Brazil PE Not Scared of Overinvestment

Private equity funds still see ample opportunity in Brazil despite the large amounts of money being deployed there. The vaguely defined “middle market” is still the sweet spot while new international firms have set up shop there amid expectations that valuations may be heading lower. Advent International’s Patrice Etlin estimates there is somewhere around $11bn in PE money available for Brazil at the moment. “Yes, it is a record number for Brazil. There has never been so much money and interest, but we are not in a situation like those found in other very hot emerging markets such as China, and it’s still far from the amount of capital committed in the US and other developed markets. If you compare it to the size of the broader Brazilian economy, it is still a relatively modest number,” Etlin tells LatinFinance. “There is a lot of opportunity in the $25m-$50m ticket space,” says Chris Bruneau, executive director at 57 Stars, an EM-focused fund of funds. “There are five to seven groups trying to raise money in that space. Even if they raise all of the money they hope to, there is going to be a pretty open market for PE in Brazil. There are a lot of opportunities.” Valuations have moved up in general, but this has occurred more at the top end of the market, Bruneau explains. However the slowdown in Brazil over the last three to six months has raised expectations that valuations should come down a bit. “We are moving toward a period of price adjustment and we expect to see the value reduction we’ve seen in the public markets migrate to private transactions. It hasn’t happened yet, so as a result we are currently seeing much less investment activity in private deals,” Etlin says. Meanwhile, Marcelo di Lorenzo, head of 3i Brazil, sees the middle market also having to accept lower valuations despite expectations to the contrary. ““In the middle market, the expectations could go up, but it is not as strong as in the higher-ticket deals. The companies soon realize that they