The vast region south of the U.S. border is increasingly being seen as fertile hunting ground for rapidly growing companies eager for U.S. cash and several reverse merger firms are setting up shop in the region.

Colorado-based Keating Investments, well known in the alternative offering market, recently opened an office in Bogotá, Colombia.  Another prolific reverse merger firm, Texas-based Halter Financial Group, has had a representative located in Miami overseeing its Latin American operations for about a year.

Any discussion of emerging markets eventually circles back to China, which has driven much of the growth in the shell merger market lately.  However, some industry watchers believe that the white hot growth in the region has created a growing bubble, and that it is necessary to diversify into other regions.

“[Some investors] are concerned about the China bubble and are beginning to hedge their bets,” said David Feldman, founder of the New York law firm Feldman Weinstein & Smith.  “There are many exciting growing companies much closer to home, so it’s a logical development.”

While nowhere near the level and scope of current investment in China, the Latin American region has been showing great promise.  However, Tim Halter, founder of Halter Financial, said that it is important to not look at the region as a whole, but rather to focus on opportunities in each individual country. Keating has been primarily focusing on Chile, Argentina, Columbia, Brazil, and Mexico.

Pablo Serna, who is heading up Keating’s effort in the region said that besides Bolsa de Valores de San Paulo (Bovespa), no other South or Central American stock exchange offers the liquidity or potential investors needed to make it worthwhile for a small- or mid-cap company to seek a listing.

Brazil had a booming IPO market in 2007, raking third behind the U.S. and China, with $29 billion raised through the first 11 months of the year, according to Ernst & Young’s year-end Global IPO report.

However, Brazil has not had much luck bringing smaller operations into the public market fold.  The country formed a Bulletin Board equivalent, Bovespa Mais, a little more than two years ago, according to the Bovespa website.  However, it didn’t generate its first listing until this year, fertilizer company Nutriplant, which raised $11.5 million in a mid-February IPO.

Halter cautions that not every country views U.S. investment favorably.  The U.S. has been working for years to set up a Free Trade Area of the Americas (FTAA), but has been largely unsuccessful to date, opting to instead focus its efforts on agreements with individual countries.

It’s the countries with free trade agreements, formal or otherwise, with the U.S. that investors should funnel their dollars to, said Halter.  Chile has signed a formal agreement with the U.S., while agreements with Panama and Colombia are pending congressional approval.  The U.S. and Peru have a slightly less formal trade promotion agreement.  Additionally, the three-year old Dominican Republic-Central American Free Trade Agreement formed a pact between the U.S., Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.

Serna said that the tendencies in Venezuela and Bolivia toward nationalization of industry and resources have made it difficult to work within those countries, and Keating has currently elected to steer away from companies in those countries. 

“There are risks of fraud in any deal from any country,” says Feldman.  “If dealmakers got past it in China, hopefully they will also in Latin America.  The key is having solid people and auditors on the ground that can root out any corruption or questionable dealing.”

A dominant focus in the Latin American region is on mineral and energy companies, as many of the countries are heavy with natural resources.  Halter said that in addition to energy and mineral companies, his firm is currently looking at a winery, an aquaculture and fishery operation, a grocery store chain, and construction firms.

Since 2004, there have been seven Latin American companies that have gone public through a reverse merger, compared to more than 200 Chinese companies.