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Overview of Private Equity & Venture Capital in Brazil Breakfast Seminar

Overview of Private Equity & Venture Capital in Brazil Breakfast Seminar. New York – November 2008 Luiz Eugenio Junqueira Figueiredo, Chairman ABVCAP. Agenda. ABVCAP PE&VC – Economic Importance Brazil: An Enabling Environment Brazilian PE&VC Industry Conclusions. ABVCAP. Who Are We.

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Overview of Private Equity & Venture Capital in Brazil Breakfast Seminar

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  1. Overview of Private Equity & Venture Capital in BrazilBreakfast Seminar New York – November 2008 Luiz Eugenio Junqueira Figueiredo, Chairman ABVCAP

  2. Agenda ABVCAP PE&VC – Economic Importance Brazil: An Enabling Environment Brazilian PE&VC Industry Conclusions

  3. ABVCAP Who Are We • The Association of the Brazilian PE & VC industry Our Mission • Promote and develop long-term investments in Brazil Membership • 100+ including PE & VC managers, LPs, invested companies and service providers

  4. PE&VC Economic Importance - USA Fonte: NVCA 4

  5. PE&VC Economic Importance - USA Fonte: NVCA 5

  6. Brazil: An Enabling Environment….. World-ClassCorporateGovernance DevelopedCapital Markets Favorable Macroeconomics AttractiveInvestmentOpportunities Viable ExitOptions DevelopedInstitutional &RegulatoryLandscape QualifiedHumanResources Source: Monitor Analysis

  7. …..with typical challenges of emerging markets Some companies still reluctant to good Corporate Governance Limited funds for PE & VC Internal Debt and Interest Rates Slow legal system Labor laws

  8. Enabling Environment….. Favorable Macroeconomics • Investment Grade • Stable economy de-linked from politics • Falling interest rates and country-risk • Social inclusion of low-income families Source: BACEN; Social Security Ministry; IBGE ; CVM; Interviews with PE / VC specialists; BOVESPA; ANBID; BEST

  9. Enabling Environment….. Favorable Macroeconomics • Improvement in the recent years, today Brazil is stronger and less vulnerable to external crises. • Investment Grade • GDP growth; • Inflation down, interest rates falling and trade surplus; • International reserves are increasing and FDI is growing; • Still needed adjustment of public accounts; • Important legal and tax system reforms under discussion; • The Federal Program, PAC (Growth Acceleration Plan), which projects to invest more than US$ 250 billion in the infrastructure sector in the next 5 years;

  10. Enabling Environment….. Developed Capital Markets • Pension Funds Assets represents 16% of Brazilian GDP (2005) • Alternative Investments mixed within the Equity and Real Estate classes • Pension Funds may allocate up to 20% of total assets to alternative investments • SPC Regulatory Review • Pension Funds Assets (US$ billion) Source: Social Security Ministry; CVM; Interviews; BOVESPA; Monitor Analysis

  11. Enabling Environment….. World-Class Corporate Governance • Stock Exchange • Regulation • Private Institution

  12. Enabling Environment….. World Class CG ‘Novo Mercado’ • Highest Corporate Governance requirements in BOVESPA • Information disclosure and standards • IFRS or US GAAP • Protection to minority shareholders • 100% tag along • All stocks with voting rights • Minimum free float: 25% • Mandatory use of arbitration • 3 levels of world-class corporate governance standards (1, 2 and ‘Novo Mercado’) Stock Exchange • Advanced regulation on disclosure and shareholders’ rights = Public Companies and PE & VC Funds Brazilian Securities & Exchange Commission Brazilian Institute for Corporate Governance • Established in 1995 by demand from the market • Develops and Recommends CG programs Most restrictive levels of CG represents 60% of the Market Cap and Daily Volume Source: BOVESPA; CVM; Brazilian Institute for Corporate Governance (IBGC)

  13. Enabling Environment….. Developed Institutional & Regulatory Landscape • Independent Institutions • Legal System • Financial Market Structure • Coordinated Public and Private Efforts

  14. Enabling Environment….. Developed Institutional & Regulatory Landscape Independent Institutions • Central Bankand Securities Commission are autonomous • Stock and Futures Exchanges arelisted Legal System • Legislationfor investors fully reviewed (1999 / 2000) • Reduced legal and credit risk for investors • New “Bankruptcy Law” made investments safer • Favorable tax regime* for foreigner investors Financial Market Structure • Solid and safe financial infrastructure: around 2,500 institutions • Electronic payments system – compliance with BIS • Brazil follows all20 recommendations of G30 regarding custody, settlement, payments system and data security • Fostering innovation and industrial development • FINEP – Inovar Program • BNDES – focused PE/VC department • ABDI/MDIC – Productive Development Police (PDP) Coordinated Public and Private Efforts Source: ANBID; Bacen; BEST 2006; Brazilian Company for Custody and Liquidity (CBLC); CVM Note: *Except countries considered tax havens by Brazilian Tax Authority

