Episode 159: Jean Idé of Linzor Capital Partners on Diligence, Talent and Growth in Latin America

Episode Transcript   

00:00:00.520 — 00:01:45.640 · Shiv Narayanan

Hey, everybody, before we get started with today's episode, I want to take an opportunity to tell you about my new book, AI Marketing Blueprint. It just hit number one bestseller status across multiple categories on Amazon, and it walks you through a proven framework that we are taking our clients through here on How To SaaS and how to stay relevant and visible in a world with AI platforms.

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It's available on Amazon, on Apple Books, on Barnes and Noble, and even share it with your teams. Grab a bunch of copies so that you can kind of consume the content together and start to apply it to your business. And with that said, let's move on to the episode. Welcome to the Private Equity Value Creation podcast, where we interview leading investors, operators, bankers, and advisors to help you answer one question how do we increase the enterprise value of our companies?

My name is Shiv Narayanan and each episode I will dive deep with a guest to help you become a better value creator and capital allocator. So with that said, let's jump right in and let's get started with today's episode.

00:01:46.520 — 00:02:49.760 · Shiv Narayanan

My guest today is Jean Ide, and he is a partner at Linzor Capital. And what's really interesting about this firm and Jean is that they invest in companies in Latin America and in markets where, quite frankly, we haven't had a single guest that's really been investing actively in these countries. And it really changes how you think about value creation, because there are different dynamics at play, different political environments, different cost structures because labor is cheaper.

And also just in terms of value creation planning, when you look at these companies, you have to just approach things in a very different way. And even something as simple as financial due diligence needs to be done differently inside these markets. So there's a lot of interesting takeaways and like lessons in terms of how Jean and his team approach finding companies, vetting them and actually investing in them to to drive enterprise value.

And I thought it was super interesting, especially if you have companies in these markets or you have some type of an investment arm that focuses on nontraditional markets. I think there's a lot of great takeaways on this episode. So with that said, I'll leave you to it. Enjoy the episode.

00:02:56.000 — 00:02:58.640 · Shiv Narayanan

All right, Jean, welcome to the show. How's it going?

00:02:58.640 — 00:03:01.010 · Jean Ide Gerard

Very fine. And you, thank you for our hosting.

00:03:01.010 — 00:03:06.770 · Shiv Narayanan

Doing doing great. Why don't we start with an introduction about yourself and your background and your firm, and let's go from there.

00:03:06.770 — 00:04:07.320 · Jean Ide Gerard

Yeah. Sure, sure. So, um, you know, I'm, uh, private equity professional. Uh, I'm a partner here at Linzor Capital. Um, we'll talk about that. A private equity firm dedicated to Latin America. I've been here for the last 12 years, and, uh, prior to that, was doing the same thing in France, in a big market also, uh, private equity fund, um, uh, doing very similar things, mid market focused, control oriented investment funds and a little bit outside, you know, in Europe.

And uh, prior to that, I was, uh, in investment banking at Salomon Brothers, where I spent some time here in Mexico. Uh, I spent several years in New York covering Latam and then spent a couple of years in, in Paris, uh, in their office. And I'm a dual French and Mexican, did my undergrad studies in Mexico.

My MBA in France and and happily installed in Mexico now and, uh, and enjoying, uh, our work at Linzor here.

00:04:07.640 — 00:04:18.720 · Shiv Narayanan

Yeah. That's great. And one of the interesting things that jumped out about Linzor is that just your focus and where you guys are investing? So can you talk about that in terms of geographically and then what types of companies you're looking at?

00:04:18.760 — 00:06:21.430 · Jean Ide Gerard

Yeah sure. And if you want just a minute of background about about Linzor. So so Linzor basically was founded by the team who used to run JPMorgan's private equity operations, uh, in Latam, and they were among the first ones doing that. You know, in the mid 90s, where there weren't a lot of people focusing in this part of the world with private equity.

