In Brazil, the chances are that if you eat a burger, go to college or travel to Miami, you will be putting money into the pockets of private equity firms.
A boom in the industry in Latin America over the past few years has led to a host of new deals, with a Brazilian private equity firm, Vinci Partners, holding the local franchise for Burger King, and others, such as Advent International, targeting Brazil’s fast-growing education sector.
Carlyle’s South American buy-out team, meanwhile, made its first investment in the region last year in CVC Brasil Operadora e Agência de Viagens, the region’s biggest tour operator.
Most of the large companies have already set up offices in Brazil, or like Kohlberg Kravis Roberts and TPG, are looking to do so.
“The number of managers able to write $100m cheques here have multiplied by five,” said R. Duncan Littlejohn, managing director at Paul Capital in São Paulo.
The big private equity companies had been among the last to come back to the country because of their memory of previous hardships.
While the last five years have been upbeat – comanies raised $8.1bn for Latin America as a whole last year and are expected to have $10bn-$11bn available for investment in Brazil alone by the end of 2011 – it has not always been this good.
During the last boom in the 1990s, they raised about $6bn to invest in Brazil, according to Advent International. Then the internet bubble imploded, Brazil suffered a currency crisis and the leftist presidential candidate Luiz Inácio Lula da Silva came to power.
During the early 2000s, the market plunged and the downturn was so severe that some funds returned their money to investors and turned their backs on Brazil.
Patrice Nogueira Baptista Etlin, managing partner in São Paulo for Advent International, which opened in Brazil in 1997, said: “The market was abandoned in what we call in our industry the ‘nuclear winter’” .
But Mr Lula da Silva followed through on economic reforms started by his predecessor, Fernando Henrique Cardoso, including passing laws that reformed Brazil’s stock market and improved corporate governance among listed companies.
This paved the way for an increase in initial public offerings, that in turn provided an important platform for private equity’s return.
IPOs in Brazil increased from only about six between 1994 and 2004 to about 200 since then.
The industry received a scare again in 2009 when the global financial crisis hit Brazil. But the economy recovered quickly, leading to a rush of private equity funds into the country last year.
High-profile investments included JPMorgan’s acquisition of control of Gávea Investimentos in Rio, and Blackstone’s buying a stake in another local fund, Pátria Investimentos.
The increase in private equity money chasing deals in Brazil has led to concern that the market is becoming saturated. But Brazil’s private equity environment remains relatively under-developed compared with the US.
Personal relationships between companies and individual entrepreneurs or business families remain key and there are fewer open auctions of companies of the kind seen for most deals in the US.
Advent’s Mr Etlin says there are an estimated 50,000 companies in Brazil with revenue of R$50m ($31m) or more a year. “It’s a huge aquarium,” he said.
Brazil also has the advantage of being the most culturally similar emerging market for US and European funds, says Cate Ambrose, president of Latin American Venture Capital Association.
She said: “Brazil is much closer to the European and US business culture of working with financial investors, building up the company and eventually selling it”.
To be sure, Brazil has important differences with developed markets. Its high interest rates make highly leveraged transactions less attractive. Brazil’s taxes on financial transactions also make it expensive to import capital.
Its smaller and medium-sized family-run companies have also traditionally been suspicious of outside investors.
Yet this is changing as they seek growth capital, says Marcelo Di Lorenzo, managing director at 3i Brasil. Family businesses are becoming more ambitious about realising value.