Private equity opportunities in emerging markets

Private equity in Brazil

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With vast natural resources in a time of increasing global demand, a surging young population with an emerging middle class and maturing capital markets inspiring confidence in investors at home and abroad, the country is ready to transition to a more developed economy.

Brazil is ripe with new drivers for growth

Interest in Brazil continued to accelerate in 2010, driving increasing activity from local funds and global firms alike. Fund-raising for Brazil-targeted funds remained strong and increased nearly 170% in 2010 over 2009.

Underscoring rising interest in the region, two South America-targeted funds rounded out the top 10 largest buyout funds closed in 2010 — Southern Cross’ Fund IV, and Advent’s Latin America Fund V, with US$1.68b and US$1.65b in commitments, respectively. Many more funds are currently in the midst of fund-raising, signifying a healthy pipeline of new capital should remain available for new deals.

Many global managers are opening local offices, but as mentioned, one of the key strategies being implemented by global private equity firms in emerging markets is the acquisition of stakes in established local firms with robust networks. A number of private equity firms have in recent months acquired shares in some of Brazil’s most respected asset managers.

Healthy pipeline expected for new deals

In September, The Blackstone Group announced that it had acquired a 40% stake in Pátria Investimentos. In October, Highbridge Capital, the hedge fund owned by JPMorgan Chase, acquired a majority stake in Gávea Investimentos. Gávea, which has approximately US$6b under management, was founded by former central bank Governor Arminio Fraga.

And in December, a consortium led by J.C. Flowers & Co. and including sovereign wealth funds, GIC, China Investment Corporation and Temasek, acquired a 19% stake in BTG Pactual for US$1.8b in the largest Brazilian deal of its kind. These deals contributed greatly to the total US$6.6b in completed deals seen last year in Latin America. Overall, Brazil accounted for 70% of these new deals — or US$4.6b5 — a 404% increase over 2009.

Greater activity on the horizon?

Clearly Brazil continues to attract significant attention, as a growing number of funds are being raised to target the country and broader region. As 2011 continues, we expect this wave of interest to manifest into greater activity across the space, including fund-raising, transactions, and exits, especially as President Rousseff’s new administration is making welcoming overtures toward additional long-term private equity investment.

Sector breakdown of 2010 private equity deals

Sector breakdown of 2010 private equity deals

Source: Dealogic, breakdown by value.



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