Uh, and they did so very successfully. First, investing the capital of JP Morgan and then raising dedicated funds for Latin America within JP Morgan. And then eventually JP Morgan decided to to exit that business. And that's when the team did its kind of spin off and created, uh, Linzor over 20 years ago.

But actually we're we're celebrating our 20 year anniversary in a couple of months down in Santiago in Chile. And so basically, the firm, you know, has continued really with that legacy, focusing on Spanish speaking countries in Latin America. So the main ones are Mexico, Colombia, Peru and Chile as our main markets.

Collectively, we look also at things, you know, in Uruguay, Costa Rica. But but the four ones are the big ones. Um, we've also, you know, always been pretty focused on mid-market companies, you know, starting from three, 4 or 5 million EBITDA, up to 20, 30 million and more and more focused also on on five verticals, uh, in terms of industry specialization, but at the same time remaining a bit opportunistic and also adapting a little bit to each geography and the strength of its local economy.

So the five pillars in terms of sectors are financial services, healthcare, education, telecom and software and technology. But but for example, on the more opportunistic side. For example, in Mexico. Mexico has such a strong manufacturing base exporting to the US. That, for example, we dedicate some time, you know, looking at space and, and done several things in the industrial sectors or tourism.

This is the third most visited country in the world. So there's a huge tourism industry. So we'll adapt a little bit, now, depending on the geographies but generally speaking that's that's what Linzor focuses on.

00:06:21.470 — 00:06:51.550 · Shiv Narayanan

Yeah, it's really interesting because when we often think about private equity and investing in general, we think about the larger markets like the US or Europe or even APAC. But Mexico, Chile, Colombia, Peru, like these types of Latin American economies are really thought of as big opportunity areas.

So can you can you expand on that like you talked about some of these verticals or industries where you guys are focused like is how much opportunities out there? Or is it just like an overlooked market or are you seeing local competition.

00:06:51.630 — 00:09:04.230 · Jean Ide Gerard

Yeah. No, I'd say it's it's it's still very much, uh, overlooked or, uh, or to say another way, there's a lot of potential now. And when you look at what it represents in terms of GDP. It's, it's a fraction of what it does in the US, in Europe. Uh, but but when you think about this region, it's interesting on several accounts.

Right. On one side, you have strong democracies that have been in place for decades now. Uh, that really showed, you know, resilience, uh, to shifts, uh, in, in, uh, parties and political orientation. You've got very independent central banks, you've got, uh, very free floating currencies, and you've got a pretty, pretty good rule of law.

And now if you look on the more global macro context and geopolitical context, you can also see that it's a region that's pretty isolated from, you know, conflicts and wars. And so from a diversification perspective, I think a lot of the investors we have in our funds look at us as, you know, as an emerging market pocket and within emerging market as a bucket that has these relative trends now.

And of course, you know, these are large economies. There's a mixture between very strong natural resources. Like, for example, Chile is the number one copper producer in the world. It has the largest lithium reserve, about 35% of worldwide lithium reserves. Peru also is a huge copper producer silver producer.

So, you know, those natural resources are pretty important. And at the same time, when you look at Mexico, Mexico, it exports 80% of its exports, is manufactured goods. And a lot goes to the US, to Asia and to into Europe. So you've got balances of, you know, the the underlying factors that drive those economies.

And so when you put that together and you think about the white space, there is when you look at the companies here because of still a lot of under penetration of, you know, basic services and goods, because we have this, you know, middle and lower income segments of the population that are growing every decade are gaining more purchasing power, and they want to access more services.

And so if you're capable of coming with a good product or a good service at a very competitive price, then you can unlock a huge consumer market, which can drive a lot of organic growth.

00:09:04.230 — 00:09:19.990 · Shiv Narayanan

So those are some really great points, is that there is a ton of opportunity in these markets. It's just you kind of have to know where to look and and how to kind of go about it. So so talk about that a little bit like how are you penetrating these markets or how are you finding targets inside these these countries.

