(Reuters) February 8, 2012 – BTG Pactual, the Brazilian securities firm owned by billionaire financier Andre Esteves, is buying Chilean rival Celfin Capital for about $600 million as it seeks to win more investment banking and capital market advisory business in South America.

Under the terms of the deal, Esteves and his partners will pay $245 million in cash and give Celfin’s owners a 2.4 percent stake in BTG Pactual. The takeover makes BTG Pactual the largest independent investment bank in Latin America, further extending its reach into fast-growing economies like Chile, Peru and Colombia.

Since it was formed it 2009, BTG Pactual has been on a deal-making frenzy in Brazil and abroad as Esteves, a 43-year-old financial wunderkind, strives to turn the firm into the largest investment bank in emerging markets by the end of the decade.

“The global agenda for Latin America is gaining relevance in terms of investment inflows, and our goal is to become regional leaders,” Esteves told reporters at the bank’s headquarters in São Paulo’s financial district.

BTG Pactual and Esteves himself have become a symbol of Brazil’s growing economic might, competing neck-and-neck with big global investment banks in a region with bustling capital markets and booming demand for wealth management services.

The bank has the financial muscle to undertake bigger takeovers going forward as a $1.8 billion stake sale to a group of investors led by sovereign wealth funds late in 2010, a low payout ratio and swelling trading and dealmaking profits, have beefed up cash holdings, Esteves said.

“We have enough capital for acquisitions,” he said, without elaborating. Esteves spoke besides senior partner Pérsio Arida, a Brazilian economist credited with helping the government tame hyperinflation in the mid-1990s.

A source with direct knowledge of the transaction told Reuters that BTG Pactual agreed to pay $600 million for all of Celfin, which would value the stock portion of the deal at about $355 million. The deal valued BTG Pactual shares at about three times book value, said the source, who is not allowed to speak publicly on the matter.

Based on such numbers, the Celfin deal would value BTG Pactual at about $14.8 billion, almost 50 percent more than the $10 billion valuation it got in December 2010, when investors led by buyout firm JC Flowers & Co, the two largest Asian sovereign wealth funds and the largest Middle Eastern sovereign wealth fund, bought 18.6 percent of BTG Pactual.

BANKING PRODIGY
Esteves, a mathematician who started as a computer technician at now-defunct Banco Pactual at age 21 before rising through the ranks to become its managing partner, sold the firm to UBS AG in May 2006 for about $3.1 billion. He and some partners bought back Pactual for about $2.5 billion in 2009 and formed BTG Pactual.

Esteves, alongside senior partners and some of BTG Pactual’s 1,300 employees, will own 80 percent of the firm after the Celfin deal. Forbes Magazine calculates Esteves’ net worth at about $3 billion.
He and his partners have long considered an initial public offering to bulk up the bank’s capital, but postponed the plans because of volatility in global markets. Last December, he said an IPO was still possible in the medium term, without elaborating.

At the news conference, Esteves said BTG Pactual is growing regionally because a “flatter and more integrated world” is demanding regional banks to gain a global character. The ability of BTG Pactual to lure more investment inflows into Latin America will depend “on us building up a strong regional franchise with global reach,” he said.

The deal, which has been in the works since at least August, may give BTG Pactual the proximity it needs to win investment-banking and capital markets advisory mandates in Peru, Colombia and Chile – thanks to Celfin’s contacts with companies and governments there, Arida said.

TOP BRAZIL M&A ADVISOR
The purchase still requires regulatory approval. Once the deal is completed, Celfin’s 15 main shareholders will become BTG Pactual partners.

With Celfin, BTG Pactual will have 129 billion reais ($75 billion) in assets under management and handle about 49 billion reais for wealthy investors.

In 2011, BTG Pactual topped merger and acquisitions advisory rankings in Brazil for the second year in a row, as its focus on retail and other fast-growing segments resulted in $24.05 billion worth of announced deals, according to Thomson Reuters data.

The firm advised on 52 deals last year. About $78.64 billion worth of deals were announced in Brazil last year, down from $120.61 billion in 2010, while the number of agreements rose to 745 from 698.
BTG Pactual’s investment-banking unit helped the controlling shareholders of brewer Schincariol sell a 50.45 percent stake to Japan’s Kirin Holdings for $2.5 billion.

The bank also advised Italian-Argentine giant Techint Group on its $2.9 billion purchase of a 27.7 percent voting stake in Brazilian steelmaker Usiminas.

By Guillermo Parra-Bernal and Aluisio Alves