Companies bet on M&A after failed IPOs

Some companies that canceled IPOs this year are now betting on M&A. After failing to raise funds in the stock market to prop up their expansion efforts, they decided to search for private partners. In addition, firms partially owned by private-equity funds are seeking a way out for these partners.

In the year to July 21, companies raised R$100 billion through 54 IPOs and secondary offerings, a survey by Santander shows. Thirty-five companies went public during the period. Market players expect the amount to reach R$150 billion this year. Despite the heated market, 40 companies gave up their offerings, data by the Securities and Exchange Commission of Brazil (CVM) show.

The failed IPOs are driving the M&A activity. In the year to July 21, 286 deals totaled $54.8 billion, compared with 253 deals totaling $11 billion in the same period last year, according to consultancy Dealogic.

Tok & Stok, the furniture and decoration chain that has Carlyle (now SPX Capital) as a partner with a 60% stake, is seeking a private investor, three people familiar with the matter say. The company postponed plans to go public earlier this year as market conditions were not “ideal.” Carlyle, which acquired control of the company for $700 million in 2012, has been looking for some time for an exit door for this investment, sources say.

One of Brazil’s leading decoration companies, Tok & Stok had plans to launch an IPO in 2019, but it did not materialize. Late last year, it filed with the CVM after rivals Madeira Madeira, Mobly and Westwing did so.

However, unlike its competitors, the company founded in 1978 was not prepared for digital sales, sources say. The company, which revamped the management team last year, has been investing in the digital channel and talking to potential investors, a source says. Carlyle does not rule out tapping the capital markets in the future. The fund also invests in the restaurant chain Madero, which is preparing to go public, and toy retailer Ri Happy.

Westwing, a rival of Tok&Stok, raised R$1.1 billion on the stock exchange in February, but fell since then. The stock closed on Friday at R$9.03, down 30.5% since its debut on February 10. The company “is in talks with competitors” to mull alternatives, and sources say Renner and Riachuelo were sounded out, but the talks did not move forward.

LG Informática, which develops technology for HR management, also decided to halt its IPO in April. The company, which intended to raise R$900 million, then hired Rotschild to find a buyer, a source says. In July, the company announced the acquisition of Norber, which will strengthen the company’s technology ecosystem to make it more attractive for a potential buyer.

The search for a private investor is also in the plans of office supplies chain Kalunga, which has given up on going public this year, sources say. The company, which invoiced R$1.8 billion last year, is looking for investors to grow and reduce debt, which totaled R$738 million at the end of 2020. The controlling shareholders do not rule out resuming the plans to go public when market conditions improve.

Eduardo Miras, head of investment banking at Citi, does not see IPOs as “a beginning, nor as an end” of the cycle for a company. Those giving up the IPO can seek private capital and resume plans to go public later. Stock prices often reflect the short-term scenario, he said. “IPO shows you the price, not the value.”

It is a natural path for companies to raise funds in the capital markets, says Diogo Aragão, head of mergers and acquisitions in Brazil at Bank of America (BofA). The transition to M&A after a failed IPO, however, may have a different dynamic, once the asset value has already been tested by the market, he said.

In some cases, private companies may merge with listed ones, a process known as “reverse takeover.”

Mergers and acquisitions are expected to remain firm by the end of the year. “We saw many consumer, retail and health companies launching IPOs, creating a reference value in the market,” Mr. Aragão said.

Gustavo Miranda, head of investment banking at Santander, says failed IPOs make M&As easier because these companies have already gone through due diligence.

This is the case with Cosan’s gas company Compass, which raised R$810 million in a round led by the asset manager Atmos months after giving up launching an IPO. The deal was well received by the market, since Cosan’s company is seen as the front-runner to take over Petrobras’s Gaspetro.

Sought for comment, LG Informatica said “it is analyzing several alternatives for growth.” Tok & Stok said in a note it is committed to improving its logistics structure and offering the best experience for the consumer. “Tok&Stok is moving forward with its expansion and development plans in 2021, regardless the IPO it had been conducting … Our goal is to become a public company in the medium term, as soon as we reach a scenario with greater synergy with our company profile,” CEO Octávio Pereira Lopes said.

Kalunga said it decided to cancel the offering but is still registered as a public company. During this period, the company is adjusting governance and “working to tap the capital markets publicly or privately” while carefully monitoring “funding opportunities in line with its growth plan and business strategy.” Carlyle, Westwing and Renner replied that they would not comment on market rumors.