00:09:20.150 — 00:11:13.870 · Jean Ide Gerard

Yeah. No. And you make a good point. You know, since I've done the same thing ten years in Europe before doing that here, I can really tell you it's a different sport. So, you know, doing that here, you really need to have boots on the ground. You really need to understand, uh, you know, each country, how it works, the economic groups behind it.

Um, but when you do, then you get this, this organic growth potential, then you get some valuation arbitrage. Then you get that white space where you can grow faster, but you have to be careful on the other side, right? For for example, governments and tax authorities are not so good at collecting taxes as they are in the US or Europe or Social Security.

So what does that mean? It means that when you do due diligence, you'd better do very detailed due diligence. We go much deeper than what you would see in mature markets, because you need to really go to the bone and understand the risks associated with the investments you're going to do. Now, how do we how do we source those investments?

Well, you know, that's probably more like how we do it in other geographies. You know, a good network of operating partners is probably the key. So we have these five sectors that we've already invested in. So we know a lot of CEOs of those sectors, people that have worked with us, a lot of operating partners that have been, you know, at the board working with us and cultivated those networks of people that, you know are immersed in those verticals.

In each one of these countries helps you detect the good opportunity at the right time, having the good introduction at the good level to really have a quality conversation with those prospects. Of course, a lot of investment banks with whom we know we maintain great, great relationships and a lot of also mapping and, you know, proactive contacting on our behalf on the sectors we like and where we see the opportunities.

00:11:14.270 — 00:11:42.150 · Shiv Narayanan

Yeah, I think I think that that's the interesting thing, is that the boots on the ground in some of these markets is the way to build relationships and really uncover, uncover opportunities. So help us understand that. Like, what does your process look like? Because they're in, let's say, North American firms.

There's a bunch of interns sending out emails or LinkedIn messages and getting people on zoom calls. And that's kind of how they filter through companies like, what is your full process look like as you're as you're trying to find deal flow?

00:11:42.630 — 00:14:05.710 · Jean Ide Gerard

Yeah. So, You know a lot of networking. These these are very social markets. You know physical interaction is important. So so you you frequently meet with your operating partners with CEOs in the sector. You engage into social and professional relationships with them and that, you know, will open doors and will get you into certain conversations.

We do sort of say, you know, mappings and cold calling and cold emailing and LinkedIn contacting and then, you know, it's about very early on being clear about what we're looking for, where we can help, where we can add value and where something is not for us. And again, in this region, you have to be selective.

No. So there is certain industries that we don't like that we won't do. Um, because our also impact thesis and ESG, uh, the importance of that in our philosophy. Um, there is also, you know, very early on detecting effectively, you know, how institutional is that company and will it withstand a due diligence.

And, you know, will you be able to find an equilibrium sometimes. And it happens a lot, like you get contacted or you enter in contact with the family owned businesses and they tell you the EBITDA of the business is ten. Well, after doing due diligence, you found out it's four. So that's a 60% discount that will kill any transaction.

Right? There's no way you're going to agree on a price based on that. So so here is very early on try to detect how good are their numbers. What are their fiscal and social security potential liabilities. How massive are those and are those compatible with, you know, reaching an agreement and doing a deal?

Uh, so that that's, you know, an important piece like really focusing and being selective and entering deals where we can have a lot of access. Due diligence is done here, sitting next to the CFO, extracting information directly from the systems. Uh, and it takes time. And you want to take time because you want to, you know, look into details and understand where you're going.

That's when you when you find the right counterpart. Um, what what the good thing is. We if we like, we can spend the resources and the time to figure it out and to find the structures and the creative ways of executing deals so that, you know, all the parties maximize the chances of getting to a successful transaction.

00:14:05.790 — 00:14:39.230 · Shiv Narayanan

Right. Yeah, I think I think that's the data part is very interesting on the financial side, right. Because financial diligence is just done so differently in more mature markets. So how do you actually vet the numbers in a way where you feel like you have confidence in terms of like the long term potential of an investment?

