Back to the roots

January 10, 2010 Source: http://apostel.com.br/newdevelopments.html

With the experience of financial market veterans, OSF Merchant Banking emerges as a new Private Equity venture in Brazil.

A pioneer of the MBO (management buyout) concept in Brazil in the early 1990s, Hans J. Apostel recently joined an impressive group of experienced colleagues, all of whom share professional and personal roots in Brazil, along with two decades of international private equity experience in Europe and Brazil. They believe significant opportunities will arise in this BRIC member country in the coming years.

"We have already witnessed the first wave of institutional private equity firms entering the market in the mid-1990s. This provided an excellent exit opportunity for our portfolio, which was composed solely of former subsidiaries of international companies looking to reduce their exposure to hyperinflation and erratic economic policies in Brazil in the late 1980s and early 1990s," said Mr. Apostel.

Although the stabilization plan of the mid-1990s permanently reshaped the foundations of the Brazilian economic landscape, a series of international crises in emerging economies and business sectors, coupled with adjustments to an unregulated trade policy and capital market limitations in subsequent years, negatively impacted the performance of private equity funds from this first cycle.

A second cycle helped establish attractive returns for these funds, mostly Brazilian, which prudently invested during the early "surprise" years of President Lula’s administration, capitalized on the commodity boom, and exited opportunistically amid an unprecedented wave of IPOs (Initial Public Offerings).

"We are now entering a third cycle, with well-capitalized global private equity firms arriving in Brazil continuously and seeking substantial deals," says Mr. Apostel. "Brazilian funds will play a smaller role going forward, especially in light of a process in which Brazilian pension funds—until now practically the sole providers of long-term capital in the country—are redefining their roles and approach toward alternative asset control."

Given this scenario, the new venture OSF Merchant Banking will focus on controlling investments in Brazilian "hidden champions"—mid-cap companies that lead niche markets often overlooked. This investment concept has already yielded excellent returns for the founding partners in Europe.

These companies, all with significant growth potential, will benefit from the team’s expertise, their international counterparts, and their long track record of successful exits—something still rare in Brazil despite the increasing professionalization of the market. Another innovative aspect is that OSF will be able to provide equity capital and financing for certain types of debt, allowing greater independence and flexibility in structuring acquisitions.

The founding partners of OSF Merchant Banking include, among others, Dr. Thomas Jetter, former senior partner at Permira, Europe’s leading private equity fund, who previously held senior positions at J.P. Morgan and consulting firm McKinsey in São Paulo, and Dr. Volker Trautz, former board member and CEO of the $40 billion petrochemical company LyondellBasell. He is re-establishing himself in Brazil as an operating partner, having lived in the country for nearly 20 years as CEO of BASF Brazil.

Although the fund’s roadshow is not scheduled to begin before the end of January 2010, OSF Merchant Banking is already in discussions regarding potential acquisitions, which will be financed by the founding partners, private investors, and institutional investors before the official fund closing.