HispanicTrending

April 14, 2006
By ERIC DASH

At many American private equity firms, a Mexican food deal means sending the junior analyst out to buy tacos. At Palladium Equity Partners, it means buying Taco Bueno, the fast-food restaurant chain itself.

Palladium is part of a new breed of private equity firms on the lookout for investments that can tap into the fast-growing Spanish-speaking market in the United States. As the New York area’s second-largest minority-owned business behind Goya Foods, the buyout firm is taking advantage of its partners’ Latin American heritage and community ties to spot deals that other Wall Street investors may not see.

It is a logical, yet largely untested strategy. But at a time when a flood of private equity money is making strong returns harder to find, Palladium seems to believe that the combination of its hand-on management guidance and the explosive growth in the Hispanic market will make its new $520 million fund pay off.

"Fifty years ago, it was taking companies from Main Street to Wall Street," said Marcos A. Rodriguez, Palladium’s managing partner. "Today, it is taking them from El Barrio to Wall Street and accessing the same types of capital and professionalism that you need to make the company a success."

"What we do is provide a bridge," he added. "We understand the communities where these businesses are born. We understand the demands that are creating that opportunity. And on Wall Street, we understand how to access the capital markets."

Still, it is a niche and one that other investment groups are looking at. Nogales Investors, Rustic Canyon/Fontis Partners and Linea Capital are among the other firms focused on companies owned by or aimed at Latinos. And bigger buyout firms, like the Carlyle Group, also have those businesses in their sights.

In the last two years, "we have seen a pretty dramatic increase in the number of funds looking to target the U.S. Hispanic market," said Leon Shahinian, a senior officer for alternative investments at the California pension fund, Calpers, which has put money into the Palladium fund. ( Banco Bilbao Vizcaya Argentaria of Spain and New York City and New York State pension funds are also investors.) Still, he said, even companies with established track records, including Palladium, do not necessarily have a long history in that market.

But as the Hispanic population has grown, many of the businesses that serve that market are now needing more capital to take the next step. Some Latino entrepreneurs, meanwhile, do not have sons or daughters interested in taking over their companies. And Latino interests and influences are increasingly mainstream, shaping the nation’s overall consumption trends.

"My favorite statistic is that every other new American is Hispanic," said Mr. Rodriguez, 44, who was born in Cuba and grew up in New York City.

Hispanic purchasing power is projected to grow to $1 trillion in 2010 from $700 billion in 2004, according to HispanTelligence, a market research firm. And with an underlying growth of 7 percent to 11 percent, he added, the market is expanding at a pace three to five times as fast as the growth of total United States disposal income.

Mr. Rodriguez likens investing in the Hispanic market in the United States to investing in an emerging economy like Argentina or Mexico, but without the currency or political risk.

Of course, Palladium, which is based in Manhattan and has more than $750 million under management, is still in the earliest stages of investing in this market. Taco Bueno, with $140 million in sales last year, is the first acquisition it has made. While its three funds have produced returns over 30 percent, it has never concentrated solely on Hispanic businesses. Indeed, even in its latest fund it is not restricted from investing in attractive companies that do not fit that theme.

Still, Mr. Rodriguez noted that investors find deals where they look for them. With three of the four partners born in Spanish-speaking countries and about half the firm’s 25 employees of Hispanic descent, he says their cultural affinity and language skills often give them a competitive edge.

Unlike many traditional private equity firms, Palladium is organized in industry groups, like food, media, and business services. Within those sectors, Palladium’s analysts in New York scan the Hispanic marketplace for potential targets with the help of about 14 local deal-spotters in major Spanish-speaking areas across the United States.

"If you are going to launch a European fund, you are probably going to hire a few Europeans," Mr. Rodriguez said. "If you are looking at the U.S. Hispanic market, having people who are from the community and who know other folks in the community" helps you avoid bidding up prices in auctions.

That is what happened with Taco Bueno, a Dallas-based chain of 143 Mexican restaurants that are slightly more upscale than Taco Bell.

"Looking at the influence of Mexican food, we had determined that the Mexican restaurant space had been growing faster than hamburgers, pizza or other types of fast food," Mr. Rodriguez said. "We had looked at who are the attractive chains, and who was out there with the critical mass that is capturing this demographic trend."

