ETA in Colombia, Chile & Peru: The Andean Opportunity
12 min read
The Andean region is emerging as one of the most compelling frontiers for entrepreneurship through acquisition. Colombia, Chile, and Peru share common tailwinds, growing middle classes, generational succession waves, and maturing private equity ecosystems, while each market offers distinct advantages for search fund entrepreneurs. With EBITDA multiples typically ranging from 3-5x and an expanding network of IESE, IAE, and local business school alumni driving deal flow, the Andean corridor represents a high-potential, under-penetrated ETA market.
Colombia
Market overview
- 600,000+ formal SMEs and a total business base of 1.6 million registered companies. SMEs generate roughly 40% of GDP and 80% of employment
- Growing middle class: Colombia’s middle class has more than doubled since 2002, driving domestic demand in consumer services, healthcare, and education
- Succession wave: Many first-generation founders who built businesses during Colombia’s economic opening in the 1990s are now approaching retirement without clear successors
- Attractive multiples: 3-5x EBITDA for most SMEs, with lower multiples in secondary cities like Medellín, Barranquilla, and Cali compared to Bogotá
Legal & corporate structure
- S.A.S. (Sociedad por Acciones Simplificada): Colombia’s most popular corporate vehicle, introduced in 2008. Highly flexible, allows a single shareholder, no mandatory board, simplified governance, and variable capital. Over 90% of new company registrations use the S.A.S. structure
- S.A. (Sociedad Anónima): Traditional corporation requiring at least 5 shareholders and a board. Used by larger businesses and required for certain regulated industries
- Acquisition vehicle: Most buyers create a new S.A.S. holdco to acquire 100% of the target’s shares. The S.A.S. flexibility makes it ideal for search fund structures with multiple investor classes
Financing
- Bancóldex: Colombia’s development bank for entrepreneurship and foreign trade. Offers subsidized credit lines, partial credit guarantees, and special programs for SME acquisitions and modernization
- Fondo Nacional de Garantías (FNG): Provides credit guarantees covering up to 50-80% of SME loans, making bank financing more accessible for acquisition transactions
- Commercial banks: Bancolombia, Davivienda, and Banco de Bogotá offer acquisition financing, though rates remain high (IBR + 4-8%)
- Seller financing: Common at 20-40% of deal value, typically structured over 2-4 years. See seller financing guide
tax environment
- Corporate tax: 35% on corporate profits (increased from 33% in 2022 tax reform)
- Capital gains: 15% on capital gains from share sales for both individuals and corporations
- VAT (IVA): 19% on most goods and services
- Industry & commerce tax (ICA): Municipal tax of 0.2-1.4% on gross revenue, varying by municipality and economic activity. Often overlooked in due diligence
- Free trade zones: Companies operating in designated zones pay a reduced 20% corporate rate and 0% VAT on exports
Target industries
- Coffee & agriculture services: Colombia is the world’s third-largest coffee producer. Processing, export logistics, and agri-tech services present recurring-revenue acquisition opportunities
- Professional services: Accounting firms, engineering consultancies, and IT services in Bogotá and Medellín serve both domestic and nearshore clients
- Healthcare: Private clinics, dental chains, and diagnostic labs. Colombia’s healthcare system is ranked among the best in Latin America, and medical tourism is growing
- BPO & technology: Medellín has become a global hub for business process outsourcing and software development, with a bilingual talent pool
Chile
Market overview
- Most business-friendly country in Latin America: Consistently ranked #1 in the region by the World Bank’s Ease of Doing Business index and the Heritage Foundation’s Economic Freedom Index
- Stable institutions: Strong rule of law, independent judiciary, and transparent regulatory environment. Chile’s institutional quality is comparable to many OECD nations
- 1.2 million SMEs representing 98% of all businesses. A well-formalized economy relative to regional peers
- Growing PE ecosystem: Chilean family offices and institutional investors are increasingly allocating to search fund vehicles, influenced by IESE and Stanford models
Legal & corporate structure
- SpA (Sociedad por Acciones): Chile’s preferred acquisition vehicle. Introduced in 2007, it allows a single shareholder, flexible bylaws, and multiple share classes, ideal for search fund structures with preferred investor returns
- S.A. (Sociedad Anónima): Traditional corporation. Open S.A. companies are subject to securities regulation (CMF supervision). Closed S.A. companies have lighter governance requirements
- Acquisition vehicle: Most search fund buyers create a SpA holdco. The structure’s flexibility with share classes (e.g., preferred vs. common) maps naturally to search fund economics
Financing
- CORFO (Corporación de Fomento de la Producción): Chile’s development agency offers subsidized credit lines, seed capital matching, and guarantee programs (FOGAPE, FOGAIN) that facilitate SME acquisition financing
- Commercial banks: Banco de Chile, BCI, Santander Chile, and Scotiabank Chile offer acquisition financing at TAB + 3-6%. Chile’s lower base rates (vs. Colombia and Peru) make use more viable
- Seller financing: Common at 20-35% of deal value. Chilean sellers tend to be more sophisticated in deal structuring, often accepting earn-outs tied to performance
