Transcript Private Equity / Venture Capital Conceitos e perspectivas de

Overview of Private Equity & Venture Capital in Brazil
Breakfast Seminar
New York – November 2008
Luiz Eugenio Junqueira Figueiredo, Chairman ABVCAP
Agenda
I.
ABVCAP
II. PE&VC – Economic Importance
III. Brazil: An Enabling Environment
IV. Brazilian PE&VC Industry
V. Conclusions
2
ABVCAP
Who Are We
• The Association of the Brazilian PE & VC industry
Our Mission
• Promote and develop long-term investments in Brazil
Membership
• 100+ including PE & VC managers, LPs, invested
companies and service providers
3
PE&VC Economic Importance - USA
4
Fonte: NVCA
PE&VC Economic Importance - USA
5
Fonte: NVCA
Brazil: An Enabling Environment…..
Favorable
Macroeconomics
Attractive
Investment
Opportunities
Viable Exit
Options
Developed
Institutional &
Regulatory
Landscape
Qualified
Human
Resources
6
Source: Monitor Analysis
World-Class
Corporate
Governance
Developed
Capital Markets
…..with typical challenges of emerging markets
Internal Debt and
Interest Rates
Limited funds
for
PE & VC
Some companies
still reluctant to
good Corporate
Governance
Slow legal
system
Labor laws
7
Enabling Environment…..
Favorable
Macroeconomics
 Investment
Grade
 Stable economy de-linked from politics
 Falling interest rates and country-risk
 Social inclusion of low-income families
Source: BACEN; Social Security Ministry; IBGE ; CVM;
Interviews with PE / VC specialists; BOVESPA; ANBID; BEST
8
Enabling Environment…..
Favorable Macroeconomics
Improvement in the recent years, today Brazil is stronger and less vulnerable to
external crises.
• Investment Grade
• GDP growth;
• Inflation down, interest rates falling and trade surplus;
• International reserves are increasing and FDI is growing;
• Still needed adjustment of public accounts;
• Important legal and tax system reforms under discussion;
• The Federal Program, PAC (Growth Acceleration Plan), which projects to
invest more than US$ 250 billion in the infrastructure sector in the next 5 years;
9
Enabling Environment…..
Developed
Capital Markets

Pension Funds Assets
represents 16% of Brazilian
GDP (2005)

Alternative Investments mixed
within the Equity and Real
Estate classes

Pension Funds may allocate
up to 20% of total assets to
alternative investments

SPC Regulatory Review
Pension Funds Assets (US$ billion)
Source: Social Security Ministry; CVM; Interviews; BOVESPA; Monitor Analysis
10
Enabling Environment…..
World-Class
Corporate Governance
• Stock Exchange
• Regulation
• Private Institution
11
Enabling Environment…..
World Class CG

Stock
Exchange
Brazilian
Securities &
Exchange
Commission
Brazilian
Institute for
Corporate
Governance

‘Novo Mercado’
3 levels of world-class
corporate governance
standards (1, 2 and ‘Novo
Mercado’)
Advanced regulation on
disclosure and shareholders’
rights = Public Companies
and PE & VC Funds

Established in 1995 by
demand from the market

Develops and Recommends
CG programs

Highest Corporate Governance
requirements in BOVESPA

Information disclosure and
standards
– IFRS or US GAAP

Protection to minority
shareholders
– 100% tag along
– All stocks with voting rights
– Minimum free float: 25%

Mandatory use of arbitration
Most restrictive levels of CG represents 60% of the Market Cap and Daily Volume
Source: BOVESPA; CVM; Brazilian Institute for Corporate Governance (IBGC)
12
Enabling Environment…..
Developed Institutional &
Regulatory Landscape
• Independent Institutions
• Legal System
• Financial Market Structure
• Coordinated Public and Private Efforts
13
Enabling Environment…..
Developed Institutional & Regulatory Landscape
Independent
Institutions

Central Bank and Securities Commission are autonomous

Stock and Futures Exchanges are listed

Legislation for investors fully reviewed (1999 / 2000)
– Reduced legal and credit risk for investors
– New “Bankruptcy Law” made investments safer

Favorable tax regime* for foreigner investors

Solid and safe financial infrastructure: around 2,500 institutions

Electronic payments system – compliance with BIS

Brazil follows all 20 recommendations of G30 regarding custody,
settlement, payments system and data security

Fostering innovation and industrial development

FINEP – Inovar Program

BNDES – focused PE/VC department

ABDI/MDIC – Productive Development Police (PDP)
Legal System
Financial Market
Structure
Coordinated Public
and Private Efforts
Source: ANBID; Bacen; BEST 2006; Brazilian Company for Custody and Liquidity (CBLC);
CVM
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Note: *Except countries considered tax havens by Brazilian Tax Authority
Enabling Environment…..
Qualified
Human Resources
• Experienced and skilled Fund Managers
• Wide availability of qualified Managers and other
personnel for Portfolio Companies
15
Enabling Environment…..
Qualified Human Resources
Other
Entrepreneur
PhD
>20 yrs
Graduate
>15 yrs
Consultant
>10 yrs
High Executive
Extension
>5 yrs
Undergrad
Financial Mkt / Auditor
High School
Source: ANBID; MCT; IBGC; FGV; Monitor Analysis
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The Enabling Environment in Brazil
Favorable
Macroeconomics
Attractive
Investment
Opportunities
Viable Exit
Options
Developed
Institutional &
Regulatory
Landscape
Qualified
Human
Resources
17
Source: Monitor Analysis
World-Class
Corporate
Governance
Developed
Capital Markets
Attractive Investment Opportunities
Regional Growth
Sectors
14

