SAO PAULO, May 19 (Reuters) - Greenhill & Co Inc and other global boutique investment firms are moving into Brazil, aiming to take advantage of strong mergers and acquisitions activity by poaching clients and deals from big-name banks.
Wealthy Brazilian investors such as retail tycoon Abilio Diniz and João Alves de Queiroz Filho, who controls drug and beauty care products maker Hypermarcas SA, are increasingly tapping boutiques to oversee some deals and help them find potential investment opportunities locally and abroad.
Worried about potential conflicts of interest with banks that act as both lenders and advisors, more Brazilian companies are turning to boutiques to help with cross-border takeovers and debt restructurings.
Major banks often seek top-notch deals as a springboard to selling loans, derivatives and other products while boutiques provide tailor-made advisory services.
The number of Brazilian takeovers involving boutiques has risen almost 20 percent since 2009, according to Thomson Reuters data.
BR Partners Banco de Investimento SA, led by star dealmaker Ricardo Lacerda, has advised on more than 80 transactions worth $35 billion in the period, with Rothschild increasingly beating the largest investment banks for mandates for share offerings, M&A and debt restructurings.
“Ours is a competitive business everywhere in the world and Brazil is no exception,” said Scott L. Bok, Greenhill’s chief executive. “History in the U.S., Europe and elsewhere shows that clients will increasingly turn for advice to firms that are focused solely on advising clients rather than selling them many financial products.”
Greenhill set up shop in Brazil in October, confident that the outlook for deals would remain attractive despite a sluggish economy. It says it also wants to advise companies preparing IPOs.
Moelis & Co, a New York-based firm that recently listed its shares on the New York Stock Exchange, opened an office in São Paulo in March.
Industry sources told Reuters that Jefferies Group LLC and Centerview Partners Holdings LP, also based in New York, are exploring options to enter Brazil, either by setting up shop or through a partnership with a local peer. Both firms declined to comment.
Brazil is catching up with a global trend that began during the 2008 financial crisis in which independent advisors snatch market share from the likes of Goldman Sachs Group Inc. Since 2009, at least five independent firms have ranked in the top 20 advisors in Brazil M&A league tables.
Boutiques were also involved in 75 percent of the top 20 takeover deals in the United States last year.
Still, newcomers to Brazil face a challenging market as rivals fight for talent and a bigger share of a shrinking fee pool. Since 2010, total investment-banking fees slipped from $1 billion to about $800 million as flagging initial public offerings offset a rise in the number of M&A transactions.
“Newcomers must have enough scale to create deal flow and, especially, structure more intelligent deals to be profitable,” said Ricardo Mollo, a corporate finance professor at Insper, a São Paulo business school. “Not everyone will be in a position to do that - only sustainable structures with the best banker roster and best global connections may make it.”
So-called bulge-bracket banks like Goldman, Deutsche Bank AG and Barclays Plc have scaled back in Brazil as four years of weak economic growth put a damper on the market.
Sources say Goldman cut its roster of investment bankers in Brazil to below 20 from 45 a year ago, while Barclays and Deutsche Bank trimmed their research, sales and trading staff.
But big banks are not the only competitors the newcomers face in Brazil. They also have to contend with well-established boutiques that got here first.
Rothschild, the Britain-based bank that has been the most active independent advisor in Brazil for the past decade, BR Partners, G5 Evercore Partners and Lazard Ltd have all carved out a niche in recent years.
Big global banks including Credit Suisse Group AG and Goldman tend to shy away from the middle-market M&A deals where boutiques thrive. But Brazil’s homegrown investment banks, namely Itaú BBA and Bradesco BBI, could be tempted to target that niche if large takeovers drop off, Insper’s Mollo said.
Advisory fees for mid-sized M&A transactions can reach over 2 percent versus about 1 percent for the largest ones, industry sources said. This year, 15.2 percent of Brazil’s M&A fee pool went to independent advisors, up from 9 percent in 2009, data from Thomson Reuters and Freeman Consulting showed.
Conscious of the need to have well-known bankers leading their local units, Greenhill and Moelis sought out heavyweight dealmakers.
Last year, Greenhill hired Daniel Wainstein, a former chairman of Goldman’s investment banking unit in Brazil. It also brought in another former Goldman banker as managing director, Rodrigo Mello, and plans to hire a senior vice president, a vice president, a few junior associates and analysts for its advisory operation by July, Wainstein said in an interview.
Moelis, for its part, hired Otávio Guazzelli, Jório Salgado-Gama and Erick Alberti from BR Partners. Prior to their stint at BR Partners, the three were part of Citigroup Inc’s investment-banking unit in Brazil.
The independent advisors could also seek to win mandates in share offerings, an area where banks use financing as a way to obtain businesses.
Rothschild and BR Partners have participated in a series of those deals in Brazil in recent years. Rothschild was a leading advisor in Cia de Bebibas das Americas SA’s transition from a dual-stock to a single stock regime, the largest ever corporate restructuring in Brazil. BR Partners had a role in Via Varejo SA’s $1 billion follow-on offering last December. (Additional reporting by Matthew G. Toole in New York; Editing by Todd Benson and Kieran Murray)