  15. Enabling Environment….. Qualified Human Resources • Experienced and skilled Fund Managers • Wide availability of qualified Managers and other personnel for Portfolio Companies

  16. Enabling Environment….. Qualified Human Resources PhD >20 yrs Other Entrepreneur >15 yrs Graduate Consultant >10 yrs High Executive Extension >5 yrs Undergrad Financial Mkt / Auditor High School Source: ANBID; MCT; IBGC; FGV; Monitor Analysis

  17. The Enabling Environment in Brazil World-ClassCorporateGovernance DevelopedCapital Markets Favorable Macroeconomics AttractiveInvestmentOpportunities Viable ExitOptions DevelopedInstitutional &RegulatoryLandscape QualifiedHumanResources 17 Source: Monitor Analysis

  18. Attractive Investment Opportunities Regional Growth Sectors • Infrastructure - US$ 30 billion need • Real Estate – HousingDeficit 8 million • IT - US$ 19 billion in 2007– IDG • Biotechnology • Tourism • Telecom • Retail • Agribusiness • Biomass • Ethanol - 26 billion liter by 2010 • Green Beef • Grains • Arable land and favorable conditions SE TO MT GO GNP (%) MG MS PA MA BA RS AM PR SC RJ DF ES SP GNP (US$BB*) – logarithmic scale Source: MCT; Merrill Lynch; IBGE; Global Entrepreneurship Monitor; IDG; Monitor Analysis * US$ constant 2000

  19. Viable Exit Options Net Revenues 2005 (US$ million) Investment (US$ million) Company Sector Time to Exit Estimated IRRs in US$ Equatorial Energy 273 2 years 11 481% 1,100 26 GOL Airline 1 year 242% 90 16 TOTVS1 IT <1 year 199% 217 100 DASA Medical Services 5 years 40% IPOs 172 83 Submarino E-commerce 6 years 38% 202 36% 78 Gafisa Construction 9 years 2,317 77 TAM Airline 8 years 26% 70 ALL Logistics 7 years 22% 202 Localiza Car rental 350 8 years 49 9% n/a 130% n/a Akwan IT 4 years 137 2,5 Autotrac Logistics 7 years 32% Trade-Sale 353 Atrium Telecom 4 years 20% 20,5 Microsiga2 IT n/a 6 years 7 12% Source: Press Clippings; Company websites; Interviews; Monitor Analysis; Brazilian Capital Markets and Private Equity (R. Freitas, P. Passoni); Note: 1 BNDESPar; 2) Buyback; 3) 2004

  20. Brazilian PE & VC Industry Brief History Mid 90’s Future 1999 2004 • 8 managers in 1994 • Real Plan • Privatizations • Dot-coms • Mostly investment banks • Followed by: • Global VC/PE funds • BNDES (1996) • Brazil = key market for international investors • Investment peak • 45 managers in 2000 * • Economic slowdown • Global factors: • Internet bubble burst • Argentina default • Local factors: • Devaluation (1999) • Energy crisis (2001) • Elections (2002) • Small investments, no exits • Int’l LPs divested too early • Improvements in legislation and corporate governance • Renewed interest in PE & VC • By local investors • By entrepreneurs • Several successful IPOs • New vintage of funds • local LPs • More stable Economy • Falling interest rates • Falling country risk • Positive impact of the institutional changes • Corporate governance • Legal improvements Source: Private Equity and Venture Capital in Brazil – 1st Census – FGV / GVcepe; ABVCAP; Monitor Analysis * Includes only fund managers that existed in 2004

  21. Brazilian PE & VC Industry Main Figures • US$ 16,72 billion of committed capital (Jul/07) Limited Partners • 89 PE&VC firms • 153 funds • 984 professionals (357 partners) General Partners • 404 portfolio companies • 194 new investments between 2004 and 2007 • 28 IPOs between 2004 and 2007 Companies

  22. Brazilian PE & VC Industry Source: GV-CEPE Impressive Recent Growth 22

  23. Brazilian PE & VC Industry Surprising updated figures to be released in two weeks 23

  24. Brazilian PE & VC Industry Source: GV-CEPE Attractive Pos-IPO Performance 24

  25. Brazilian PE & VC Industry Source: LAVCA Well Positioned 25

  26. Conclusion Brazil offers an enabling environment for PE&VC • Favorable Macroeconomics • Developed Capital Markets • World Class Corporate Governance • Developed Institutional & Regulatory Landscape • Qualified Human Resources with sound investment opportunities • In different regions • Across different sectors • Consolidation of fragmented sectors • Distressed assets • Economic inclusion and viable exits • IPO • Trade Sale • at attractive returns

  27. Thank You ! Luiz Eugenio Junqueira Figueiredo Chairman Associação Brasileira de Private Equity & Venture Capital www.abvcap.com.br

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