The Definitive Brazilian Private Equity Guide: Part I

Someone forgot to tell to Brazil that we are in the midst of the worst global recession in history.

Brazil is quickly becoming a political and economic leader in Latin America and the world. As with the rest of the global economy, Brazil entered into a recessionary period in 2009, but economic data that have been emerging from the Instituto Brasileiro de Geografia e Estatística (“IBGE”) increasingly point to a stabilization in the economy, further suggesting that the country has perhaps been less impacted than other markets in this global recession. After the 4.4% quarter-on-quarter decline in 4Q08 and a subsequent 3.5% decline in 1Q09, the country’s GDP reached US$417.8 billion at 2Q09, up 5.2% from the prior quarter, and projected GDP growth for the second half of 2009 is running at about 4.0% or even higher (see Figure 1).
Many economists point, because from this year's global economic recession, a major barrier to changing trade patterns in Brazil for the first time, China surpassed the U.S. to become Brazil's largest trading partner. In addition, copper and oil prices remained relatively strong, Brazil's commodity-based economy continues to show strong growth in the expansion, consumer spending increased 2.1%, 2Q09, on behalf of 23 quarter. Any Ph.D. in economics can tell you that, on the technical side, it is ginormous.
All this good news will get a clear recognition of the market. Meanwhile, in 2008 Brazil's Bovespa index is down 45.0% or more, Brazil's main index is about 66.7% YTD, up 15.6%, 3Q09 alone, significantly (see Figure 2) is the United States, the Dow Jones industrial average is more than. Similarly, as sovereign bonds, while showing optimism in Brazil, Argentina, Venezuela and other countries for many, and probably more widespread pessimism.
And as if things were not good enough, Brazil is the heavy favorite in 2010 World Cup in South Africa, it is the 2014 World Cup hosts, and it was only the first South American country ever to host the Olympic Games, as are now planning to bring the ultimate sporting event and the worldwide audience in Rio de Janeiro in 2016.
One could say that the things you are in Brazil. Muito bom indeed.
Private Equity in Brazil
With such favorable economic conditions, the buzz in Brazil again starts to converge on the topic of private equity. Like its fellow BRIC countries India and China, Brazil maintains some of the same arguments for the “perfect market environment for private equity.” Hundreds -– if not thousands –- of bankers’ pitchbooks abound with respect to the wonderful opportunities in Brazilian private equity, and we ourselves might be culpable for a few of those. Brazil is the fifth largest country by geographical area, occupying nearly half of South America, and, with an estimated population of 190 million inhabitants, it is the fifth most populous country in the world. It is the world’s tenth largest economy and the largest national economy in Latin America. Brazil boasts a solid and modern financial system that escaped the financial crisis relatively unscathed, an improving and credible legal system, a strong local investor base, robust capital markets, and, perhaps more so than any other Latin American country, there has been a strong emergence of a new middle class. According to the Funda??o Getulio Vargas, a Brazilian research institute, since 2002 Brazil, previously notorious for its extremes in income distribution, is now demonstrating the emergence of this strong middle-class society.
Yada, yada, yada. Unfortunately, pretty much what we heard ten years ago, twenty years ago and every other time the emerging markets in general become a popular topic of conversation. Thinking back to years such as 1994 and 2000, everyone was similarly optimistic about the great private equity opportunities in Brazil and throughout Latin America. When Madonna and the mullet were still cool circa 1994, anything with a pulse in Argentina attracted capital, and through the late 1990s, any Latin American company whose only asset was a domain name very often brought in hundreds of private equity professionals ready to write a check. Where is Argentina today? Don’t ask. Sure, Brazil becomes popular when Maria Bartiromo discusses the great opportunities in Brazil on CNBC, but as anyone that has been in the emerging markets for many years will tell you, the ups and downs of Brazil and the emerging markets in general can be stomach-wrenching to say the least. We love you dearly, Maria, but we didn’t see you in 1995 or 2001, when things were perhaps a smidge less uplifting in the region.
With that said, we do strongly believe that Brazil currently poses significant opportunities for private equity investors, and we sincerely hope that private equity investments in the country take firmer hold than in other times during the country’s history. For Brazilian companies and the Brazilian economy in general, attracting private equity can be an important source for continued economic growth. But what makes now such an opportune time for private equity transactions in Brazil? “Besides the favorable macroeconomic data and the fact that between 65%-70% of all Latin American private equity capital is focused specifically on Brazil, there are many reasons why the current situation in Brazil is different now than in other years. For one, while the financial sector has shown improvement in the last decade, access to capital for the middle-market and growth companies continues to be difficult, and thus the need for private equity as a source of capital for these early-stage and middle-market companies,” said Roger S. Leeds, Chairman of the Emerging Markets Private Equity Association (“EMPEA”), Professor at the School of Advanced International Studies (“SAIS”) at Johns Hopkins University and a former partner at Apax Partners & Co. “In addition, what’s significant about today is that there is a tremendous amount of Brazilian institutional capital being committed to the sector, as one sees pension funds, for example, placing significant amounts of capital in local private equity funds.”
*** Article too long to search for in full. See the link below to read full article
http://www.alternativelatininvestor.com/private2.php