s the situation to the north, but Colombia doesn’t have that.

LORENO GARAVITO:No, it’s not perfect, but it works.

Finance Colombia: How is investors’ confidence affected by the turmoil in other parts of South America, some of the neighboring countries? Are investors smart enough to differentiate Colombia? Or do you find that you need to educate sometimes if you are talking to, say potential foreign investors that are looking at, the Colombian insurance market or even a private equity type of deal? Do the investors usually come in understanding that there are vast differences within South America or is there an educational process still that you have to do?

LORENO GARAVITO:I would say that 15 years ago, when I started doing investment banking, I definitely had to educate people about where Colombia is. Today, I think that large and even medium-size investors know the difference. They have seen it and they have lived the differences throughout different countries in Latin America. I would say that maybe among medium to small sized companies there might be some concern about it, but it’s a logical kind of concern when companies go abroad. But I would say that large and medium-size corporations from the US, European, Asian investors, they know the difference.

Finance Colombia: What changes do you expect to see in Colombia’s investment climate in the coming year?

LORENO GARAVITO:I think that the big macro-economic changes are going to bring changes in the Colombian economy. So oil prices at $60 or below and the peso-dollar exchange rate past 2400 will bring significant changes to the Colombian economy. I think export companies will grow a lot, and I think that we will see investment, and that will bring employment. In the past years, I would say the focus has been on infrastructure and oil, gas, and mining. Those are not employment-intensive industries, but the export industry is very employment intensive.I think that will definitely benefit the country, and I think that we will see a shift towards manufacturing and towards export-oriented industries. Infrastructure investment also is big for 2015 because we have seen the government getting ready for the big infrastructure projects. Those projects are starting to be executed and those are labor intensive and that will bring growth to the country.

Finance Colombia: HBI has been through a big past year so, aside from the Colombian economy in general, what changes or growth do you see for HBI?

LORENO GARAVITO: I think that we are starting 2015 with the best pipeline that we have had in the history of the firm. More than 20 mandates, a variety of mandates, so including Colombian companies buying outside as we mentioned, we are in a position with Brazil, for a couple of deals with Peru. We have financing deals in Peru, in Panama, in Chile so we have seen this growth and internationalization of the Colombian companies as very positive for us and we have been partners with the Colombian companies in their international growth. We have a strong pipeline as well in Colombia, financing infrastructure and real estate projects. We are the advisers of one of the largest real estate projects that is starting in Bogota at 7^th Ave & 100^th St. (Colombia’s upscale Chicó neighborhood and business district) and so we see 2015 as a very good year. We expect at least to double our revenues for 2015 compared to 2014 and continue to grow our pipeline of clients in Colombia.

Finance Colombia: Let’s talk about that. Tell me about the investment climate for Colombian real estate at the institutional level.

Pablo Bickenbach: In Colombia, since we had at the end of the 1990s an economic crisis, developers and construction companies learned the lesson. And since then, there are now specific structures; the way they finance their projects and real estate in a safe way, and it mitigates and reduces risk for financial institutions and banks.

Finance Colombia: So is it that the Colombian real estate market is not overleveraged so that it doesn’t become over volatile or is it a restructuring?

LORENO GARAVITO: Yes, I think that developers are far more conservative here than in other parts of the world. So leverage is not so big, even leverage for consumers buying their home. I think the market learned its lesson in the end of the 1990s where there were a lot of firms that suffered. But now, in that respect, what Pablo is saying is projects are in need of more structure. Deals are getting bigger and transactions are getting more complex to put together. So we see a lot of investment bank and advisory service to real estate companies, far more than a few years ago.