Member: Vinci Partners
Executive: Alessandro Horta, Co-founding Partner and CEO
News Coverage: Search LAVCA
LAVCA recently spoke with Vinci Partners Co-founding Partner and CEO Alessandro Horta about the current environment for private capital investment in Brazil:
While our investment thesis remains intact, we are leveraging this environment to negotiate better investment structures and valuations.
Horta also shares how Vinci is supporting portfolio companies in 2020 in light of decreases in demand and temporary disruption in operations within certain sectors and details a recent exit of diagnostics company Diagmax via a sale to Fleury Group in January 2020. When asked about real estate and infrastructure opportunities in Brazil, Horta noted:
Brazilian infrastructure is underinvested and precarious, leading to relevant and recurrent investment demand, and the current administration has an extensive agenda of privatizations, making this an opportunistic time for the region. The dependence on the private sector will further increase given the lack of investment capacity of the government, and the dire fiscal situation of the country indicates that this should continue making Brazilian infrastructure even more reliant on private sector capital.
LAVCA: Please provide some background on Vinci Partners. As a Brazil-focused firm, what is Vinci’s overall investment strategy across asset classes?
Horta: Vinci Partners is an asset manager in Brazil. With a team of 206 employees and offices in Rio de Janeiro, São Paulo, Recife and New York, we bring together a wide-ranging network of personal and professional relationships across industry executives, business owners, corporate managers, financial and operational advisors, consultants and attorneys. We manage funds in private equity, infrastructure, real estate, public equities, hedge funds and credit, also providing tailored investment and product solutions. Each vertical is managed by a separate and dedicated investment team with an independent investment committee and decision-making process, with a combined AUM of approximately US$8b across 235 funds/vehicles. The table below summarizes the main strategies across our private markets verticals:
| Vertical | Sectors/Industries | Stage/Strategy | Ownership |
| Private Equity (VCP) | Healthcare, Pharmaceuticals, Medtech & Aged-care; Consumer Goods & Retail; Education; Financial Services; Fitness, Sports Apparel & Equipment; Food & Beverage; Technology, Media & Telecommunications; Nutrition/Wellness and Business Services | Upper Middle Market. Growth; Buyout; Turnaround |
Majority with control |
| Private Equity (VIR) | Healthcare; Education; Specialized Retail; Value Added Services; Information Technology and Healthy Nutrition | SMEs. Growth; Impact | Minority with co-control rights |
| Infrastructure | Focus on Energy; Water & Sewage; Logistics & Transportation and Telecom (Fiber) | Diversified Core Plus | Control or Co- control |
| Real Estate |
Retail/Malls; Industrial/Logistics; Offices and Fund of Funds |
Core; Core-Plus |
Control, Co- control or minority with governance |
LAVCA: How has Vinci evolved over the last 10 years in relation to the opportunities in the Brazilian market? Do you have any plans to increase your geographic mandate?
Horta: Over the last 10 years, we have grown significantly from R$6.3b in assets under management to R$37b, pioneering several products within our main asset classes. Over these years, we have kept our disciplined, value-oriented, proactive long-term approach and have continuously lived by our values of ethics, consistency, flexibility, creativity, entrepreneurship, and resilience. Within our private markets verticals, we have seized several market opportunities in Brazil, focusing on secular tailwind and sectors that are less cyclical or GDP growth dependent, seeking to maintain stability and consistency in terms of ticket size. Currently we have no plans to increase our geographic mandate, which encompasses Brazil in its entirety.
LAVCA: You closed a record-breaking dollar-denominated Brazil Private Equity fund in 2019. How much of the capital raised was from Brazil-based LPs versus international investors? What sectors and strategies does the fund encompass?
Horta: We are very happy with the outcome of VCP III’s fundraising, with around 80% of its raised capital coming from sophisticated international institutional investors such as public pension funds, DFIs, asset managers and family offices from all over the globe.
The following sectors represent attractive long-term targets for the fund: (i) Healthcare, Pharmaceuticals & Medtech; (ii) Consumer Goods & Retail; (iii) Education; (iv) Financial Services; (v) Food, Beverage & Healthy Living; (vi) Technology, Media & Telecommunications; (vii) Business Services. In terms of strategy, VCP III targets control and control-oriented investments with an opportunistic approach, maintaining flexibility around investment structuring, executing growth equity transactions, buyouts and turnarounds.
LPs committing to this fund were attracted to our control-oriented hands on approach; the specific range of company sizes the fund targets, providing access to differentiated middle market opportunities with governance and low competition in terms of origination; high diversification levels within companies and sectors and; our focus on less GDP dependent sectors, with clear growth and consolidation opportunities.
LAVCA: Has the private equity strategy shifted in light of the current environment and currency considerations? Have certain sectors or valuations become more attractive?
Horta: We do not deem necessary any specific adjustments in our investment strategy to take advantage of the current situation. Our long-term approach to pursue low entry multiples, advantageous/defensive structures, investments in sectors we believe will benefit from long-term growth in the Brazilian economy, as well as in fragmented sectors with potential for building critical mass is still applicable in today’s market. We are happy with how this long-standing positioning has performed to-date and we believe it already positions us to handle the crisis in the best way possible, whilst taking advantage of eventual opportunities.
While our investment thesis remains intact, we are leveraging this environment to negotiate better investment structures and valuations.
