Arriving in flight over São Paulo in Brazil is always something unique. The city never ends. You fly and she is always there. You don’t see the boundaries. I tell you this because I am here today. An unexpected trip. I decided last to follow my husband on his business trip. The drivers say that São Paulo for Brazil is like Milan for Italy, it is the place where they do business and where the economy still pulsates, while in the rest of the country it struggles.
Of course, here is not private equity that drives the economy. Out of curiosity, I wanted to look at the numbers of Brazilian private equity and venture capital in 2018. The Kpmg study on the data of the ABVCAP association (download the study here) indicates an important level of activity for a sector that is still very small compared to to the size of the country: investments equal to only 0.2% of GDP. Last year, in fact, the funds carried out investments in Brazil of 13.5 billion real (about 3 billion euros), down from the real 15.2 billions in 2017, but still above 11.3 billions of 2016. In fact, starting in 2014, Brazil has experienced years of boom activity and years of contraction, with a constant alternation. As for the number of companies involved in investments it is increasing to 202 from 175 in 2017, but for the size of Brazil we are obviously talking about nothing.
With regard to fundrising we are talking about 170.3 billion reals (37.8 billion euros) from the 154.3 billions in 2017, of which 112.4 billions represented by foreign investment commitments. Which means that foreign investors see interesting opportunities in Brazil. Despite the general economic crisis that has been lasting for years.
In this picture there is a parallelism with Italy. We are also increasing the share of foreign investors who subscribe stakes of Italian private equity funds and at the same time foreign funds are increasingly active. It will certainly be the fact that good Italian companies have lower average valuations than their European colleagues, because they suffer a series of inefficiencies in the country system. But there are certainly many opportunities for growth for good Italian companies thanks to the support of the funds. If a country has a small domestic market, companies need to go outside to grow. And if companies have strong brands, be they consumer or B2B, internationalization is relatively easy. All you need is the capital to invest in the project. In addition to the desire to do it.
Yes, the desire. Often the Italian family SMEs turn to private equity only when there is a generational change to do or because the shareholders no longer agree with each other and some of them want to get out of the capital. There are few entrepreneurs who decide that they want to make their company grow and are willing to make room for a fund, as they understand that they cannot make it on their own. But going on as it has always been done is not an option. Competition is growing and the risk is implosion. It is no coincidence that many consultants who have specialized in corporate restructuring for some time have extended their range of services to business transformation and that large international companies are equipping themselves with chief transformation officers. Those who do not change remain behind. The small and the large.