Itau’s Kinea Plans Sales as Brazil’s IPO Market Rebounds

Itau Unibanco Holding SA’s investment boutique, Kinea Investimentos Ltda, is planning to take public two of its holdings as the market for initial public offerings in Brazil rebounds.

Kinea will sell shares in Grupo Multi Holding, Brazil’s largest English school chain, and Unidas SA, the nation’s second-biggest car-rental company, as soon as this year, according to Cristiano Gioia Lauretti, head of private equity and a partner at Sao Paulo-based Kinea.

“Those companies are our early investments and we think it’s time to start divesting,” Lauretti said in an interview. Kinea’s buyout fund only acquires minority stakes, he said.

Brazil’s IPO market is bouncing back this year after just three companies went public in 2012, raising $1.8 billion, the lowest value since 2004. Companies have completed six IPOs totaling $7.3 billion since January, including the world’s biggest this year, BB Seguridade Participacoes SA’s $5.67 billion deal in April. The rebound came even as Brazilian stocks sank, with the benchmark Ibovespa index down 12 percent this year, the worst performance among major emerging markets.

Kinea’s buyout fund acquired 21 percent of Grupo Multi in December 2010 for 200 million reais ($94 million). A week later, Grupo Multi purchased a chain of schools under the Yazigi brand for 100 million reais, and now owns more than 3,000 schools.

Unidas Stake

Kinea became a minority investor in Unidas along with funds managed by Gavea Investimentos Ltda and Vinci Capital Partners in June 2011, when SAG Gest-Solucoes Automovel Globais SGPS SA, a distributor of Volkswagen AG cars, raised 300 million reais in capital. Amadora, Portugal-based SAG remained the majority shareholder as Kinea bought a 100 million-real stake.

Jose Guilherme Souza, a partner at Vinci Partners in Sao Paulo, said his firm is also considering taking public one of the companies in which it owns a stake. He declined to identify which one.

“This is something we are considering so we are working to have something solid for the right moment,” Souza said in an interview. “The damage of presenting something that isn’t ready is too great. If we go to the market, it’s because the company is ready.”

Kinea has already invested 540 million reais of its 1.4 billion-real private-equity fund, Lauretti said. It plans during the next two to three years to buy stakes in five to seven companies linked to the consumer sector, including retail, health, food, cosmetics, and education, which usually benefit from rising income levels in Brazil, he said. Sao Paulo-based Itau invested 250 million reais in the Kinea fund.

Share Performance

“Even with weak economic growth, the consumer sector will grow more than GDP, and their shares tend to perform better,” Lauretti said. Brazil’s gross domestic product slowed last year to 0.9 percent, capping the slowest two years of expansion in a decade.

Linx SA, the Sao Paulo-based communications technology provider, rallied more than 18 percent on its first day of trading in February after holding the country’s first IPO of the year. Linx’s shares have gained 38 percent since the IPO, the best performer among this year’s deals.

“Brazil’s equity market isn’t performing well this year, but you have small-cap companies such as Linx that did a very successful IPO with a huge share increase after that,” Lauretti said.

Picking Underwriters

Unidas’s IPO will raise money for both shareholders and the Sao Paulo-based company, while Grupo Multi’s deal would probably be only for shareholders, Lauretti said. The firms may select underwriters in about two months, and the IPOs will probably take place in the second half of the year, he said.

“One must be very careful when buying into a small-cap IPO because few numbers are provided before the IPO,” Eduardo Carlier, head of core equities at Schroder Investment Management’s Brazilian unit, said yesterday at a panel discussion in Sao Paulo on small-cap companies sponsored by Bloomberg. An accurate valuation usually isn’t possible until about two years after an IPO, Carlier said.

“Reduced trading volume increases the risk because share-price volatility is higher and it may be difficult to find a buyer when the investor wants to sell,” he said, adding that some small-cap IPOs have fared poorly as a result.

Biosev SA, the Brazilian sugar mill controlled by Louis Dreyfus Holding BV, fell 8.3 percent since its 700 million-real IPO in April, the worst performer among this year’s deals.

“Even with lower economic growth in Brazil you can find really good opportunities among mid-size companies if you look very close, because they can be more agile in adapting to new environments and offer a great investment diversification alternative,” Luiz Caetano, an analyst at Planner Corretora de Valores, said at the Bloomberg panel discussion.

To contact the reporters on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net; Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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