by David Snow
August 2, 2016

Warburg’s Minardi: You’ll Lose Out if You Avoid Brazil

The head of Warburg Pincus’ Latin American operations says PE opportunities in Brazil remain large and attractive, and the current political turmoil should not scare away international investors

Don’t avoid Brazil. That’s the message from Piero Minardi, managing director at Warburg Pincus in charge of Latin America.

In a wide-ranging interview with Privcap, Minardi shares his views on the integrity of Brazil’s legal infrastructure, opportunities in the healthcare space, and the global advantages that Warbug Pincus brings to the table in Brazil. Highlights and clips from the interview are below:

‘A Difficult Period’

Minardi acknowledges the political turmoil now roiling the country, but argues that its legal institutions, particularly those of greatest importance to business, are continuing to work as designed. “It’s going to be a difficult period, but the institutions remain there, and the big opportunity remains,” he says. IN THIS CLIP he presents the case for Brazil that its national private equity association (ABVCAP) wants investors to consider:

In particular, Minardi notes, the regulatory environment for private equity investment in Brazil remains sound—there are no onerous rules such as capital controls to inhibit foreign investing, and a range of private equity-friendly tax incentives are “here to stay.”

Scarce ‘Bargains’

Minardi says that Warburg’s deal flow in Brazil has remained relatively consistent throughout the recession, but that the seller motivations have changed. There are more balance sheet restructuring opportunities now and, with bank financing tight, there are more quality businesses in need of capital. IN THIS CLIP Minardi describes the deal flow he is seeing: 

What’s more, Minardi says that the public market swoon in Brazil has not led to sharp decreases in the valuation of quality private companies. “Valuations are not correcting that much,” he says. “People expect[ed] bargains in Brazil. It’s not happening. I don’t think it will happen, actually.”

While Minardi is focused mostly on consumer and healthcare deals, the firm is carefully watching Brazil’s energy landscape for opportunities. “Opportunities may arise from [state-run oil company] Petrobras, [if] the company decides to put some assets up for sale.”

A New Law Means Healthcare Opportunity

Last year, Brazil passed a law allowing for foreign ownership and management of hospitals, opening up a major new investment play for private equity. Piero calls the hospital space “interesting,” but adds that a critical component for success will be finding the right management team, particularly one that would be able to work effectively with doctor groups.

More broadly, an attractive attribute of the universal healthcare system in Brazil is that citizens may continue to consume services for months after losing their jobs – in many cases spending more given their comparatively free schedules. Because of this dynamic, Piero says the sector is more resistant to recession.

Benefits of Being Global

Minardi joined Warburg Pincus in 2014 from Brazil’s private equity heavyweight Gavea Investimentos. He says the Warburg’s global footprint allows it to see “parallel” trends across the globe that may suggest investment plays in Brazil. He notes a deal done in Brazil last year that involved the assistance of a U.S.-based team of partners who invested in a similar services company. “We operate as one fund,” he says. “There’s a partnership, which works very well from the point of view of transferring experience. You just put in a call and say, ‘What do you think?’”