Like is there beyond just like sitting with them. Like, are there additional things that you're trying to vet in terms of quality of earnings and, and just the system that they're of record that they've got in place? Like how do you how do you ensure the quality of data.

00:14:39.510 — 00:16:29.620 · Jean Ide Gerard

Yeah. that's that's super key. And to your point. No, we've done deals in Europe where you have a vendor due diligence and basically you rely almost entirely on that vendor due diligence. And you can do a due diligence pretty fast, right. But because you've got a Social Security system, you've got a tax system that's gone before you doing their job and making sure things are pretty much, you know, in line.

So here as as they don't work as well, you need to spend more time. So what it means is again, non, making sure that there are systems and you can find the origin of the information and that that information has not been tampered with. The other thing, for example we do here a lot is recreating revenues for specific portions of time, right.

Recreate the sales through the bank statements. No, bank statements don't lie that easily. Right. So if you trace back the cash and each and every single movement, you can eventually recreate part of your accounting and your revenue, and that will tell you, you know, how off is the accounting versus the reality of the cash.

So a lot of, uh, if you would, you would call it probably in a more mature market like forensic due diligence for us. We don't call it forensic, we call it normal due diligence. But again, it's the importance of having, you know, boots on the ground and a couple of scars in your back after doing that for, for more than 30 years with good lessons learned in that process, uh, systems is important now finding that there are good systems.

But again, what I want to tell you is we're in the business that if we feel we have a good counterpart and the information is transparent and the counterpart is transparent, we can work very well with companies that don't have systems, and that's what we'll bring as a value add. Right. The only thing is due diligence will take longer.

And we're willing to engage into longer periods if we see that there is a good opportunity.

00:16:29.660 — 00:16:38.260 · Shiv Narayanan

Yeah. That's great. I guess my follow up on this is let's say all this goes well. You make the investment, you're in the business. Like what is your value creation approach?

00:16:38.820 — 00:20:08.180 · Jean Ide Gerard

It's really probably the typical value creation that you find in private equity, right? The first and foremost is, uh, making sure you have the best possible, uh, management now and management in the largest sense. So you've got your C-suite, which you want to review very carefully most of the time, will detect opportunities and will bring complements to the C-suite.

Sometimes, you know, sellers will be the CEO. And so you'll replace the whole management team. Sometimes you'll be teaming up with the existing CEO and will just be complementing, maybe with another CFO or maybe with a better sales and marketing, uh, person. You'll also always bring we bring these operating partners that help us identify, uh, deals that help us in the due diligence of those deals.

And and most naturally, if we do the deal, they become, you know, board members or they take part of committees or eventually they even become part of the of the line management. So a lot of time dedicated to making sure we have the boss best possible team assembled and as a control investor during our investment span. Of course, we also apply the changes as as we see and as we think we need to do them now. And I think that's where also we unlock a lot of value. Now think about a mid-size family owned business here in Mexico. Sometimes it's very difficult for these guys to attract a top talent or a top talent. Let's define it as a guy from Latin America that did very well run uh operations, became country manager, became the head of Latin America, and eventually that Latin American guy was then, you know, in a large corporation, the head of Americas.

Or maybe he went and managed several countries in APAC. And then at some point in his career, he wants to come back. He wants to put all that, experience at the service of a mid-size company where he can really steer and move the needle, and where he also wants a part of the value creation through the long term incentive plan.

And so this type of professionals that can unlock a lot of value normally won't feel comfortable going into family owned company because they won't find the corporate governance, the decision making process. And he won't find necessarily the long term incentive plan. So by us putting all of these things in place, that's where we can attract that.

Suddenly that talent that otherwise was not necessarily available for that size of companies. And that's where we can also unlock a lot of growth. And then there's all the work on the business plan, right. Making sure from day one, we have a clear view of why we think we're going to multiply by three the size of this company and how we're going to achieve that.