Source: Valor international

Higher interest rates may impact household debt

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The new cycle of interest rates hikes in the country blares a warning for the possible impacts on the budget of Brazilian families, whose income commitment to debt is at record levels. For some economists, the combination may slow consumption and bring a greater focus on the payment of already contracted debts. Others consider that, even if the trajectory of Brazil’s benchmark interest rate Selic is ascending, the level reached would be a historically low for Brazil, dispelling major concerns regarding default.

The long period of easing monetary policy by the Central Bank, which took the Selic to 2% in early 2021 from 14.25% per year in mid-2016, was followed by a significant reduction in the average interest rates on credit operations to the consumer (to 23% from 42% a year) and increased debt in households (to 30% of GDP from 25%), says Ailton Braga, former Central Bank analyst and current Senate legislative consultant, in an article published on the Blog do Ibre, the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre).

As a percentage of the families’ annual income, he says, debt rose to 58% in March this year from 44.3% in April 2017, according to Central Bank data. The commitment of monthly income to debt service went to 30.4% in March 2021 from 26.6% in January 2018.

According to Mr. Braga, the increase in debt was greater than that of the commitment of income with debts over the last years because of the reduction of interest in the period and the lengthening of the term of loans payments, mainly due to the growth of real estate credit. The expansion of debt, however, has limits. “There is this indication that the income commitment varies in a narrow range and we have reached a maximum. How much can a family commit of its income with the payment of debts? It can not be 50%”, says Mr. Braga to Valor.

For him, the recently started high Selic cycle, which should reach something between 6.5% and 7.5% by the end of the year, could add a relevant impact to this scenario. “Despite being, for Brazil, a historically low rate, it will result in an increase in consumer interest rates at a time of high debt.”

Added to this is the increase in current inflation and expectations, which triggered a new bullish cycle of Selic, taking it to something between 6.5% and 7.5% by the end of the year, Mr. Braga notes. “Despite being a historically low rate for Brazil, it will result in an increase in consumer interest rates, at a time of high debt.”

Families, he says, will have to adjust the household budget to be able to reduce the slice of committed income. “They must reduce spending, choose to pay debts and avoid taking on new debt,” he says. The repercussion, according to Mr. Braga, tends to be a reduction in household consumption. “But you cannot say that it will mean a fall in total aggregate demand and the GDP,” he says.

For Isabela Tavares, an economist at Tendências Consultoria, the level of household income commitment is “relatively controlled”. According to the Tendências indicator, which considers income to be the total wages, the commitment of families with debt advanced 1.3 percentage point in April, compared to the same month of 2020, to 22.9%. Debt, which also includes the interest-free credit card balance, rose 5 percentage points to 48.2%.

“I don’t think it has anything too explosive because of the interest itself. It is a scenario of raising, but not up to those maximum levels that we have seen,” she says, also mentioning recent measures that contribute to increasing banking competition and balancing interest, such as Pix, the Central Bank’s instant payment system.

Ms. Tavares explains that the greater pressure on the commitment to bank debts comes with a weaker scenario of the expanded total income (the sum of income from work and other sources such as cash transfers transfers) and the increase in interest rates (as bank spreads anticipated the rise of the benchmark interest rate Selic). There is also the credit to families. “This credit continues to grow, including with an increase in emergency modalities, such as overdraft line of credit and revolving credit card, which have higher interest rates and put even more pressure on income commitment,” she says.

According to Ms. Tavares, this was already expected. But some points of uncertainty arise. The rise in inflation, for example, also ends up by causing households to resort more to “emergency credit”, says Ms. Tavares. “It can limit consumption a little more, but not in a way that slows growth.”

“The families are more pressed on the items of greatest need and in the end the payment for consumption or other bank debts, in general, is in the background, also pressing default”, notes Ms. Tavares. Tendências projects the commitment of average household income will rise 0.8 percentage points this year, compared to the average of 2020, to 22.7%.

For Sergio Vale, chief economist at MB Associados, the evolution of the economy seems a more relevant indicator for the course of household debt than the new cycle of high-interest rates. “Between 2004 and 2012 we had a very high real interest rate and still the debt grew. The most complicated, in fact, is a slow recovery in employment. At the same time, even growing less, the recovering activity also ends up collaborating for a marginal growth of debt”, he says.

