May 8 2009, São Paulo - Advent International, the global private equity firm, today announced that it has acquired 30% of CETIP S.A. – Balcão Organizado de Ativos e Derivativos, the largest central depository for private fixed-income securities and over-the-counter (OTC) derivatives in Latin America, from a number of local financial-market participants. The value of Advent’s investment was approximately R$360 million (US$170.6 million), subject to an earn-out achievement and other conditions, making it the largest private equity transaction in Brazil this year. The investment has been approved by the Brazilian regulatory authorities.
CETIP was created jointly by the Central Bank of Brazil and numerous market participants in March 1986 to effect the processing of transactions in the Brazilian financial market with greater security and agility. The company remained a mutual-owned nonprofit organization until it was demutualized in June 2008.
Today CETIP offers registration, custody, trading and collateral management to 8,200 customers, including banks, brokerage houses, securities dealers, leasing companies, insurance companies, investment funds and pension funds. It is Brazil’s undisputed market leader in custody and settlement activities, with R$2.6 trillion (US$1.1 trillion) assets under custody, an average daily trading volume of over R$50 billion and an average settlement volume of R$30 billion.1
The company is also the No. 1 custodian of OTC derivatives in Brazil, with registered notional value of R$502 billion,2 the leading custodian of corporate bonds and processor of all wire transfers in the country. Brazilian regulations require that all fixed-income and OTC derivates be registered with a central custodian, which has allowed regulators to have tighter controls of these instruments and allowed CETIP to become in many respects a model for central custody operations in the region.
In its core fixed-income segment, CETIP is the only player in the market to provide custody of interbank deposits, short-term deposits and quoted funds. The company’s business model is highly resilient to adverse economic conditions, as a result of its strong cash flow generation and complementary product mix.
“We are confident that Advent can help CETIP develop to its full potential and aid in the development of the Brazilian capital markets,” said Martín Escobari, a Managing Director in Advent International’s São Paulo office. Mr. Escobari led the investment in CETIP and will serve as Vice President of its board of directors. “Advent can leverage its deep knowledge of financial services and local presence to help CETIP strengthen its management processes, new product development and build deeper relationships with its customers.”
Growth trends for the fixed-income and OTC derivatives markets in Brazil remain positive. Most Brazilian companies operate with an under-leveraged capital structure. The average net debt-to-EBITDA ratio of approximately 0.7x in 2008 highlights the potential for increased issuance of corporate fixed-income securities in the medium term. “On a global scale, Brazil is the only large market that is still underleveraged and is likely to see higher-than-average credit growth in the near future,” Mr. Escobari said.
Additionally, the OTC derivatives market in Brazil is underdeveloped relative to other international markets, comprising mainly standardized exchange-traded futures and options contracts. In more developed markets, the volume of OTC derivatives exceeds that of exchange-traded contracts by a wide margin.
CETIP is Advent’s third recent investment in Brazil and its 10th investment in the Latin American financial services sector, underscoring its depth of expertise in this area. In September 2008, Advent acquired Frango Assado, Brazil’s largest highway restaurant chain, and Quero-Quero, a leading home-improvement retailer, credit-card issuer and consumer-finance company in southern Brazil.
The CETIP opportunity was developed jointly by Advent’s Brazilian office and its global financial services team. Advent has relevant experience in both the fixed-income and OTC derivatives segments, having invested in BondDesk Group, a leading technology platform for private fixed-income trading in the U.S., and GFI Group (Nasdaq: GFIG), a leading broker of OTC derivatives globally. Two of Advent’s operating partners – Rob Slaymaker, Chairman and former CEO of BondDesk, and Dave Gomach, former CFO of the Chicago Mercantile Exchange (NYSE: CME) – helped develop the business case for CETIP and will be active in the investment going forward.
“We selected Advent to be our strategic partner and largest individual shareholder for the transformation of CETIP after a long and detailed process of mutual discovery,” said Edgar da Silva Ramos, Chairman of CETIP’s Board. “Advent was extremely diligent, showed its sector knowledge and has already built confidence with market participants,” he added. “All this bodes well for our partnership in the future.”
Goldman, Sachs & Co. and Barbosa, Müssnich & Aragão Advogados acted as financial and legal advisor, respectively, to Advent.
CETIP S.A. – Balcão Organizado de Ativos e Derivativos, is the largest central depository for private fixed-income securities and over-the-counter derivatives in Latin America. CETIP has over 8,200 customers, including banks, brokerage houses, securities dealers, leasing companies, insurance companies, investment funds and pension funds. It is Brazil’s undisputed market leader in custody and settlement activities, with R$2.6 trillion (US$1.1 trillion) assets under custody, an average daily trading volume of over R$50 billion and an average settlement volume of R$30 billion. The company is also the No. 1 custodian of OTC derivatives in Brazil, with registered notional value of R$502 billion, the leading custodian of corporate bonds and processor of all wire transfers in the country.
NOTES TO EDITORS
Advent International in Latin America
Advent International is one of the most established and successful private equity investors in Latin America. Since it began operating in the region 13 years ago, the firm has invested in 40 companies with a combined enterprise value of approximately $6 billion.3 Its current LAPEF IV fund, capitalized at $1.3 billion, is the largest private equity fund raised for investment in Latin America. For the last four years in a row, Advent has been voted Latin American Private Equity Firm of the Year by industry peers in a poll organized by Private Equity International magazine.
Advent’s Experience in Financial Services
Advent International has been investing in the financial services sector for two decades and has completed over 30 investments worldwide. In addition to CETIP, Latin American investments include:
- Quero-Quero – leading home-improvement retailer, credit-card issuer and consumer-finance company in southern Brazil
- Pronto! – a leading consumer credit company in Uruguay
- Nuevo Banco Comercial – Uruguay’s largest private bank
- Hipotecaria Casa Mexicana – a specialized mortgage lending institution in Mexico
- Consultoría Internacional – a Mexican currency exchange business, acquired by private investors
- DolEx Dollar Express – an electronic money transfer firm, acquired by Global Payments (NYSE: GPN)
- CSU CardSystem – Brazil’s largest independent credit card administrator, floated on BOVESPA (CARD3)
- J. Malucelli Seguradora – Brazil’s No. 1 surety bond provider, which merged with Paraná Banco and was subsequently listed on BOVESPA (PRBC4)
- Proservvi – a leading Brazilian financial services business process outsourcing company, acquired by Fidelity National Information Services
1 Assets under custody as of March 31, 2009. Average daily trading volume and average settlement volume for the first quarter of 2009.
2 As of March 31, 2009.
3 Combined enterprise value of Advent’s Latin American portfolio companies. Current investments valued as of March 31, 2009; realized investments valued at time of exit.