Infrastructure - US$ 30 billion need
12

Real Estate – Housing Deficit 8 million
10

IT - US$ 19 billion in 2007 – IDG

Biotechnology

Tourism

Telecom

Retail

Agribusiness
SE
8
GNP
(%)
TO
MT
GO
6
MS
4
PA
MA BA
AM
2
MG
RS
PR
SC
0
ES
RJ
DF
–
–
–
–
–
SP
-2
-4
0.1
1
10
100
1000
GNP (US$BB*) – logarithmic scale
Source: MCT; Merrill Lynch; IBGE; Global Entrepreneurship Monitor; IDG; Monitor Analysis
* US$ constant 2000
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Biomass
Ethanol - 26 billion liter by 2010
Green Beef
Grains
Arable land and favorable conditions
Trade-Sale
IPOs
Viable Exit Options
Net Revenues
Investment
2005 (US$ million) (US$ million) Time to Exit
Company
Sector
Equatorial
Energy
273
11
2 years
GOL
Airline
1,100
26
1 year
TOTVS1
IT
90
16
<1 year
DASA
Medical Services
217
100
5 years
40%
Submarino
E-commerce
172
83
6 years
38%
Gafisa
Construction
202
78
9 years
TAM
Airline
2,317
77
8 years
ALL
Logistics
70
202
7 years
Localiza
Car rental
350
49
8 years
Akwan
IT
n/a
n/a
4 years
Autotrac
Logistics
137
2,5
7 years
Atrium
Telecom
353
20,5
4 years
IT
n/a
7
6 years
Microsiga2
Source: Press Clippings; Company websites; Interviews; Monitor Analysis;
Brazilian Capital Markets and Private Equity (R. Freitas, P. Passoni);
Note: 1 BNDESPar; 2) Buyback; 3) 2004
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Estimated IRRs in US$
481%
242%
199%
36%
26%
22%
9%
130%
32%
20%
12%
Brazilian PE & VC Industry
Brief History
Mid 90’s




8 managers in 1994
– Real Plan
– Privatizations
– Dot-coms
1999
2004

45 managers in 2000 *

Economic slowdown
– Global factors:
 Internet bubble burst
 Argentina default
– Local factors:
 Devaluation (1999)
 Energy crisis (2001)
 Elections (2002)
Mostly investment banks
Followed by:
– Global VC/PE funds
– BNDES (1996)
Brazil = key market for
international investors
– Investment peak

Small investments, no exits

Int’l LPs divested too early

Improvements in legislation
and corporate governance
Source: Private Equity and Venture Capital in Brazil – 1st Census – FGV / GVcepe;
ABVCAP; Monitor Analysis
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* Includes only fund managers that existed in 2004
Future

Renewed interest in PE & VC
– By local investors
– By entrepreneurs

Several successful IPOs

New vintage of funds
– local LPs

More stable Economy
– Falling interest rates
– Falling country risk

Positive impact of the
institutional changes
– Corporate governance
– Legal improvements
Brazilian PE & VC Industry
Main Figures
Limited Partners
• US$ 16,72 billion of committed capital (Jul/07)
General Partners
• 89 PE&VC firms
• 153 funds
• 984 professionals (357 partners)
Companies
• 404 portfolio companies
• 194 new investments between 2004 and 2007
• 28 IPOs between 2004 and 2007
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Brazilian PE & VC Industry
US$ bn
Impressive Recent Growth
18
16
14
12
10
8
6
4
2
0
16.72
3x
3.71
1999
4.95
5.02
4.7
2000
2001
2002
.
4.79
2003
Source: GV-CEPE
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5.58
2004
2005
2006
1H07
Brazilian PE & VC Industry
Surprising updated figures
to be released in two weeks
23
Brazilian PE & VC Industry
Attractive Pos-IPO Performance
117%
46%
.
Non PE/VCbacked
Source: GV-CEPE
24
PE/VCbacked
Brazilian PE & VC Industry
Well Positioned
Source: LAVCA
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Conclusion
Brazil offers
an enabling
environment for
PE&VC
• Favorable Macroeconomics
• Developed Capital Markets
• World Class Corporate Governance
• Developed Institutional & Regulatory Landscape
• Qualified Human Resources
with sound
investment
opportunities
• In different regions
• Across different sectors
• Consolidation of fragmented sectors
• Distressed assets
• Economic inclusion
and viable exits
• IPO
• Trade Sale
• at attractive returns
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Thank You !
Luiz Eugenio Junqueira Figueiredo
Chairman Associação Brasileira de Private Equity & Venture Capital
www.abvcap.com.br