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| BB Seguridade’s $5.74 billion IPO | |
| Global coordinators and joint bookrunners | BB Investimentos, JPMorgan, Bradesco BBI, Itaú BBA, BTG Pactual and Citi |
| Joint bookrunners | Brasil Plural and Banco Votorantim |
| return to the Deals of the Year 2013 index | |
After a lousy 2012 for Brazilian equities, followed by an unpromising start to 2013 and a deterioration in investor sentiment towards Brazil’s macroeconomic environment, it was perhaps surprising that the world’s biggest IPO of the year was from Brazil. And the spin-off of BB Seguridade – Banco do Brasil’s insurance division – was also one of the best-performing IPOs. Proof, if it were needed, that deals that are priced and marketed well succeed in Latin America’s largest market.
“[The sale of BB Seguridade had been] under discussion since 2008 as a way to unlock value for Banco do Brasil and to create an open, standalone capital structure for BB Seguridade, which was facing the opportunity for strong growth,” says CFO Leonardo Mattedi. The strategy paid off: Banco do Brasil’s market value increased by 17.6% between the public announcement and the IPO pricing, resulting in an increase in the bank’s trading multiples from 6x expected 2013 earnings to 7.1x. The equity value of BB Seguridade also leapt from an implied equity valuation pre-offering of R$14.2 billion to R$35 billion after the flotation – a 150% increase. And as Banco do Brasil remains the largest shareholder with 62.2%, it captures much of that increased equity valuation.
Brazil’s equity market had faced pulled transactions and very few were hitting their valuation ranges. It was in this environment that Banco do Brasil tested its marketing proposition and decided to sell. According to one bookrunner the bank’s decision to proceed was “brave”. “The conditions in 2012 weren’t suitable, but as we entered 2013 we thought that despite the slightly deteriorating sentiment about Brazil’s macroeconomic environment we had such a strong story that we would be able to generate interest,” says Mattedi. “The proof that we were right was in the allocation of foreign investors, who took 65%. The decision to go in the first semester proved to be correct because I don’t think we would have been able to conduct the deal in the second half of the year as volatility increased significantly and would have impaired our ability to get the deal done at the price we were targeting.”
There was, according to Mattedi, just a small impact on valuation: “In the end we sold at a level that was a little bit below where we wanted to, which would have been at the top of the range, but I think we got a good price. Using the comparables to BB Seguridade we achieved a high premium, and the fact that the price has risen is good for investors – including Banco do Brasil [which is the majority shareholder].”
In the end the $5.7 billion-equivalent was the world’s largest IPO of 2013 and was the second-best performing – the stock rising by 44.3% by the end of the year. The transaction also claimed a number of firsts: Banco do Brasil was the first Brazilian bank to list its insurance arm and this was the first spin-off of a wholly owned subsidiary in the sector. It is also the first full-spectrum insurance company to list in Brazil, with a distribution model that is based on bank assurance, brokers and affinity channels. It was this business model that, according to Renato Ejnisman, managing director of Bradesco BBI, one of the lead bookrunners on the transaction, enabled BB Seguridade to price at a 40% premium over local peers. “Banco do Brasil is the biggest bank in Brazil and it has a very solid brand name, and investors liked the synergies with the bank and the brokerage,” says Ejnisman, who says the deal also “ticks a lot of boxes for international investors. It was large, it is exposed to the consumer and financial sectors, has good ROE and is asset-light.”
Ejnisman says that the deal creates the precedent of a successful spin-off that other Brabanks with similar structures with their insurance companies will study, notably Bradesco, Itaú and Santander.
Mattedi believes that the deal’s statement goes wider than its sector and is a timely boost to the Brazilian equities market: “The success of the deal shows the strength of the growth opportunities for BB Seguridade and the belief investors have in our potential,” he says. “But there are lots of good companies and opportunities throughout Brazil and in many different industries. Infrastructure, for example, will be just one of many sectors that will attract international capital to growing companies in the next few years.”
