Foreigners inflating assets…

Private Brazilian businesses have surged in value in thepast two years as international investors pour money into one ofthe world’s fastest growing major economies, although growth in the second halfof the year slowed more than analysts estimated. A managing partner at private equity firm Tarpon said the following (via Bloomberg):

“Prices on private deals have increasedtoo much in the pressure of competition,” he said, yet private-equity firms have to invest in Brazil “no matter what” becauseclients are demanding it as opportunities elsewhere dry up. 

Asset inflation…

Private-equity firms including Carlyle Group and TPG Capital are opening offices in Brazil to take advantage,driving up prices. Closely held mid-sized companies in Brazil can be boughtfor about 10 to 14 times Ebitda, but three years ago the figurehad been about 6 or 7 times Ebitda.

“My clients have been complaining about these newvaluations,” Crider at Simpson Thacher said. “About seven newinternational funds have been investing in Brazil in the lasttwo or three years as the opportunities in Europe and UnitedStates dwindle.” 

According to market insiders, private-equity firms have about $10 billionto invest in Brazil through dedicated funds in the next two tofour years, but “there aren’t enough good private projects for all thisprivate-equity money that needs to be invested in Brazil.” 

A rising favorite: “this time is different”… 

“The biggest celebrity in M&A; deals in coming years will be private-equity firms,” said an M&A; lawyer. “There is a lot of movement from private equities, which have a huge appetite.”

“There is no point to look for investments paying four orfive times Ebitda, which were more usual in the past,” said another analyst. “ClearlyBrazil has changed.” 

Tagged with:  
Share →