Last summer, Palladium identified Taco Bueno as one of the top targets. And in short order, it was able to acquire the franchise from Jacobson Partners, another New York buyout firm, and install a new management team.

Today, the investment is seen as a success, especially as shares of Chipotle Mexican Grill have climbed 141 percent after McDonalds spun off the chain in an initial public offering this year. And Wendy’s International said last month that it might sell its Baja Fresh restaurant chain, a move urged by the shareholder and billionaire financier Nelson Peltz. Could a Taco Bueno I.P.O. be next? Palladium’s partners said they were excited by its results, but would not consider that option until a strategic review next month.

Source: New York Times

Thanks a million to Paul Paez for the sharing this story with me.

Miami, Florida, April 14, 2006 – More than 6 in 10 U.S. Hispanics have filed or intend to file a federal income tax return this year for 2005, a number comparable to that of non-Hispanics who said the same, according to poll results released today by Encuesta, Inc.

The survey covered various aspects of taxation and sought to compare the views and experiences of Hispanics and non-Hispanics on the topic.

Not surprisingly, the poll confirms that Hispanics who filed a federal income tax return last year for 2004 are more likely than not to be U.S. citizens, and that foreign-born Hispanics who filed last year are more likely to have resided in the U.S. more than 10 years.  “These findings lend insight to the current debates on immigration reform,” said Martin Cerda, President of Encuesta, Inc.  “It is one indication that as Hispanics obtain the rights and privileges of residing in the United States, they also assume the responsibilities.”

When it comes to how the two populations make out monetarily at tax time, Hispanics are less likely than non-Hispanics to say they owe money to the IRS for 2005 (14% versus 22%).  They are more likely than non-Hispanics to report having received a refund for 2004 (73% versus 62%).

In effect, the poll results suggest Hispanics know less about the tax rules than non-Hispanics.  In addition to being more likely to go without their income until they receive their refund, Hispanics are less aware of six tax deductions tested, including charitable contributions and retirement savings.  Among those aware of the tax deductions, however, similar proportions of the two populations report taking them when filing for 2005.  The one exception is work-related expenses, which Hispanics are significantly more likely to say they will claim (63% compared to 48% of non-Hispanics).

With regard to tax return preparation, Hispanics are more likely than non-Hispanics to seek assistance.  Only 10% say they have or will prepare their 2005 return themselves, compared to 26% of non-Hispanics.  For 21% of Hispanics, an organization or agency that provides the service free of charge is preparing their federal tax return, compared to 11% of non-Hispanics.  And one-quarter of Hispanics use a tax preparation service such as Jackson Hewitt or H&R Block, significantly more than the 18% of non-Hispanics who use such a service.  Perhaps greater use of professional tax assistance would help to even out the disparity in audit rates between Hispanics (12%) and non-Hispanics (22%).

The nationwide survey also asked Hispanics’ and non-Hispanics’ opinions of options for reforming the federal tax system:

When it comes to simplifying income taxes and making them more fair, do you think it would be…

Better to keep different tax rates – 36% H, 37% NH 
Better to have a flat tax for everyone – 36% H, 35% NH
Neither/makes no difference – 15% H, 18% NH

Better to keep income taxes – 50% H, 45% NH
Better to have a national sales tax instead – 16% H, 23% NH
Neither/makes no difference – 16% H, 18% NH

The response rates of the two populations were notably different when it comes to preference for a national sales tax instead of income tax, which only 16% of Hispanics favor compared to 23% of non-Hispanics.

Encuesta, Inc. conducted the poll by telephone between April 6 – 13, 2006, among a representative national sample of 321 Hispanic and 305 non-Hispanic adults.  The margin of error for the entire sample is approximately +/- 4%, with a higher margin of error for subgroups.

The release is part of the Americanos Poll series sponsored by Encuesta, Inc. to compare the U.S. Hispanic and general populations across a range of topics.  Many results will be made public to stimulate thought and dialogue about the U.S. Hispanic population and foster understanding of U.S. Hispanics.

Encuesta, Inc. is a leading U.S. Hispanic marketing research and public opinion polling specialist.