Partners Business Council

Market difficult time – Good time for shopping

Market difficult time – Good time for shopping

artigo luiz_2015 abril

With so many available offers it is recommended to differentiate themselves to be more attractive to Private Equity Funds.

As we commented in the article published last February, “Sailing is necessary”, the Food & Beverages industry in Brazil comes from one year and a half of stagnation and will face the next two years of difficult situation.

If we look at the chart below, the total market for Mergers & Acquisitions – in this case dominated by investment banks Itaú BBA, Credit Suisse and BTG – in 2015 should maintain at least the 2014 level, which until Sep / 2014 reached $ 46.5 billion (36% higher than 2013) and closed the year at $ 56.2 billion.

Mergers & Acquisitions – 1993 – 2014e – Brazil (nr. transactions and value USD YTD)


Grafico_artigo 2015-04 Luiz
Source: Thomson Financial, Institute of Mergers, Acquisitions and Alliances (IMAA) analysis

In 2014, the participation of Private Equity Funds was less robust, with $ 6 billion in business until September, half the volume of 2013. However, along the second half of 2014, the leading Private Equity Funds in Brazil (Gávea, Advent and Pátria) substantially increased their fundraising to about $ 9 billion, according to JP Morgan.

It is expected that due to the economic recession and the significant worsening of operating results, the main shareholders (owners) from local companies in different sectors are more likely to sell all or a substantial part of its business.
The projection concerning the exchange rate value made by Private Equity Funds was anticipated in many months. Already in 2015 first quarter, the weaker Brazilian Real (BRL), especially against the US Dollar (USD), has made cheaper the assets by about 20% to foreign investors.
The Private Equity Funds should act more intensively only from the 2nd half of 2015, because they expect a further decline in the value of assets and an increased need for cash by the local companies.

So to main shareholders (owners) of local companies in the Food & Beverages industry basically are placed the following points:

(a) You believe in your company and have the resources.
You must invest in the reorganization of the Business Plan, in the professionalization of management and in the financial balance to face tough 2 years.

(b) You do not believe in business or no longer have resources.
You must invest in the company s operational organization to sell for better value and be more attractive to investors.

As can be noted, in any one of two options, the need for investing in professionalism is critical.
In first option, to reorganize the company and strengthen the business to get through the economic crisis and improve its capacity to generate earnings and cash flow. Or in the second option, for the company to calling attention of Private Equity Funds by differentiate itself from others offerings available on the market and to the better understanding of its own intangible assets value.

Typically, value assessments for SMEs are limited to fixed assets, tax liabilities, legal and accounting problems. It is worth mentioning here that in the Food & Beverages sector intangible assets have considerable value when compared to other economic sectors. The reason is that eating habits are strongly conservative due to cultural base (traditions); therefore, the high importance of brands in this industry. The intangible assets act as entry barriers (usually a new group in the market or a country need to make the acquisition of a traditional local company).

Article author: Luiz Azevedo

BSc Chemical Engineer, MBA Marketing, MSc Economics, Director of Profiler Business Consulting, Partner PBC – Food & Beverages Consultants.