Even if the Selic goes to 7,25% per year, it would be low for the historical standard, says Mr. Vale. What will be important to keep track, according to him, are bank spreads. “The Central Bank has acted a lot in recent years to decrease the bank spread, which has in fact fallen and is stable at this time.”

According to the credit director of a large bank, there are no signs of a major worsening in delinquency. The 30% share of the families’ income commitment, he says, is the limit they consider healthy. If it starts to point upwards, it will worry, but at the moment there is no such indication.

(Talita Moreira contributed to this story)

Source: Valor international

Women gain ground in boards of large companies

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Female participation on the boards of the largest public companies increased after the last elections of directors. Currently, 16.1% of the seats are occupied by women. In 2019, the percentage was 11.4%. Three years earlier, 6.9%. The figures come from a survey made by platform Comdinheiro, at the request of Valor, which considers data from the companies that make up Brazil’s benchmark stock index Ibovespa.

Many of these companies have in recent months gone through elections of new boards, whose term of office is two years. Considering the data from June this year, of the 713 directors who work in the 81 companies that compose the index, 115 are women. In 2019, there were 63 women out of a total of 552 directors. In 2016, there were 35 women in a total of 507 seats.

This evolution can be seen as a first reaction of the companies after more discussions about the importance of the topic in recent years, says economist Regina Madalozzo, who coordinates the Gender Studies Group of the Center for Business Studies at business school Insper. The result, however, is still far from ideal. “It seems that we have begun to take the first steps towards female inclusion, but we are far from a reasonable share, which would be 40%, considering the international parameters,” she said. “It is important to get to 16%, but the pace is still slow.”

Among the companies that make up the Ibovespa, those with the largest female presence on the board of directors today are TIM, Magazine Luiza, Banco do Brasil, Lojas Americanas, Santander and EDP Brasil. These six stand out because at least one third of the board is female. On the other hand, there are 12 companies out of the 81 that do not have any women occupying seats on the board, which represents a percentage of 14.8% of the total. They are: Yduqs, BR Malls, EZTec, WEG, Cemig, Cielo, Minerva, Via, Grupo Pão de Açúcar, CSN, Hapvida and Taesa.

The survey also shows that the participation of women at the executive level has also evolved, but at a lower rate than that observed in the boards. The number of female managers grew 148% in five years to 82, out of 674 executives, from only 33 out of 507 in 2016. In comparison with 2019, the increase in the female presence was 58%, which represented at that time 52 women among 553 executives.

Despite the growth, women hold only 12.2% of executive jobs. And the worst: of the 81 companies surveyed, 36 have no women at this level, which corresponds to 44.4% of the total.

This difference between the boards of directors and the C-suite shows that, even in the case of companies that have made efforts to raise female participation in recent years, there is still a path to be followed so that inclusion occurs as a whole and not only in specific fields, says Ms. Madalozzo. Another point that explains this variation is that, while there has been evolution in discussions involving gender in boards of directors in recent years, the same has not occurred in the C-level, where selection processes is still “more closed.” “There is no shortage of skilled women in the market. What is missing is that we understand that there are certain recruitment models with selection biases and without the concern to seek women for such positions.”

Companies provide information about directors on their referral forms required by the Securities and Exchange Commission of Brazil (CVM). However, they do not report gender. Therefore, to reach the numbers presented in this survey, Comdinheiro made the relation of name and gender through machine learning algorithms, as explained Filipe Ferreira, the company’s CFO.

In all, 99.9% of the board of directors’ members and 99.6% of executives were classified in June 2021. One director (with Sul América) and three executives (Assaí, BRF and Ultrapar) did not have the gender identified by the algorithms used in the survey, what can happen with less common names or with less frequent spellings. These cases were examined personally (or humanly) by Comdinheiro and added to the tables.

Among the companies that do not have any female directors, Cemig said in a note that it revised in June its nominations and eligibility policy and that it will seek to contemplate greater diversity of gender, age group, creed, professional experiences, cultural and educational background, race and ethnicity among the members of the board of directors and other bodies.

WEG says the issue is really important and has gained a lot of attention from the company’s management team. Taesa says it is aware of the importance of inclusion at different levels of the corporate environment, that in early 2021 it started a diversity program, and that the topic is treated by the board “with all due relevance.”

GPA, Via and Cielo declined to comment. The other companies mentioned as not having any female participation on the board did not immediately reply to a request for comment.

