Private Equity & Venture Capital in Private Equity & Venture Capital in Brazil: State of the Industry and Brazil: State of the Industry and Opportunities Opportunities NYC – September 25th, 2006 NYC – September 25th, 2006 The Brazilian Private Equity and Venture Capital Association The Brazilian Private Equity and Venture Capital Association Amsterdam Beijing Chicago Emeryville Hong Kong Johannesburg Cambridge Frankfurt London Los Angeles Madrid Manila Milan Moscow Mumbai Munich New York Palo Alto Paris San Francisco São Paulo Seoul Shanghai Stockholm Tokyo Toronto Zurich Singapore
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Private Equity & Venture Capital in Brazil: State of the Industry and Opportunities NYC – September 25th, 2006 The Brazilian Private Equity and Venture.
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Private Equity & Venture Capital in Brazil: Private Equity & Venture Capital in Brazil: State of the Industry and OpportunitiesState of the Industry and Opportunities
NYC – September 25th, 2006NYC – September 25th, 2006
The Brazilian Private Equity and Venture Capital AssociationThe Brazilian Private Equity and Venture Capital Association
Amsterdam Beijing Chicago Emeryville Hong Kong JohannesburgCambridge Frankfurt
London Los Angeles Madrid Manila Milan Moscow Mumbai Munich New York Palo Alto
Paris San Francisco São Paulo Seoul Shanghai Stockholm Tokyo Toronto ZurichSingapore
The AssociationThe Association of of the Brazilian PE & VC industrythe Brazilian PE & VC industryWho Are WeWho Are We
Our MissionOur Mission
MembershipMembership
Promote and develop Promote and develop long-term investments in Brazillong-term investments in Brazil
Over 100 membersOver 100 members, including fund managers, , including fund managers, entrepreneurs and service providersentrepreneurs and service providers
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
Brief History of the Brazilian PE & VCBrief History of the Brazilian PE & VC
* Includes only fund managers that existed in 2004Source: Private Equity and Venture Capital in Brazil – 1st Census – FGV / GVcepe; ABVCAP; Monitor Analysis
Over US$ 4BN invested, 400+ deals, during the past 10 years
As of today: 250+ portfolio companies, additional US$ 5BN committed capital
Over US$ 4BN invested, 400+ deals, during the past 10 years
As of today: 250+ portfolio companies, additional US$ 5BN committed capital
19991999 FutureFuture
From 8 fund managers in 1994 to 45 in 2000 *– Real Plan– Privatizations– Dot-coms
Mostly local investment banks, and their international competitors
Followed by:– Global VC/PE funds– BNDES (1996)
Brazil = key market for international investors– Investment peak
Economic slowdown– Global factors:
Internet bubble burst Argentina default
– Local factors: Devaluation (1999) Energy crisis (2001) Elections (2002)
Almost no sizeable PE investments nor exits
International LPs divested too early
Improvements in legislation and corporate governance standards
Renewed interest in PE & VC– By local investors– By entrepreneurs
Several successful IPOs
New vintage of funds– local pension funds LPs
More stable Economy– Falling interest rates– Falling country risk
Full impact of previous institutional changes– Corporate governance– Legal improvements
The Brazilian PE & VC Industry in NumbersThe Brazilian PE & VC Industry in Numbers
as a % of GDP (2004) Investments in US$ million
1) Includes 2 mezzanine investmentsNote: Includes data from 57of a total of 65 fund managers with local offices in BrazilSource: Private Equity and Venture Capital in Brazil – 1st Census – FGV / GVcepe; Monitor Analysis
Software& IT
Telecom Retailers
ManufacturingBiotech
Other
Transp /Logistics
Portfolio by Sector (2004)Number of Invested Companies according to
the Stage of Development (2004)
MBO
Seed
Start-up
Expansion1
Later Stage
AcquisitionFinance
BridgeFinance
Turnaround
Brazilian PE & VC has already proved itself in multiple sectors, and shows strong potential for growth
Brazilian PE & VC has already proved itself in multiple sectors, and shows strong potential for growth
Note: 1) Considers primary and secondary offers separately, even when offered jointly – up to April 2006Source: CVM; PE and VC in Brazil – 1st Census – FGV / GVcepe; Monitor Analysis
Most Common Exit Mechanisms(1999 – 2004)
IPO
Trade-sale
Secondary-sale
BuyBack
Write-off
Number of PE-backed Public Offerings1
Falling interest rates, developed capital markets and strong corporate governance all point towards sustainability of IPOs as a viable option
Falling interest rates, developed capital markets and strong corporate governance all point towards sustainability of IPOs as a viable option
Developed Capital Developed Capital MarketsMarkets
Stable economy de-linked from politics Falling interest rates and country-risk Investment grade expected in 2007 / 2008 Social inclusion of low-income families
Conclusion: Why Invest in PE & VC in Brazil Now?Conclusion: Why Invest in PE & VC in Brazil Now?
