Panel session: Brazil overheating – myth or reality?

Moderator:

Duncan Littlejohn, Managing Director, Paul Capital

Panelists:

Jason Cipriani, Partner, Sterling Stamos

Cesar Collier, Managing Director, Siguler Guff

Joao Marcelo Leite, Partner, CRP Companhia de Participacoes

Fernando Borges, Managing Director, Head of South American Buyouts, Carlyle Group

“Is there a bubble in Brazil?”

Cesar says that the industry is very disciplined. Asking prices sometimes are very high and overpriced. Entrepreneurs many times are proud of their companies and expect a lot of money. He thinks Brazil is going to look more like China than India in the future. Brazil has favorable tailwinds like demographic surplus, the Olympics and World Cup and many more factors. PE is one of the ways to take advantage of these positive factors.

Jason says there are pockets of places with over activity, but there are a lot of good opportunities. There has been a natural evolution and maturity PE market in Brazil. Firms will have to diversify their bets. There will be more flow into the smaller end of the markets. Brazil has pockets of heat. People will overreach for some deals, if they cannot find good deals.

Fernando agrees that everything is expensive. However, companies in Brazil are improving. The companies today are much better than they were ten years ago. Risk of investing in Private Equity in Brazil has gotten much lower as well. Investors need to stop looking for bargains. They need to know when they can pay more for the asset. The investor has to know that they can really improve the company and make it a worthwhile investment. Brazil is not overheating, but maturing. More LPs and more GPs are coming to the region. They are coming because Brazil is attractive.

Joao thinks that it is a learning process for the young entrepreneurs that PE firms are trying to buy. They have to tell them that the investors are the ones who will take the risk.  Says Brazil is not overheating, there are still a lot of good deals possible. However, parameters are higher and they will influence negotiations.