Advent International has acquired a 30% stake in CETIP SA-Balcão Organizado de Ativos e Derivativos, a central depository for private fixed-income securities and over-the-counter (OTC) derivatives in Latin America. The deal is valued at approximately R$360 million (US$170.6 million), subject to an earn-out achievement and other conditions.
PRESS RELEASE
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.
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. 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.
About Advent International
Founded in 1984, Advent International is one of the world’s leading global buyout firms, with offices in 15 countries on four continents. A driving force in international private equity for more than two decades, Advent has built an unparalleled global platform of 140 investment professionals across Western and Central Europe, North America, Latin America and Asia. The firm focuses on international buyouts, strategic restructuring opportunities and growth buyouts in five core sectors, working actively with management teams to drive revenue and earnings growth in portfolio companies. Since inception, Advent has raised $24 billion in private equity capital and, through its buyout programs, has completed 250 transactions valued at approximately $45 billion in 35 countries. For more information, visit www.adventinternational.com.
About CETIP
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.
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