Last year was a banner year for Brazilian investment bank BTG Pactual SA. The firm, which also invests in private equity, raised one of Latin America's largest PE funds, closing on $1.6 billion, nearly 15% of the record $10.3 billion raised in the region. Within months, it had negotiated a merger with Chilean counterpart Celfin Capital in a $600 million transaction, making it the largest investment bank in Latin America.
More recently, BTG once again captured headlines, not entirely for good reasons. Last month its CEO and founder, Andre Esteves, was fined by Italian financial regulators for insider trading, on the eve of BTG's initial public offering on Brazil's Bovespa. Still, despite the negative news -- and complaints about the high price of shares, as local press reports indicated -- its IPO sailed through, overcoming as well the prevailing market jitters, attributed to Brazil's slowing economic momentum.
BTG's listing was priced at a midrange 31.25 reais per share. All told, it raised about $2 billion in proceeds and conferred a $14.4 billion valuation on BTG in the country's first investment bank listing. After the IPO, BTG Pactual Holding SA retained about 75% of the investment bank's shares, worth about $1 billion.
The IPO was seen as a big plus at a time when the firm is poised for rapid expansion in the region. "BTG Pactual is now a significant financial institution, while other [private equity] firms are more focused on asset management," says Cate Ambrose, executive director of the Latin America Venture Capital Association.
The successful listing was "a significant step in demonstrating that it can raise capital in the Brazilian equity markets to support its growth strategy," Fitch Ratings said.
It was a coup for billionaire Esteves, who sold what was then Banco Pactual SA to UBS in 2006 for $2.6 billion, then bought it back in 2009 for $2.5 billion. Esteves then merged it with an emerging-markets asset manager he founded in 2008. J.C. Flowers & Co. LLC, with three sovereign wealth funds and other institutional investors, took an 18.6% stake in December 2010 for $1.8 billion.
With a freshly minted, well-capitalized fund, BTG aspires to make inroads in private equity, which includes real estate and infrastructure. Private equity accounted for only $2.2 billion of the bank's $70 billion total assets under management as of Dec. 31. (Before raising a fund, the firm invested through its merchant banking unit.)
Unlike other banks that have spun out their PE units -- Banco Santander Brasil SA spun out Mantiq Investimentos in January, for example -- BTG says part of the IPO proceeds will be passed on to its private equity arm so it can "invest in private or publicly traded companies."
From what can be gleaned from its investment in pharmacy chain Brazil Pharma, the firm appears to be leveraging its investment banking capabilities to boost fee streams from alternative assets. In September 2009, soon after Esteves bought back Pactual from UBS and before raising a fund from outside institutions, BTG acquired São Paulo-based drug chain Farmais SA as a platform investment. Its premise was a no-brainer: the growth of over-the-counter and prescribed medicines as Brazil's population ages and life expectancy increases.
The chain, renamed Brazil Pharma, had 430 stores. Brokerage firm Fator Corretora SA said the company had R$670 million ($284 million) in 2008 revenue. By the end of 2011, the business had grown organically and through acquisitions to 737 stores. Revenue last year stood at R$1.1 billion, up 24% from 2010.
Last year BTG took Brazil Pharma public, serving as bookrunner. In the June IPO, Brazil Pharma issued 24 million shares at R$17.25, within the expected R$16.25-R$19.25 range. The company, among the last issuers to debut on the Bovespa, raised R$414 million. (It's unclear how much equity BTG injected into Brazil Pharma. The 13% stake BTG's PE fund, FIP BTG II, has in Brazil Pharma is valued at around $140 million.)
No doubt Esteves has ambitious plans for PE, which will likely expand beyond Brazil. The pace of investing appears to be accelerating. The firm took a stake in barcode label maker CCRR Participações SA in November; partnered with Templeton Asset Management Ltd. in December to buy an interest in Brazilian parking company Estapar; and bought a 30% stake in a fitness club chain in April. And that looks like just the start.
Taina Rosa covers private equity for The Deal magazine.