Brazil and beyond

The private equity party is starting to swing in Brazil, but many GPs are keen to point out that opportunities abound throughout the Latin American region.

The “B” of the BRIC acronym is starting to live up to the hype in terms of private equity opportunities. 

Among the deals to be struck in the first half of the year, London-headquartered Apax Partners made its Brazilian debut with a $1 billion investment for a 54 percent stake in Tivit, an integrated IT company.

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“Brazil is a large market, the 10th largest economy in the world, with exciting demographics, growth projections and macroeconomic stability,” a spokesman for Apax told PEI when the deal was inked. “While we have no immediate plans to open an office in Brazil, it is an exciting market that we have been exploring for some years and are increasing our commitment towards.”

Energy investment giant First Reserve announced in May that it was investing $500 million in Brazil-based Barra Energia, an independent exploration and production company. “We’ve been attracted to Brazil for quite some time,” Will Honeybourne, a managing director with First Reserve, told PEI at the time of the deal. “Brazil has large resource potential relatively unexplored and underdeveloped. The economy is growing and the regulatory regime is attractive.”

While much of the recent deal flow has targeted Brazilian businesses, some managers have broadened their gaze to other countries in the region.

Earlier this year, Advent International closed its fifth Latin America-focused fund on $1.65 billion, making it the largest private equity fund ever to target the region.

“We will continue to invest primarily in … Brazil, Mexico and Argentina, but are looking to broaden our geographic focus to include other markets such as Uruguay, Chile, Peru, Colombia and the Caribbean,” Ernest Bachrach, managing partner and co-head of Latin America for Advent International, told the Latin American Venture Capital Association in May.

In May, DLJ South American Partners led an investor group in a $370 million investment for a 25 percent stake in Grupo Santillana de Ediciones, a publisher of educational text books in Latin America and Spain. Among the DLJ-led consortium were a number of other GPs, pension funds and DLJ limited partners, such as Albright Capital Management, Honeywell Capital Management and Partners Group.

DLJ made the investment from its $300 million debut fund raised in 2006, which has a primary focus on Argentina, Chile and Brazil.

Carlos Garcia, co-managing partner of DLJ South American Partners, said the team’s debut fund was originally raised to cover the whole region, but with a specific focus on Argentina, Brazil and Chile. “The strategy had to be adjusted,” he says. “We continue to be excited about Brazil and Chile. We added into that category Colombia and Peru,” Garcia says. These latter markets are attracting increased attention from private equity firms as their regulatory regimes have become more accommodating.

Some investors see Brazil as being an overheated market, too crowded and becoming too expensive, although “there are still plenty of growth opportunities, and it’s still a relatively non-penetrated market”, according to Cate Ambrose, president and executive director of the Latin American Venture Capital Association.

“There are a group of global investors who look at Brazil as the market in Latin America and ignore the rest of the region,” Ambrose says. “That’s something that has changed in 2010.”