And going into a detail exercise, you know, as Napoleon used to say, you know, the the first dead in the battle is the is the battle plan, but you need it, right? Because that's what aligns you. And make sure that you're aligned with your fellow shareholders, with your management team. So having a detailed plan on that, which, you know, goes to new product, new geographies, digital transformation, inorganic plans, all of that has to be very carefully planned and evaluated.

And then bringing the right capital structure right with the with the equity, the debt, the reporting, the KPIs and the systems and all of that within a very disciplined approach of underwriting, structuring and executing things. I think that's for us how how we replicate the value creation process.

00:20:10.060 — 00:21:27.740 · Shiv Narayanan

We'll get back to the show in just a moment. But before we do, one of the most common and important value creation levers that we hear about on the show, from private equity investors and our own PE partners, is go to market. Yet when these same PE partners bring us into their portfolio companies or new target investments that they're exploring, we find that the marketing function is quite immature, underutilized and under optimized.

And so that's a huge opportunity that we see inside these companies. And if you have a portfolio company that you feel like it'd scale a lot faster to drive more pipeline and revenue, or you're looking at a new investment where you feel like that could be core to your investment thesis. But we'd love to explore that with you and figure out how we can partner with you to drive more enterprise value creation.

On the marketing side, similar to the way that we've done with major PE firms like Updata, Hg, STG, and many more. At this point, we've done hundreds of engagements across hundreds of industries and verticals, and we have a ton of benchmarks and frameworks that we bring to these engagements to help you drive as much enterprise value as quickly as possible.

So if that sounds like something that you might be interested in, you can just email me directly at [email protected] or go to our website and schedule a demo. And we'd love to speak with you about it further. And now with that said, let's get back to the show.

00:21:28.740 — 00:21:40.260 · Shiv Narayanan

Are you guys getting very actively involved with the companies? Or are you just trusting the leadership, especially if you're hiring them to to run with the plans that you've kind of established or the opportunity areas that you've identified?

00:21:40.420 — 00:23:01.340 · Jean Ide Gerard

Yeah, we want to be very respectful of our responsibility and what we bring to the table, non, we're professional shareholders. And so we don't want to be managing the companies on a day to day. And that's not how we would attract anyway the best talent. Right. So they need their space in the room. But again we do very precise rules of engagement.

We participate in monthly boards, 4 or 5 hours, where we do presential meetings with all the management teams because we want to be at the end of the day, is a very close, professional and knowledgeable shareholder that then can take very fast decisions and therefore be a good shareholder for a mid-size company that's looking to multiply itself by 3 in 5 years, right?

That requires a lot of decision making and a lot of investments and capital allocation, and we believe we can do that if we're really close to the companies and understand it very well. So minimum once a month and then we have these committees, you know, strategic committees, audit committees, HR committees that would, you know, happen every quarter.

And then there is a lot of informal work between us and the CEO and the CFO. Uh, but at the end, always respectful of these guys are running the day to day operation. They've got a clear rule about what type of decisions need to be brought to the board and what type of decision they can handle themselves. And with that trying to get agility.

Yeah.

00:23:01.620 — 00:23:23.900 · Shiv Narayanan

Mhm mhm. Yeah I think I think that's a really good hybrid approach because then that still gives autonomy to the to the leadership team. Uh what are I'm just curious like in today's market especially with how things are changing with AI and everything else, like what are some of the core things that you are focusing on with these management teams, like the core value creation levers that you see inside most of your companies.

00:23:24.060 — 00:25:14.980 · Jean Ide Gerard

So again, it starts with the business plan because that's that's the detailed exercise where we have had to agree with the management on what are the value creation levers that we think are applicable to this particular company. And so once we have that, then it's executing on that and then adapting of course, to that as the environment is changing.

But most of the time, you know, there has to be a component of organic growth because we think the sector has, you know, a thesis for, for higher penetration. Um, there is always components of launching new services and products. Sometimes they are a theme of expanding geographically to other countries.

We have to be careful with that because we have had extremely successful experiences doing that, but also suffered a couple of times of things not working because, again, think of that of mid-sized companies that are not always prepared to to to do that. And then and then to your point, I think the key theme, the inorganic also approach is always important.

