RIO DE JANEIRO, April 8 (Reuters) - Global private-equity funds are looking to Brazil at a time when many local firms are watching from the sidelines, betting that lucrative investment opportunities remain despite recent economic and political turmoil.
Executives at foreign buyout and consultancy firms at an industry summit in Rio de Janeiro this week are discussing potential deals, fundraising efforts and business opportunities in an economy that appears headed for its steepest recession in two decades.
While local peers are reluctant to pursue mergers and acquisitions before President Dilma Rousseff’s administration wins congressional approval for spending cuts, Advent International Corp and foreign rivals are trying to get ahead. Last month, Advent purchased for-profit university Faculdade da Serra Gaúcha, marking its return to Brazil’s education sector.
The Brazilian currency’s 26 percent slump in the past year has made M&A targets more affordable, but it may hurt firms that are slated to return money to clients later this year, executives said.
An increased willingness to deploy money in Brazil does not mean that foreign funds will engage in a reckless buying frenzy, said Carlos Asciutti, a partner specializing in transactions at global consulting company EY. Discipline and the ability to acquire companies in fast-growing sectors that grow their business within the life cycle of a fund will be the norm for private equity-fueled M&A in Brazil this year.
“You see locals more cautious and foreigners a little more focused on the long run, more optimistic,” Asciutti said on the sidelines of the event, which was sponsored by ABVCAP, the group representing buyout and venture capital firms in Brazil.
Despite the recent fizzling of a decade-long boom that lured hundreds of billions of dollars in investments, Brazil remains the largest recipient of private-equity money in Latin America, accounting for about 58 percent of the value of buyouts and 46 percent of the region’s deals, according to data by industry group Lavca, formally the Latin American Private Equity and Venture Capital Association.
Potential deals may focus on sectors and companies that are resilient to economic downturns and whose management is savvy enough to ride out tough cycles, David Mussafer, Advent’s managing partner, told Reuters on Tuesday.
Bankers at the summit cited primary and secondary schools across Brazil’s largest urban areas, hospitals and health clinics, pet shop chains and financial services firms as potential targets for private-equity buyouts.
Infrastructure, a sector in need of capital, could lure private-equity money too, said Luiz Eugenio Figueiredo, an ABVCAP vice president who is also an executive at BNP Paribas Investment Partners.
New money from investors would bolster the buyout industry’s ability to step up acquisitions, said Duncan Littlejohn, who helps oversee StepStone Group LP’s businesses in Brazil.
The successful round of fundraising that helped Advent, Blackstone Group LP’s partner in Brazil, and other firms fetch a record $10.4 billion for their Latin American investments last year could continue in 2015, although at a slower pace, executives said.
Littlejohn estimates that clients could pour up to $13 billion into private-equity investment vehicles if conditions in Brazil improve and risk appetite remains high. He based his calculations on the life cycle of a variety of funds that could have to return money to their clients this year and next.
EY’s Asciutti estimates that $5 billion could be raised from investors for Brazil-dedicated investments this year. Private-equity firms could cash out a similar amount in Brazil in the form of divestments to peers or multinational firms, he said. (Reporting by Guillermo Parra-Bernal, Editing by W Simon)