In terms of currency considerations, all VCP III investments to date were structured with instruments which allow the fund to spread disbursements over time. These instruments should allow for smaller differences between the returns in local currency and in dollars and are already showing to be very effective in mitigating the potential currency devaluation impact on the fund’s performance.
LAVCA: Can you provide some examples of how you are supporting portfolio companies during the C19 pandemic? How have companies in Brazil been affected and what measures are you introducing to combat these challenges?
Horta: The major impacts suffered by companies in Brazil are related to a sharp decrease on demand and temporary disruption in operations within certain sectors. In response, we set up crisis committees in all portfolio companies, seeking to closely involve senior management and underlying teams on the planning and monitoring of matters related to the crisis, including to:
- Map out credit conditions, prioritizing liquidity
- Simulate stress scenarios to map and agree on responses for each potential outcome
- Postpone growth and elective CAPEX expenditures
- Prepare contractual contingencies in response to lockdown
- Map out current inventories and exposure in case of a rupture on critical suppliers
- Adjust inventory purchases, distribution and logistics in line with reduced demand environment
Vero is an example of a portfolio company that was positively affected with accelerated growth, given the increased demand for high quality broadband internet connection within the country.
An early response to the crisis combined with a disciplined approach with management teams was crucial and we are optimistic on the outlook for our current funds.
LAVCA: Please describe a recent exit and how Vinci worked with the portfolio company during the holding period. What made this investment a good example of the opportunity in Brazil?
Horta: Our most recent example is Diagmax, a diagnostics company focused on medical imaging based in the Northeast of Brazil and NE III’s first investment. In late 2017, the fund acquired a 40% stake in the company alongside non-convertible debt. In around 2 years, we more than doubled the company’s EBITDA by implementing improved governance practices, restructuring the company’s debt, coordinating its existing units’ expansion plan, and supporting overall execution. These factors positioned Diagmax for acquisition, which was ultimately actively sought by the publicly traded Fleury Group, one of the largest medical diagnostics companies in Brazil. At the time, Fleury was seeking to expand its operations to the Northeast of the country. Under these conditions, on January 2020, we closed a full exit achieving solid returns, with a relatively short holding period.
LAVCA: What are viable exit strategies for the Brazilian private equity market? Given the limited opportunity for IPOs how do Vinci and its portfolio companies build opportunities with strategics?
Horta: We target businesses with break-out potential in high-growth industries and aim to create more productive and professionally run companies. We believe that this focus is key to making the companies more attractive to potential buyers and enhances the valuation achievable at exit. Importantly, the investment team seeks to leverage the in-house expertise of our public equities and research teams for proprietary insights into the optimal timing for exits, as well as related industry intelligence. Furthermore, the team mines our broad network of contacts to access potential acquirers. As an example, of all exits within the VCP strategy, 36% were IPOs and 64% to strategic buyers.
LAVCA: Tell us about your real estate and infrastructure fund strategies and existing portfolio. What real estate and infrastructure opportunities are attractive in Brazil in the short- or long-term?
Horta: Our Infrastructure investment strategy seeks control or co-control investments and, in most assets, retains critical shareholder rights and protections for active influence over management and governance. We use our positions on the board to drive value through: (i) supplementing management teams; (ii) balance sheet optimization and financing support; (iii) implementing new management incentive programs. Moreover, we will primarily target assets with proven cash flow stability and inflation-linked contracted revenues. Our existing infrastructure portfolio consists mainly in assets on power generation and transmission, oil & gas services, water & sewage, and toll road construction.
Brazilian infrastructure is underinvested and precarious, leading to relevant and recurrent investment demand, and the current administration has an extensive agenda of privatizations, making this an opportunistic time for the region. The dependence on the private sector will further increase given the lack of investment capacity of the government, and the dire fiscal situation of the country indicates that this should continue making Brazilian infrastructure even more reliant on private sector capital.
With a Core/Core-Plus approach, our current real estate investment strategy focuses on acquisitions of assets with relatively small exposure to developments, mainly in capital cities and metropolitan regions. We seek control or co-control rights, creating value through strategic operational partnerships, influencing strategic asset decisions and balance sheet management/financing support. Our existing portfolio consists mainly of REITs within the following sectors: retail/malls, industrial/logistics, offices and fund of funds.
Given their different stages, the Brazilian real estate opportunity varies across sectors: Logistic warehouses located in strategic regions should take further advantage of the e-commerce expansion throughout the country; Boutique offices with characteristics such as differentiated architecture, flexible occupation, leisure/breakout areas and co-working setups should take advantage of the ever increasing tendency of improved quality of living within workplaces; Retail/malls investments could take an opportunistic advantage of the sharp decline in prices in face of the COVID crisis, upon economic reopening and reducing uncertainties.
LAVCA: Why did you join LAVCA?
Horta: As a leading asset manager in Brazil, with international presence and a relevant role in the development of the Brazilian private equity, infrastructure and real estate investment industries, we see relevant value in joining LAVCA. With that in mind, alongside the market intelligence and data that LAVCA can provide given its presence and market reach, this partnership has the potential to give international investors further proximity and visibility on our history within said asset classes via events, connections/meetings and articles, which reinforces our goal of being as close as possible to investors, always focusing on understanding their needs and providing full transparency on our work.