But I think the other thing that is very important is the digital transformation with all of what is happening, so that it's very high up in the agenda across the portfolio. And we try also to bring all the portfolio together from time to time. All the CEOs, all the CMOs, all the CTOs, so that they have workshops and where they can share all their best, you know, experiences and knowledge.

And and it's also part of a bit of our investment thesis. Now we have a couple of companies always in funds that are like digital native. And then we have the more traditional companies. So we really leverage what we learned from the digital native to boost and help the more traditional evolve and the digital natives normally have as customers the rest of our legacy portfolio, because for them, it's the natural space where they can come and add value and transform those businesses.

00:25:15.300 — 00:25:31.170 · Shiv Narayanan

Mhm, mhm. I guess, you know, uh, the inorganic side makes total sense geographically expanding. That makes total sense. Talk to me about the digital transformation side. Like what? What are some of the areas within that that you guys are focused on?

00:25:31.210 — 00:28:39.250 · Jean Ide Gerard

Yeah. So for example, we've got um, several companies, um, in the massive B2C markets now, like telcos selling internet to the home or pay-TV, uh, or online education, you know, selling undergrad and grad degrees. So, so in these type of companies, you know, a customer acquisition cost is, is is key. You know, it's always probably your, your first cost line item in your P&L and and managing, you know, to grow, uh, get incremental volume while controlling the CAC in the digital world is always a challenge.

Right? So, so so that's a part where we we spend a lot of time with the, with the management teams and again, cross-selling a little bit. So to give you an example, now we invested in 2019 in a company in Chile that was a very small, um, family owned company, that had fiber optics connections, they would pass through 1 million homes in Chile.

There are 6 million in total. And two years and a half later, when we sold the company, we were passing through 3 million homes. So we multiplied by three, and we have 50% of all the homes in Chile passed with our network. And at the same time we multiplied by three our subscriber base. Now. And that's the typical case that when we arrived, the company was selling 90% of the sales, or close to 100% was door-to-door, the whole sales team, you know, being deployed region by region as you were deploying the fiber.

Right. And we told them, listen, there is an opportunity to complement that with digital sales remote. Let's put a contact center. Let's put a digital marketing team and let's let's have a real engine that does that remotely. Initially the reaction of the management was we have already tried that. And the CAC is extremely high.

And so, you know, it's not that interesting in terms of the marginal contribution versus the cost. And we say listen you've probably tested it but but let's give it another try. We know a company that will do it for you. 100% success based so that they'll do the marketing campaigns. They'll originate the lead.

They'll transform the lead in their own contact center. And when they bring you a subscriber that has signed the contract, you will only pay a CAC to these guys. And let's set up a CAC that makes sense for you and for these guys. And let's try six months and then we'll see. And we tried. And they were. That was the best way to show them that it was actually possible to do an incremental volume at a CAC.

And that was where from where we could really set up their own operation of the company, recruiting a digital marketing team, recruiting people at Contact Center, and really putting the systems also and the processes. And that company, by the way, was a portfolio company of us that does that across our portfolio and to third parties.

But sometimes, you know, the best way is rather trying to convince us, you know, try it, use it, and it's success based. So if it doesn't work, you're not going to pay a lot to that. So, so and when we exited the company, about 40% of the monthly sales were done 100% digitally, which was, you know, great because you could allocate those resources much more rapidly from one region to another.

You can change your products, you can change your pricing. So, as you know now, it's much more flexible. Um, and so I think that was an interesting, um, value creation.

00:28:39.450 — 00:28:46.050 · Shiv Narayanan

And that's awesome. That's a great, great example. What about on the AI side? Like how are you transforming these businesses when it comes to that?

00:28:46.050 — 00:31:37.450 · Jean Ide Gerard

So on the AI, I think a lot of time is being spent within each company. And, you know, looking at your internal processes and understanding which ones can be, you know, more, more efficiently driven by by AI. And then for for those of the companies that actually are in the business of selling AI, they're, you know, really working on the products, on the solution, on the go to market and expanding.

