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Banking

Brazil: Time is money for new banks

BR Partners enters investment banking; Acquisition route proves quickest

BR Partners should become Brazil’s newest investment bank before the end of the year after it announced that it was buying Banco Porto Seguro. Since BR Partners opened in 2009 the financial advisory firm has planned to begin capital market transactions in Brazil and had applied to the Brazilian central bank in 2010. However, with the central bank prioritizing its time in its attempt to oversee an orderly consolidation of the banking system’s weaker small banks, BR Partners had to buy another bank to get its licence or face a long wait to begin the next stage of its development plans.

“We have 65 employees and we will go up to 100 when we bring in people for the brokerage and back-office operations. Before we had the head and the brains – now we need the arms”

Andrea Pinheiro, BR Partners
Andrea Pinheiro, partner and COO of BR Partners

The motivation for the acquisition of Banco Porto Seguro, which is in liquidation, is simply to get a banking licence: no personnel or important assets or liabilities are part of the deal, according to Andrea Pinheiro, partner and COO of BR Partners. "The central bank informed us that it is focusing on [bank] acquisitions rather than approving new institutions," she says. "The line to get a new institution is very lengthy so [this acquisition enables us to] jump-start our underwriting business. Because the bank is in liquidation the central bank wanted this deal to be done, so looked at it with good eyes – that’s why we are getting it approved so fast." Licence to acquire

The central bank is effectively requiring new banks to obtain licences through acquisition as part of its strategy to promote consolidation in the sector to remove weak banks. Plural Capital, a financial advisory firm led by former BTG Partners Rodolfo Riechart and Andre Schwarz, is also looking to buy a bank to obtain a licence after its acquisition negotiations with Rio-based Banco Modal broke down. Plural wouldn’t comment on the collapse of these talks but it is believed the parties couldn’t agree on a valuation and there was also a concern on the part of Plural that outstanding litigation against Modal could delay the approval of the deal, and therefore delay its plans to begin its equities underwriting business.

Pinheiro says BR Partners will also be focusing on equity capital markets in January next year when it begins to operate as a bank, before it will consider entering into the domestic debt capital markets in the second half of 2012.

"Becoming a financial institution is a very important step from us," says Pinheiro. "We have been working for the last few months to build a structure that will make us operational at the beginning of the year. We have been working with creating the systems and buying the technology." The firm has already hired senior banker Sérgio Carbone from Credit Suisse to manage custody and settlement operations and has also recruited two bankers to begin working on generating a pipeline of IPOs. Pinheiro expects more hires will soon follow. "It’s important to start visiting the companies that will be in the market in a year or two," she says. "We currently have 65 employees and we will go up to 100 when we bring in people for the brokerage and back-office operations. Before we had the head and the brains – now we need the arms."

To date, BR Partners has been focusing on advising on M&A transactions and has completed 11 transactions in 2011. The firm advised Carlyle Group on the acquisition of Grupo Qualicorp, a Brazilian health plan administrator, and also advised Magazine Luiza’s acquisition of Lojas Maia. Pinheiro says the pipeline is "very healthy" for next year.

BR Partners also raised a $200 million private equity fund. The strategy of the fund is to take minority stakes in companies with good growth potential and then either take them through an IPO or a private sale. However, the fund, which was launched a year ago, has yet to make an acquisition, as valuations for Brazilian companies have been high. "The fund hasn’t made any investments because assets are very expensive," says Pinheiro. "We are waiting for good opportunities and we are looking at a lot of things right now, but it will all depend on the price." The current slowdown in Brazil – GDP is forecast to be about 3.5% this year compared with 7.1% in 2010 – could make companies cheaper but Pinheiro says she has yet to see any signs of lower valuations. "Sometimes the information that is in the financial system takes a little time to come through to the real sector, so people still have expectations that are a little high," she says. "But hopefully it will begin to [feed through into lower valuations] which will allow us to get good opportunities for the private equity fund."

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