Crunch time for Portland’s Merqueo investment
Robert Almeida, manager of investment fund Portland JSX Limited, thinks that its multimillion-dollar financing of fast-growing online grocer Merqueo might go to nought, following the lapsed initial public offering, which would have provided a way for Portland to cash out of the investment.
The sale of shares should have provided an injection of cash for Merqueo to fuel the tech grocer’s ongoing operations. Without it, the Colombian grocer’s plans and finances are more vulnerable.
“At the current time, all possibilities are still being pursued to fund continued operations, but both the debt and equity have a high risk of material impact,” Almeida told the Financial Gleaner.
Merqueo planned to list on the US Nasdaq exchange in New York in January, but that was pushed back to May. That deadline was also missed.
Within the period, the appetite for risk worsened in the United States, with rising interest rates and collapsing lending institutions. Almeida said Merqueo was essentially a tech company growing its way to profitability, and as such, was reliant on new capital to fund its growth push.
“In the face of higher interest rates, the entire tech sector, and especially pre-profit tech companies, saw access to capital tighten and valuations decline in 2022. The company adjusted its operations to reduce the capital required to get to profitability and was in the process of executing an IPO. Unfortunately, the company missed the IPO window in January and with the failure of Silicon Valley Bank and other major banks in the interim, the IPO funding window closed and the company is severely liquidity- challenged. We believe the operations continued to perform well prior to the liquidity crunch,” he said.
Portland JSX Limited has a US$4.5-million investment in Merqueo Holdings, and an additional indirect exposure through its partnership investments under the Portland Caribbean Fund II portfolio.
“The company is of the view that the investment may be materially impaired and is expecting to take a provision for loss of most, if not all of this exposure. The company continues to monitor and manage the situation closely,” Portland JSX said in a market filing to the Jamaica Stock Exchange.
Merqueo operates in Colombia, Mexico and Brazil, according to active links on its site.
The company generated US$27.8 million in revenue in 2022 in an online grocery market valued at US$7.4 billion across Latin America, Merqueo said.
The grocer believes that the market will expand to US$15.8 billion by 2027, but to position itself for some of that business, Merqueo requires cash to fuel its expansion.
As such, it had been in talks with affiliates of Portland Private Equity for an additional US$2 million in financing, subsequent to March.
Portland Private Equity is the manager of Caribbean Fund II and Portland JSX.
“The company is currently negotiating a convertible debt note agreement for up to US$2 million with vehicles affiliated with Portland Private Equity Group,” Merqueo’s prospectus stated.
Portland JSX generally co-invests alongside Portland Caribbean Fund II.
Up to the release time of the prospectus, Portland Private Equity and its affiliates owned 38.4 per cent of Merqueo, representing the largest block of shares in the online grocery business. Other large owners included affiliates of Fuel Venture Capital Fund, 15.6 per cent; MGM Innova Cap Management, 5.3 per cent; and BLAO Holdings with 3.9 per cent.
Up to March, the Portland entities had entered into two additional convertible debt note agreements for US$1.5 million and US$500,000 with Merqueo. It followed a series of US$3 million in notes issued last September which were converted to shares in February, according to the prospectus.
Almeida said the remaining direct loans are US$4.5 million in value.
Caribbean Fund II is nearing the end of its 10-year cycle. In recent months, it exited investments in InterEnergy and Panama Wind, but still has eight companies in its portfolio, including Merqueo. The other seven are Productive Business Solutions Limited; Interlinc Group; Diverze Assets Inc/Chukka Holdings; Portland Telecom LP, which holds shares of Liberty Latin America; financial services firm Clarien Group Limited; Outsourcing Management Limited, which trades as itel; and restaurant and food service operator Grupo IGA.