And we have both cases now in our portfolio. But so coming back to the first one, you know, it's really enabling that, that technology uh, to to help you increment your, your KPIs. So for example, we have education companies that, you know, are, uh, using, uh, AI. Uh, for example, for the tutoring, uh, piece of the delivery of the education.

So it's not replacing the teacher, but it's rather enhancing the tutor and the teacher with a 24/7, uh, you know, bot voice and text that, you know, can can be available in whatever channel the student, uh, wants and requires and really, you know, enhance through that the learning process that we can measure in the academic results and the NPS of, you know, the satisfaction of having immediate and instant, uh, responses.

Uh, so that has working very well. Uh, collections, for example, has worked very well. You know, in the B2C massive collection is always tough and it can be very expensive because it's a lot of very small accounts that you need to be chasing. So again, putting voice bots and chat bots, uh, with different levels of seniority, and also using those software platforms when we can really orchestrate the different layers, right.

We're not a huge believer here that a lot of these processes, they don't go fully or 100% into AI, right? Normally it's a good combination that gives us the best results. So you want to have the orchestration layer when you can combine some physical people doing certain jobs, you want to have a supervisor and you want to have the bots text and voice and the bot supervisor, and you want to have those four interacting together, and so that we can measure all the results and and the impact.

Um, so very, very busy doing that. And then we share this, you know, moments where all the CEOs and the CTOs of the portfolio get together and they share their experiences. So, you know, which provider has worked for you for that type of bots. How fast was the implementation? What are the KPIs? How well is it working?

What's the payback? And you know, sharing a lot of the experience and even better, sharing the things that didn't work. Now what are the traps you should avoid? And that has proven also to be a very interesting. Nurturing the debate and then allowing each one of them to accelerate now in the execution.

00:31:37.530 — 00:32:10.370 · Shiv Narayanan

Yeah. Are you. It's an interesting, um, overlap. Right. Because there's all this AI stuff that you're navigating, but you're also in this, these interesting markets where I'd say it's different than traditional North American private equity markets. How has that changed how you look at deal flow, for example, like there are a lot of PE investors that are hesitant to invest in certain industries because they're worried about AI disruption.

I'm curious, like how you see that in the geographical markets where you guys are focused and how much that's making an impact on your investment decisions?

00:32:10.610 — 00:33:33.970 · Jean Ide Gerard

No, for sure it is. And it's probably one of the first topics that we discussed at the investment committee level. Now it's how much disruption is already happening and is expected to happen in that particular sector, and whether this company can be a benefit to and, you know, can drive the change around the country, you know, is at risk.

So so we spend a lot of time on that. But now the good thing about this part of the world is, you know, in many cases, we're not the early adopters. The early adopters are in the US and Europe because the providers of the technology, they start focusing more on these markets to begin with. And they have a pricing that works very well for these markets.

And, you know, Latin America comes second. The it's always ready. It's not always available. Sometimes the pricing is not curated for this region. So it doesn't work very well or only for the top 1% of the companies, which we don't focus on. And so that gives us a lot of space and time to monitor what's happening elsewhere.

And those are probably leading indicators of things that can happen here in 2 or 3 years, or maybe even less so. But at least you know we've got this, um, kind of, uh, heads up, uh, that, that we can look at to try to anticipate a little better how this is going to impact, uh, down the road. But yes, to, to to summarize, we spend a lot of time on that, and, and sometimes we we decided not not to go further because we, we feel that the disruption can be too, too important.

00:33:34.290 — 00:34:12.929 · Shiv Narayanan

Yeah. Yeah. I think I think that is such a crucial piece because because obviously the, the quality of an asset can change overnight. I guess my part of my question is also that in these markets and maybe it's a generalization, but I would imagine companies are more, uh, they have more people in certain roles or the way that they're organized is different.