Across diversified sectors and regions Strong entrepreneurial culture
Source: Monitor Analysis
New opportunities New opportunities due to improved due to improved
enabling environmentenabling environment
Significant other Significant other opportunities to opportunities to
create valuecreate value
More developed More developed market for exitsmarket for exits
Wide range of Wide range of opportunities opportunities
availableavailable
IPOs, viable alternative
Falling interest rates should allow LBOs Success of IPOs created awareness around PE & VC Distressed assets represent new opportunities Economic inclusion creates demand for consumer goods
Consolidation of fragmented sectors High growth in some sectors / companies Significant financial leverage with falling interest rates
Source: Social Security Ministry; CVM; Interviews with Private Equity Players / Stakeholders; BOVESPA; Monitor Analysis
Brazilian institutionals turn to alternative investments due to falling interest ratesBrazilian institutionals turn to alternative investments due to falling interest rates
Other CharacteristicsOther Characteristics
116 yr old Stock Exchange– 342 listed companies – US$ 581 billion market cap
Futures exchange is 5th largest worldwide (BM&F)
Free flows of equity– Brazil has never restricted
dividend flows
Limited access to debt markets– Bank spreads still high– Sovereign crowds out Private
Brazilian Brazilian Institute for Institute for Corporate Corporate
GovernanceGovernance
Brazilian Brazilian Institute for Institute for Corporate Corporate
GovernanceGovernance
Established in 1995 by demand from the market
Develops and Recommends CG programs
Advanced regulation for public co’s and PE & VC funds on disclosure and shareholders’ rights
Out of 33 IPOs since 2004, 23 compliant with ‘Novo Mercado’, 6 other with Level 2Out of 33 IPOs since 2004, 23 compliant with ‘Novo Mercado’, 6 other with Level 2
Note: *Except countries considered “low-tax jurisdictions” by Brazilian Tax Authority – usually tax havensSource: ANBID; Bacen; BEST 2006; Brazilian Company for Custody and Liquidity (CBLC); CVM
Legislation for investors fully reviewed (1999 / 2000)– Reduced legal and credit risk for investors– New “Bankruptcy Law” made investments safer
Other institutional and legal environment improvements are expected in the near future (e.g. Tax Reform)
Other institutional and legal environment improvements are expected in the near future (e.g. Tax Reform)
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
Capital markets institutions are independent Central Bank and Securities Commission are autonomous Stock and Futures Exchanges are self-regulated
Significant improvements in the past few years established more comprehensive and stable environment for investments
Source: ANBID; Science & Technology Ministry (MCT); IBGC; 1st Brazilian Census of Private Equity and Venture Capital – FGV; Monitor Analysis
Financial Market /Auditor
CEO / Director
Consultant
Entrepreneur
Other
Post-Graduated
Master /MBA / LLM
PHD “… great availability of talented and qualified managers to run businesses”
Brazilian Institute of Corporate Governance has already trained over 1,200 executives
270,000 researchers, including 40,000 PHDs
Brazilian companies invest hundreds of millions of US dollars on innovation every year
>20 years
>15 years
>10 years
>5 years
– PE fund manager
Basis: 233 managers in 65 firms
Non-Graduated
Graduated
Experienced Professionals for PE & VC ManagementExperienced Professionals for PE & VC Management Human CapitalHuman Capitalfor Portfolio Companiesfor Portfolio Companies
Enabling EnvironmentEnabling EnvironmentQualified Human CapitalQualified Human Capital