Medium is the new big in Brazil’s infrastructure sector ­ Analysis.

With the downfall of Brazil’s major construction firms, several of which are

embroiled in corruption probes, medium­sized firms are emerging as a fresh

option for foreign infrastructure players ready to bet on Brazil, industry

sources told this news service.

Due to the uncertainties surrounding Odebrecht and OAS, doors have

opened for the smaller and less tarnished companies to naturally rise as

alternative candidates for foreign investment, said Luciana Nazar, partner at

the consultancy firm GO Associados. They will have more opportunities to

participate in consortiums to build larger and more complex infrastructure

projects, which they have had difficulty winning in the past because the big five

were so dominant, Nazar explained.

For foreign players that do not yet operate in Brazil, medium­sized companies

make good targets, as they know how to navigate the country’s economic

environment, said Marcio Lutterbach, head of infrastruture at PwC Brazil.

Those that already operate in Brazil are less likely to buy local companies,

Lutterbach continued, as they are already familiar with the local regulations

and bureaucracy, and can invest directly in projects of their choosing.

Possible targets

Among potential target companies cited by sources with knowledge of Brazil’s

infrastructure sector were the Minas Gerais state­based Construtora

Barbosa Mello (CBM), Paranasa and Aterpa; the São Paulo state­based

Serveng and Triunfo; Grupo Marquise, from Ceara state; the Bahia state- based AJL; and Seta Engenharia, from the state of Santa Catarina. Most of

these companies have an annual turnover of between BRL 400m (USD

100m) and BRL 800m, the sources pointed out.

All the companies were contacted by Mergermarket. Paranasa, Marquise,

Triunfo, CBM and Seta did not comment, while AJL and Serveng did not

respond to requests.

Aterpa, however, told this news service in November that it has been

receiving approaches from foreign strategic investors since 2009, and even

signed a non­disclosure agreement a few years ago with a European player

that was interested in buying a stake in the company.

Salazar confirmed that Europe, Japan and China­based companies regularly

hold conversations with Brazilian infrastructure companies, and that medium- sized firms like his have become more attractive since the larger ones were

implicated in the corruption probe known as Lava Jato (Car Wash).

Brazilian companies are also reaching out. Pedro Guizzo, partner at the

advisory firm Ivix, said he has been noting that these mid­sized companies

are seeking foreign partners in order to access capital and technology.

Lutterbach also noted that Brazilian companies are finding it difficult to access

funding, as the Brazilian development bank (BNDES) is not pouring as much

money into the space as it used to.

Potential bidders

Chinese companies, for example, want to buy assets that can boost the

country’s exports to China, like energy, railways and harbors, said Lutterbach.

Japanese firms are especially interested in the sanitation space and

companies from Germany, France, Italy and Spain are also analyzing assets

in the country, he added.

In December 2015, Italy­based Gruppo Gavio closed a BRL 2.2bn ( USD )

deal with the Parana state­based CR Almeida, majority shareholder of the

highway concessionaire Ecorodovias (BVMF:ECOR3). Lutterbach explained

that, in this case, the Italian company was interested in Ecorodovias’ assets

and was not necessarily aiming to participate in future infrastructure projects.

However, it is evidence that foreign players still see Brazil as a viable

investment opportunity, he added.

Companies from the United States, however, are typically less interested in

Brazil's infrastructure opportunities, Guizzo pointed out. “Large states in the

US, like Texas, California and Florida, tend to spend more on infrastructure

than Brazil; they’d rather stay there,” he pointed out.

European skeptics

A German banker told Mergermarket that German companies seem to be

skeptical about the South American country and have not been “expressing

interest” to invest there. Strong regulatory barriers, the German banker

added, are one of the deal breakers.

Germany­based Bilfinger (FWB:GBF), which already operates in Brazil, said,

through its spokesperson, that its geographic focus is Europe, as stated in its

new strategic plan released in October 2015, and that the company has not

decided what will be the fate of its non­core activities, which include operations

in Brazil. The decision, however, will not be taken in the short term, the

company added.

Meanwhile, Hochtief (ETR:HOT) sold its unit in Brazil in 2009 to German

group Zech International and does not intend to reenter the country’s market

in the moment, Hotchief’s spokesperson said.

Austria­based Strabag (VIE:STR), which has already participated in small

infrastructure projects in Brazil, said the company is currently expanding its

operations in Chile and Colombia, and Brazil is not a part of its current strategy.

Asian perspective

An industry source familiar with the state­owned conglomerate China

Merchants Group said the group might be interested in investing in

infrastructure sector in Brazil, focusing on companies that can build railways,

ports and related facilities. Also, the Chinese government is encouraging its

companies to invest in Brazil in order to improve the country’s exports

logistics, facilitating the commercial relationship between the two nations, the

source explained.

The Japan­based conglomerate Marubeni already operates two sanitation

facilities in Chile, and there is the possibility that it will target assets related to

the sector in Brazil and Peru, Marubeni’s spokesperson said, without

specifying if the company would directly bid for such projects or if it would be

interested in partnering with a local player. According to its website, Marubeni

has an agribusiness trading operation in Brazil and since April 2015, has been

participating in a joint venture with the Japanese companies Mitsui and

MODEC to build and operate floating vessels to serve the oil & gas industry.

by Bruna Maia Carrion in Sao Paulo, Laura Larghi in Munich, Jennifer Zhang in

Chongqing, and Yurika Masuda in Tokyo

Source 1/29/2016 Intelligence Detail | Mergermarket.com

http://www.mergermarket.com/intelligence/intelligenceDetail.asp?id=639646&mode=4&sortkey=0&zone=100&legacycontextid=690251447&contextid=6902851... 1/2

1/29/2016 Intelligence Detail | Mergermarket.com

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