How much is that factor into the to the decision? Because labor is a critical part of the offering in some cases. I'm just I'm just curious how you look at companies where there's there's the AI component, but then also there's the way the company is structured is as different as well.

00:34:13.050 — 00:35:49.200 · Jean Ide Gerard

Yeah. To your point, not labor in general. When you look at Latin America and when you look at Mexico in particular, compared to the US, uh, the hourly rate in the US is five x, the hourly rate in Mexico on average. Right. So, so that creates a huge difference. And so therefore you will find a lot of companies that have invested much more into people here and are much less automated because of that, you know, different relationship of the cost structure.

But so that creates an interesting opportunity because then you can, you know, enhance those processes by putting some technology. But at the same time, the threshold to really replace 100% becomes super high because, uh, because the technology has to be so good and affordable that, you know, it has to compete with labor that's not too expensive.

And again, in, in countries and in a region where, where social relationships are very important in every selling experience, in every execution experience. Now we are we're we're Latinos, right? Uh, so so the the social component is very important for a company functioning and therefore, um, probably, you know, you need to maintain that, uh, to get the trust from your customers to be successful in converting leads into sales.

And probably it's, you know, gaining some traction here and there. Little by little. But but also, uh, we're doing it cautiously again, because we don't want to break the, uh, the model as, as we're implementing, um, those stuff.

00:35:49.720 — 00:36:22.520 · Shiv Narayanan

Yeah, exactly. That was basically the, the heart of what I was asking. It's just like, because labor is cheaper, the trade off is different. Like here, if, let's say a certain role is 100,000 or 150,000, you have this legitimate trade off where I can leverage AI, potentially replace this role. But here, if in Mexico, let's say that role is half the cost or one third, of the cost will now like that.

Trade off is not as obvious, because I can actually amplify it with AI and get more output out of of the of the labor force that I have on on the team, which changes the economics and the value creation plan quite a bit.

00:36:22.560 — 00:37:14.400 · Jean Ide Gerard

Yeah, exactly. Now eventually, you know, the, the, the solutions are here and will increase. The cost will be adapted to the region. And that's why, for example, we have a successful AI platform that works very well because it's native from, from Latin America and Spain. And so it has a cost structure that is tailored to this region.

And so therefore it can go, you know, with pricing in the market, uh, with, with much more competitive than, than certain U.S. brands or European companies, but also because they understand the importance of the human relationship to actually make a sell or to follow a client and make sure that it doesn't convert it to churn on the counter or not, where you can upsell that.

Right. And so that that cultural piece of this social interaction is always important to to maintain when when you're defining all your your process.

00:37:14.440 — 00:37:24.320 · Shiv Narayanan

Yes. Totally. Totally. We're coming on. We're coming up on time. Obviously, we'd love to learn more, but, uh, in in case like people want to get in touch. Want to learn more about you? What's the best way for them to do that?

00:37:24.360 — 00:37:44.200 · Jean Ide Gerard

Yeah. So our website, Linzor Capital. We've got contact information. They're very easy. You can write us a mail. You have your phone numbers? Uh, I'm on LinkedIn with the Jean-Bernard Idé. You can contact me through there. Uh, and, you know, very happy to answer any questions and get back at anyone with whom we can have, uh, interactions.

00:37:44.240 — 00:38:04.440 · Shiv Narayanan

Awesome, awesome. Jean, we'll be sure to include all of that and the links in the show notes. And with that said, I appreciate you coming on and sharing your wisdom. Definitely really appreciated the fact that the markets that you're in, how that changes the context of how you operate or what you invest in and how you look at value creation.

I think a lot of companies that invest in different markets will learn a ton from it. So I appreciate you doing this.

00:38:04.600 — 00:38:12.120 · Jean Ide Gerard

Oh, thank you so much for inviting me and congrats for your podcast. Super insightful and interesting. So thank you.

00:38:12.160 — 00:38:35.800 · Shiv Narayanan

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00:38:38.200 — 00:39:01.520 · Shiv Narayanan

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