BTG Pactual Raises $1.96b in Brazil’s First Investment Bank IPO

BTG Pactual and its shareholders raised 3.656 billion reais ($1.96 billion) in Brazil’s first initial public offering of an investment bank, writes Reuters. Partners, including US private equity firm JC Flowers & Co, raised $389 million in the offering.

Reuters – BTG Pactual and its shareholders raised 3.656 billion reais ($1.96 billion) in Brazil’s first initial public offering of an investment bank, in a show of confidence in the firm and its billionaire founder, André Esteves.

In a mix of common and preferred stock of its investment banking and buyout units, BTG Pactual and its shareholders sold 117 million units at 31.25 reais a piece, Brazil’s securities regulator CVM said on its website on Tuesday. That was within the suggested price range of 28.75 reais and 33.75 reais.

The amount sold fell short of the 121.5 million units that the bank and partners had on offer. The deal is said to value BTG Pactual at about $14.4 billion, a source with knowledge of the situation told Reuters, making it Brazil’s 16th-biggest listed company by market capitalization.

The IPO, which gave investors the chance to buy into a fast-growing firm with aspirations of rivaling global giants like Goldman Sachs Group Inc (GS.N), is also the nation’s largest since Banco Santander Brasil’s (SANB11.SA) $7.5 billion IPO in October 2009.

BTG Pactual and Esteves himself have become symbols of Brazil’s growing economic might, competing head to head with global investment banks in a country with bustling capital markets. The IPO should help the bank continue expanding both at home and abroad in coming years.

“People who bought BTG Pactual shares paid to tap a growth story that is a full bet on integration between Brazil and other emerging market countries,” said Ricardo Almeida, a finance professor at São Paulo-based Insper business school.

Demand for BTG Pactual stock was three times the amount of shares on offer, another source told Reuters before the deal was closed, indicating that investors shrugged off recent insider trading accusations against Esteves in Italy. The success of the deal was possible mostly on Esteves’ willingness to accept a price that was not at the top of the range.

The BTG Pactual deal could restore some glitter to Brazil’s IPO market, which fell out of grace with investors after a boom that took more than 100 companies public between 2006 and 2007. Interest in the IPO ran high for months, with investors looking to get a piece of the glamour and soaring profits that have made BTG Pactual a rising star in the investment banking industry.

“The market is excited and somehow fascinated with this deal,” said Fausto Gouveia, who helps manage about $270 million in stocks for Legan Asset Management in São Paulo. Legan placed bids for BTG Pactual shares, Gouveia added.

Only counting the $1.6 billion that BTG Pactual raised, the IPO was the world’s fourth biggest in the past year, Thomson Reuters data showed. Partners, including U.S. private equity firm JC Flowers & Co, raised $389 million in the offering.

About 170 European, U.S. and Brazilian investors placed $6.6 billion worth of firm bids for BTG Pactual stock, according to International Financing Review, a Thomson Reuters publication. Banks actively participated, including a large ticket order of $800 million that was made last week, IFR said.

The deal comes as Brazil’s IPO market is struggling to regain momentum as investors remain wary of overpriced deals. Last week, car rental company Locamerica (LCAM3.SA) became the first to go public in Brazil since last July, when it raised about $165 million.

The Locamerica deal priced below the target range, and prior to that three other attempted IPOs flopped because of market turmoil. By contrast, investors lined up for the BTG Pactual sale, hoping to tap into Esteves’ success as a dealmaker.

The units will begin trading on São Paulo’s Bovespa stock exchange on Thursday under the symbol “BBTG11.”

Information on BTG Pactual’s sale of depositary receipts in the Amsterdam Stock Exchange running parallel to the Brazil IPO will be unveiled on Wednesday, sources told Reuters and IFR.

COMPARISONS WITH GOLDMAN

BTG Pactual’s own investment banking unit managed the transaction, along with Banco Bradesco (BBDC4.SA), Goldman Sachs and JPMorgan Chase & Co (JPM.N).

Esteves, a 43-year-old mathematician who started as a computer technician at Banco Pactual at 21, rose to become managing partner and sold the bank to UBS AG (UBSN.VX) in 2006 for $3.1 billion. He and some partners bought back Pactual for $2.5 billion in 2009 and formed BTG Pactual.

When Esteves was at UBS, Italian regulators say he used privileged information to profit from a planned joint venture between Italian meat company Cremonini and Brazil’s JBS (JBSS3.SA). Last week, Esteves was fined 350,000 euros in the case. Esteves, who denies the charges, plans to appeal.

People close to Esteves joke that BTG, which stands for Banking and Trading Group, is also an acronym for “Better than Goldman.” Esteves, who owned a 24.5 percent stake in BTG Pactual before the IPO, has seen the value of his stake triple to over $3 billion since founding BTG Pactual, according to Thomson Reuters calculations.

Details on multiples and valuation were not immediately available. Prior to the closure of the deal, one source said the IPO would value BTG Pactual over 3 times its book value.

That ratio would be roughly the same at which Goldman Sachs went public in 1999. Comparisons between the banks have become commonplace in financial circles, since both share similar values, champion meritocracy and are money-making machines.

On average, Latin American banks are trading at 2.3 times book value, while large Brazilian lenders — a proxy for BTG Pactual — are valued at 1.8 times, according to data by Raymond James & Associates.

Goldman’s market capitalization is four times that of its Brazilian rival, but BTG Pactual’s average 17 percent annual growth and staggering cost efficiency resemble the pre-IPO days of the U.S. investment bank.

BTG Pactual has been on a dealmaking frenzy in Brazil and beyond in recent years as Esteves tries to make it the largest investment bank in emerging markets by 2020.

The bank has spent at least $2.5 billion on acquisitions in real estate, finance and services, all areas that have blossomed in recent years in lockstep with Brazil’s economy. It also helped rescue troubled lender Banco PanAmericano in 2011, using it to build a consumer and mortgage lending business.

Since 2006, BTG Pactual helped advise on seven of every 10 stock sales in Brazil and on one in every four merger deals. In 2011, it led Thomson Reuters’ M&A advisory rankings in Brazil.

($1 = 1.88 Brazilian reais)

(Additional reporting by Aluísio Alves in São Paulo and Joan Magee in New York; Editing by Bernard Orr and Muralikumar Anantharaman)