Businesses are targeting the U.S. Hispanic consumer as never before, and investment companies are lining up to back them, sensing the chance for big returns.
Linea Capital, a start-up investment company with offices in Santa Monica, Calif., and New York, hopes to raise $50 million during the next two to three years to buy stakes in financial services, media, marketing and food companies focusing on the nation’s 41 million Hispanics.
Rustic Canyon/Fontis Partners, a fund launched by several Southern California investors in Pasadena and Santa Monica, said this month that it was halfway to its goal of raising $150 million to invest in businesses serving “emerging domestic markets,” especially Hispanic and Asian-American consumers.
They join a field of investment enterprises, including firms in Chicago like Hispania Capital Partners, which claimed at its 2003 launch to be the among the first U.S. funds to back Hispanic-owned businesses.
Investors backing Hispanic-oriented businesses say they’re pursuing an investment strategy that’s almost a no-brainer in light of demographic trends: U.S. Hispanics have more than $650 billion in purchasing power, and that figure is expected to top $1 trillion by 2008.
“We were immediately drawn to the U.S. Hispanic market,” said Emily Burg, who co-founded Linea with Cristina Almeida, a former colleague at Wall Street investment company Wasserstein, Perella & Co.
“We saw that this market could deliver returns without the political instability and other risks you get with [non-U.S.] emerging markets.” Almeida, 46, and Burg, 30, worked together in Wasserstein’s emerging-markets division, focusing on investments in Latin America.
Linea, whose name is Spanish for “line,” will focus mainly on smaller companies with $5 million or less in annual sales, which comprises the vast majority of Hispanic-oriented businesses. The company, which has start-up capital from Almeida and Burg, plus early investments from two Brazilians, has raised $3 million.
Linea sees potential in a few industry sectors in which U.S. Hispanic consumers wield clout: financial services, media and food.
With more than $30 billion a year flowing from the United States to Latin America, Burg said financial-services enterprises that can streamline, safeguard or regulate the fragmented business of money transfers are growth candidates.
Media and marketing companies that can reach Spanish-speaking consumers also hold appeal, as advertisers are eager to connect with that audience, she said.
And food and beverage companies are a natural. With many large, multigenerational families, Hispanic households spend an average of 46 percent more on their weekly grocery bills than the general population, Burg said.
Hispanic consumers have distinct tastes and buying patterns, but many of their favorite foods appeal to a wider audience, a phenomenon Burg and Almeida call “From Sanchez to Smith.”
Big corporations are well aware of it: In recent years, McDonald’s Corp. bought Chipotle Mexican Grill Inc. and Wendy’s International Inc. snapped up the Baja Fresh chain.
Although Linea has yet to establish an investment track record, former Wasserstein colleague Steven Walder says the two women know their stuff.
He recently introduced one company to Linea for funding consideration.
“Cristina and Emily are both outstanding at looking at the fundamentals of business–what’s going right and what could go wrong,” said Walder, who now runs a business consulting company in Los Angeles. “They’ll ask questions of a CEO that I never even thought of.”
Unlike a pure investment operation, Linea also offers advisory services to entrepreneurs targeting the Hispanic market. Its advisory clients include Get Fit, a multimedia “edutainment” company that informs children about the importance of exercise.
Get Fit is working with Linea to develop corporate partnerships as it rolls out programming geared toward Hispanic youths, who are considered at risk for obesity, said Marcus Gordon, vice president of strategic development and marketing at the Atlanta firm.
Rustic Canyon/Fontis recently said its first investment would be $3 million in Meximerica, which publishes the Rumbo chain of Spanish-language newspapers in Texas. Rumbo is Spanish for “way” or “course.”
The investment company is working on a deal with a maker of packaged foods aimed at the Hispanic shopper, said Daniel L. Villanueva, 46, one of its principals. His partners are his father, Daniel D. Villanueva, co-founder of Spanish-language TV station company Univision Communications Inc. and former kicker for the NFL’s Los Angeles Rams and Dallas Cowboys; private equity investor Gabrielle Greene; and Thomas Unterman and Renee LaBran, colleagues in the 1990s at Times Mirror Co., which was purchased by Chicago-based Tribune Co. in 2000.
(Through an indirect investment in Rustic Canyon Ventures, the venture capital company whose principals include Unterman and LaBran, Tribune has a minority investment interest in Rustic Canyon/Fontis. Tribune owns the Chicago Tribune and Los Angeles Times.)
“The sheer size of the Hispanic market has driven a lot of entrepreneurs to expand, but most have maxed out their debt,” Villanueva said. “They need a stronger balance sheet to take on more debt, so they take on partners, and that’s where we come in.”
