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LAVCA in the News

Investments in Brazil Rose Last Year, Study Says

24 February 2014

(Dealbook) RIO DE JANEIRO — Despite its economic woes, Brazil experienced an increase in private equity and venture capital investments in 2013 over the year before, the Latin American Private Equity and Venture Capital Association said on Thursday, in presenting itsannual survey.

In 2013, a total of $6.04 billion was committed to Brazil, compared with $5.7 billion in 2012. Investments in Latin America also increased, to $8.9 billion, up 13 percent from the $7.9 billion in 2012. The region had 233 deals last year, a slight drop from 237 in 2012.

Oil, gas and energy were the most popular sectors in terms of dollar volume. The region’s information technology sector continued to ascend, accounting for 48 percent of the number of deals, though only 7 percent of dollar volume.

In fact, start-up activity remains robust. The number of venture capital seed, early and expansion investments in the region in 2013 was 111, just one fewer than in 2012, and that is even as many companies over the past year have shut down and others struggled to reach profitability.

The total dollar amount invested for the region is the highest that the association, which is based in New York, has reported since it started monitoring in 2008, its chairman, Patrice Etlin, said. He presented the findings on Thursday at the yearly Super Return Latin America conference being held in Rio de Janeiro.

At the same time, fund-raising in the region stalled last year, in part because many companies continued to spend capital they had raised in past years. Brazil raised $2.4 billion last year, a 35 percent decline from the previous year.

The region as a whole raised $5.5 billion, a little below the $5.6 billion raised in 2012 but far under the $10.3 billion high-water mark in 2011.

Emerging markets are facing tough times. Brazil, in particular, has struggled to recover the darling status it once held. As one indicator, this week’s Super Return Latin America meeting is taking place in a conference room significantly smaller than the one used last year.

Growth in Brazil has been sluggish, inflation is a growing concern and the country’s fiscal accounts are worsening.

On Thursday, Guido Mantega, Brazil’s minister of finance, said the government would lower its estimates of the primary budget surplus this year to 1.9 percent of gross domestic product and cut 44 billion reais in spending (roughly $18.5 billion).

Still, for some investors, tough times often present opportunities.
In an interview on Thursday, Mr. Etlin said, “I expect this year to be a strong one in terms of capital deployment, at least at same level of 2013.” He said that is, in part, thanks to lower valuations, less competition and also a depreciating currency.

Mr. Etlin, who is also a managing partner at the private equity firm Advent International, added: “I believe we are going to begin to see fund-raising pick up again this year. Levels should be greater than they were in 2013, but not at as high as in 2010-11 levels.”

Brazil continued to lead the region, accounting for 68 percent of 2013 investments in dollar volume, a small drop from 72 percent in 2012.

A year ago, some speculated that Mexico could benefit from Brazil’s troubles, but that does not appear to be the case.

Mexico saw a slight drop in investment dollars last year, to $632 million from $684 million in 2012. But the number of deals increased to 30 last year from 21 the year before.

Fund-raising in Mexico, meanwhile, grew significantly, to $1.044 billion last year. The Andean region, including Colombia and Peru, also had a significant jump in fund-raising, to $1.378 billion.

Mr. Etlin was optimistic about the coming year for Brazil. “I expect Brazil to take a larger share of region in both fund-raising and investments,” he said.