- Venture capital & PE funds: Funds like Austral Capital, CLIN, and family offices provide equity for search fund acquisitions
tax environment
- Corporate tax: 27% first category tax on corporate profits (the lowest in the Andean group)
- Tax regimes: Pro-PyME regime for SMEs with revenue below 75,000 UF (∼$3M) offers instant expensing, simplified accounting, and preferential rates
- Capital gains: Taxed as regular income for individuals (up to 40% marginal rate). Certain gains from shares held >1 year may qualify for a preferential 10% rate
- VAT (IVA): 19% on most goods and services
- Goodwill amortization: Goodwill from share acquisitions (badwill/goodwill) receives specific treatment under Chilean GAAP and tax rules. Proper structuring can yield tax deductions
Target industries
- Mining services: Chile produces 27% of the world’s copper. Equipment maintenance, environmental consulting, and logistics companies serving the mining sector offer stable, contract-based revenue
- Agribusiness: Wine, fruit exports (grapes, blueberries, avocados), and salmon farming. Chile is a global agricultural export powerhouse with businesses ripe for professionalization
- Technology & SaaS: Santiago’s growing startup ecosystem has spawned many SME software companies. See SaaS acquisition guide
- Professional services: Engineering, architecture, and consulting firms serving mining and infrastructure projects
Peru
Market overview
- 2.3 million MSMEs (micro, small, and medium enterprises) representing over 99% of all businesses and employing 60% of the workforce
- Consistent GDP growth: Peru averaged 4.5% annual GDP growth over the past two decades, one of the strongest track records in Latin America. A growing consumer base of 34 million people
- Formalization opportunity: An estimated 80% of Peruvian businesses operate informally, creating significant opportunity for acquirers who can formalize and professionalize target companies
- Pacific Alliance member: Along with Chile, Colombia, and Mexico, Peru benefits from the Pacific Alliance’s free trade and capital mobility provisions
Legal & corporate structure
- S.A.C. (Sociedad Anónima Cerrada): Peru’s preferred structure for SME acquisitions. Allows 2-20 shareholders, simpler governance than an open S.A., and pre-emptive rights that can be waived in bylaws
- S.A. (Sociedad Anónima): Open corporation for larger companies. Required for publicly listed entities. No shareholder cap
- S.R.L. (Sociedad de Responsabilidad Limitada): Limited liability company for smaller businesses. Maximum 20 partners. Less flexible than S.A.C. for investor structuring
- Acquisition vehicle: Most buyers create a new S.A.C. holdco. The structure accommodates multiple share classes with some creativity in bylaw drafting
Financing
- COFIDE (Corporación Financiera de Desarrollo): Peru’s development bank channels subsidized credit through commercial banks (second-tier lending). Programs like PROPEM and Multisectorial support SME growth and acquisitions
- Commercial banks: BCP (Banco de Crédito del Perú), BBVA Perú, Interbank, and Scotiabank Perú offer business acquisition loans at TAMN-linked rates. Effective rates of 12-18% are common
- Seller financing: Essential in Peru given high bank rates. Typically 25-40% of deal value over 2-4 years. Many sellers prefer cash at close, making negotiation important
- Investor equity: Peru’s search fund investor base is smaller than Chile’s or Colombia’s but growing, anchored by PAD (Universidad de Piura) and IESE alumni
tax environment
- Corporate tax: 29.5% on corporate profits
- Dividends: 5% withholding tax on dividend distributions to individuals and non-residents
- Capital gains: 30% for Peruvian-source capital gains realized by individuals and corporations. Reduced 5% rate for gains on shares traded on the Lima Stock Exchange (BVL)
- VAT (IGV): 18% (16% IGV + 2% municipal tax) on most goods and services
- MYPE regime: Simplified tax and labor regime for micro and small enterprises. Reduces labor costs significantly (no CTS, no profit sharing for micro) but imposes revenue caps
- Profit sharing: Mandatory distribution of 5-10% of pre-tax profits to employees, depending on the industry sector
Target industries
- Mining services: Peru is the world’s second-largest copper and silver producer. Equipment rental, maintenance, drilling, and environmental services companies offer contract-based recurring revenue
- Agribusiness: Peru’s agricultural exports (blueberries, avocados, asparagus, quinoa) have grown 400% in a decade. Processing, cold chain, and export logistics businesses are acquisition targets
- Textiles & apparel: Peru’s high-quality cotton (Pima) and alpaca fibers support a vertically integrated textile industry. Manufacturing and export businesses with established US/EU client bases offer stable revenue
- Healthcare: Private clinics and diagnostic labs serve a growing middle class dissatisfied with public healthcare. Lima concentrates most of the investable targets
- Gastronomy & food services: Peru’s culinary reputation (ranked among the world’s top food destinations) drives a booming restaurant, catering, and food distribution sector
Common themes across the Andean region
Succession & demographics
All three countries experienced rapid economic growth from the 1990s onward, creating a large cohort of first-generation business founders who are now in their 60s and 70s. Many built their companies during market liberalization and have no family successor willing or able to take over. This succession wave is the primary driver of deal flow for ETA in the region.
