Private Equity Firm GP Raises Fund to Buy a Brazil Power CompanyBy and
Idea is to obtain $300 million, CEO Bonchristiano says
Shareholder equity is used for investments outside Brazil
GP Investments Ltda., the private-equity firm founded by Brazil’s richest man, is raising at least $300 million from international investors for a fund to buy the control of a power distribution company in Latin America’s biggest economy.
“We used to raise general funds to invest in Brazil without any industry direction, but now, given all the uncertainties, we think it is very difficult to obtain a blank check," Chief Executive Officer Antonio Bonchristiano said in an interview at the firm’s Sao Paulo office. Currently GP is focusing only on companies where it sees a unique opportunity, he said.
Eletrobras may provide that. Brazil’s state-run utility, Centrais Eletricas Brasileiras SA, said it’s planning to sell six distribution companies, probably in the first quarter of 2018. Bonchristiano declined to name which company GP is targeting.
“We know the power sector, and distribution is a very attractive retail business, where a management change can make all the difference," Bonchristiano said.
GP bought the utility Cemar, Centrais Eletricas do Maranhao, in 2011. After a debt restructuring the company became Equatorial Energia SA and profit climbed. It now has a market value of 12.85 billion reais ($3.90 billion).
“Starting in 2000 through 2010, our strategy was to bet on consumer sector, economic growth," Bonchristiano said. "Then the Brazil crisis came, and now our focus are companies that are being sold below their real value and turnaround situations."
GP has about $1.61 billion in private equity funds under management that are fully invested in nine companies and 20 real estate projects. Bonchristiano said the firm is waiting to see who wins Brazil’s presidential election in October before it decides whether to raise a general fund in 2019.
While GP’s funds have a clear mandate to only invest in Brazil, its own capital can be used more flexibly. GP has a goal to have about half of the firm’s $459.4 million consolidated shareholders equity working internationally in five years, up from 35 percent now, the CEO said. About $219 million of that is from Spice Private Equity AG, a company GP controls based in Switzerland.
To support the international effort, Bonchristiano spends part of his time in New York. The company maintains an office in the city with two executives: Director Rodrigo Boscolo, a Brazilian, and managing director Andrew Fleiss, an American. Chairman Fersen Lambranho seeks opportunities in London.
Bonchristiano said GP wants a small number of longer-term investments abroad, and is focusing on retail, restaurants and consumer products. Earlier this year, Spice acquired a minority stake in U.K. fast-food chain Leon Restaurants for $30 million. GP and Spice also invested in Rimini Street, a U.S. provider of third-party enterprise software support services. The $36 million investment gave GP a stake of 2.5 percent and Spice, 5.1 percent.
Also in the U.S., GP invested $20 million in Expanding Capital, a $40 million venture capital fund that has Brazilian entrepreneur Leonardo Salgado as a partner. Based in San Francisco, the vehicle aims to do minority investments in companies from Silicon Valley that aren’t start-ups but plan to go public in up to five years. Some are considering entering Brazil.
“It is a way to diversify, to invest in more stable and predictable countries where the cost of credit is reasonable, and where we can use debt instruments," he said.
GP, the only publicly traded investment vehicle active in Brazil, was founded in 1993 by the billionaire Jorge Paulo Lemann, who sold his stake in 2004 to executive partners including Lambranho and Bonchristiano. It now has 65 employees, down from 86 in 2014. GP had a net profit of $30.4 million this year through September, down from $74.3 million in the same period last year.
— With assistance by Vanessa Dezem