Valuation & deal economics
- Multiples: 3-5x EBITDA is the typical range across all three markets, well below US (5-8x) and European (4-7x) averages. Lower multiples reflect higher country risk, smaller buyer pools, and less auction-driven processes
- Deal size: Most Andean search fund acquisitions target companies with $500K-$3M EBITDA. Smaller deals face less competition from PE firms
- Value creation: Professionalization, technology adoption, and geographic expansion drive post-acquisition growth. See the first 100 days playbook
Growing ecosystem
- Business school networks: IESE (Barcelona) and IAE (Buenos Aires) have produced the majority of Latin American search fund entrepreneurs. Local schools, Universidad de los Andes (Colombia), PUC/UAI (Chile), and PAD/UTEC (Peru), are building dedicated ETA programs
- Investor networks: Latin American search fund investors (many first-generation successful searchers themselves) are reinvesting in the next generation. Cross-border investor syndicates spanning the Pacific Alliance countries are becoming common
- PE ecosystem: Private equity penetration in the Andean region is growing rapidly, validating the SME acquisition model and creating future exit opportunities for search fund operators
- Conferences & events: The IESE Search Fund Conference, LAVCA events, and country-specific ETA meetups in Bogotá, Santiago, and Lima are building community and deal flow
Key challenges
- Political volatility: All three countries have experienced political instability in recent years. Peru in particular has seen rapid presidential turnover. Regulatory continuity risk should be factored into deal models
- Informality: Off-book revenue, informal labor, and incomplete financial records are common across Andean SMEs. Thorough due diligence and a quality of earnings analysis are essential
- Currency risk: COP, CLP, and PEN all exhibit volatility against USD/EUR. Consider natural hedges (export revenue) or financial instruments to protect returns for international investors
- Talent retention: Post-acquisition talent management is critical. Key employees may be loyal to the founder, not the company. Retention packages and gradual leadership transitions reduce risk
- Legal enforcement: While legal frameworks are adequate, court processes can be slow. Arbitration clauses (using chambers of commerce in Bogotá, Santiago, or Lima) are strongly recommended in SPAs
Getting started
The Andean region rewards searchers who invest in local relationships, understand cultural nuances, and partner with experienced local advisors. Bilingual proficiency (Spanish is essential in all three markets) and on-the-ground presence significantly improve deal sourcing outcomes. The Pacific Alliance framework, linking Colombia, Chile, Peru, and Mexico, creates natural cross-border deal flow and investor networks that benefit ETA operators across the region.
For the broader Latin American context, see ETA in Latin America. For country-specific deep dives on the region’s largest markets, see ETA in Brazil and ETA in Mexico.
Frequently asked questions
Which Andean country is most accessible for a first-time search fund entrepreneur?
Chile is generally considered the most accessible market for first-time searchers due to its transparent regulatory environment, the strongest rule of law in the region, and relatively well-formalized business accounting practices. Chile consistently ranks first in Latin America on the World Bank’s Ease of Doing Business index and the Heritage Foundation’s Economic Freedom Index. CORFO’s financing programs and the SpA corporate structure provide familiar frameworks for searchers trained in the US or European models. However, Chile’s smaller population (19 million) limits total deal flow compared to Colombia (52 million). For bilingual searchers with higher risk tolerance, Colombia offers deeper deal flow and a more developed local search fund community anchored by Universidad de los Andes.
How do search fund investors view currency risk in Andean acquisitions?
Currency risk is the single most discussed concern among international investors evaluating Andean search fund opportunities. The Colombian peso (COP), Chilean peso (CLP), and Peruvian sol (PEN) have all experienced 15-30% swings against the US dollar over five-year periods. IESE research on Latin American search funds shows that currency depreciation has reduced dollar-denominated returns by an average of 3-5 percentage points annually over holding periods. Experienced investors mitigate this by targeting businesses with natural currency hedges, export revenues, dollar-linked contracts, or operations serving multinational clients. Some funds also use local-currency acquisition debt to match the currency of cash flows with debt service, creating a partial natural hedge.
What are the most common due diligence red flags in Andean SME acquisitions?
Three red flags appear consistently across all three markets. First, informality in financial records: an estimated 40-60% of Andean SMEs maintain some degree of off-book revenue or informal labor arrangements, according to OECD studies on Latin American informality. Second, customer concentration: many mid-market businesses depend heavily on government contracts or a single large client, creating revenue vulnerability. Third, tax compliance gaps: the ICA municipal tax in Colombia, the profit-sharing obligation in Peru, and VAT compliance across all three countries are areas where liabilities often surface during due diligence. Searchers should engage local forensic accountants and insist on three years of reconciled tax filings before proceeding.