Banco do Brasil, which is among the companies with the highest percentage of women on the board, said in a statement that it has a chairwoman for the first time, and that the female participation on the board had never reached the current level. “The BB’s female employees have contributed decisively to the company’s growing results and it is up to the management team to ensure equal conditions between genders for professional progress in the organization.”

TIM said, in a note, that values and supports diversity to build not only its organizational culture, but a more inclusive society. For the phone carrier, its presence among the companies with the highest representation of women on the board ratifies this commitment.

Source: Valor international

Banks strengthen IT teams amid arms race

Technology has always been key to Brazilian banks, forged in the times of rampant inflation. In recent years, however, IT has been moving away from the back office and closer to the business teams, as a result of innovations and increased competition that are forcing financial firms to reinvent themselves. The most recent move is Santander’s, which is taking one step back in order to take two steps forward.

The bank told employees Thursday that it will concentrate technology assets in a new company named F1rst. It may seem contradictory to the integration trend in the industry, but the intention is to strengthen the team by giving it greater autonomy.

“The idea of classic banking has to change. For that, the technology team cannot be the classic IT unit of a traditional bank,” Ede Viani, executive vice-president of technology and operations at Santander in Brasil, told Valor.

F1rst will be under Santander and will provide services for the group’s more than two dozen affiliates, including foreign operations. The company will have almost 3,000 direct employees, besides 4,000 outsourced workers, and an annual budget of R$2 billion.

The revamp is a reflection of the increasingly heavy investments of banks in technology amid competition with fintechs and the digital revolution accelerated by the coronavirus pandemic. Some changes are internal, with efforts to take systems to the cloud, as already announced bu Itaú Unibanco. Others are visible for the external audience, like moves by next, iti and Caixa Tem, digital banks of Bradesco, Itaú and Caixa Econômica Federal, respectively.

One reason why Santander decided to create a separate company is to offer IT employees benefits that they already have in tech companies. F1rst plans to give incentives for further training and offer a flexible work arrangement and paid vacation before completing 12 months in the job. This is a response to the battle for these professionals – Itaú even run prime-time ads on TV highlighting that it is a great company for technology experts to work on.

Besides incentives, Santander also plans to hire instead of outsource. Mr. Viani said that almost 70% of the technology team was outsourced in the past. This percentage has fallen to 50% and the plan is to reach 30% to 40%. “We want to do things more and more internally. This reduces turnover, fosters greater adherence to our culture and favors the maintenance of knowledge here, but it will never be only internal,” he said.

Despite the concentration of technology activities in a different company, the TI and business teams will not be “separate.” Mr. Viani said that work will not be that different – with different teams working together in projects without necessarily being in the same physical space. “F1rst will be a provider of technological solutions for the Santander ecosystem. Just as the technology team has to be connected with the bank business, you cannot imagine someone in the business team not connected with technology.”

F1rst’s structure will include technology to process transactions, architecture and development. The company will control two digital generation centers, one in Interlagos and another in Jurubatuba, both in the city of São Paulo, as well as a data center in Campinas and innovation centers in São Carlos, São Paulo, and Belo Horizonte, Minas Gerais. Two more such units are expected to open soon in the South and Northeast regions. The bank also has partnerships with the University of Campinas (Unicamp), the Faculdade de Informática e Administração Paulista (FIAP, a higher education institute of technology and administration) and the network of technical schools of the São Paulo government.

“We have a decentralized vision, to reach talents throughout Brazil. In the last 12 months we have hired 1,500 people. In addition, we want to use technology as a tool to strengthen diversity, with programs that encourage the training of people of different genders and races,” Mr. Viani said.

F1rst will not be pressured to make profit, and its priority will be to serve the group’s companies. In the future, however, it could work for companies outside the Santander ecosystem. Banking as a service, data center as a service and data services are some possibilities to monetize the business. Mr. Viani also said that F1rst is open to mergers and acquisitions. “We don’t have to have only organic expansion by definition. In technology, in certain centers you gain speed if you make acquisitions,” he said, recalling that Toro, Santander’s investment platform, recently announced the purchase of fintechs Mobills and Monetus, while the bank itself bought Solution4Fleet and Car10, which operate in the automotive segment.

Instead of having its own digital bank, Santander has been betting on the digitization of its operations. “More than 75% of our services are already available on digital channels.”

A recent report by Credit Suisse drew attention to Santander’s digital transformation, pointing out that the bank should migrate 72% of its operations to the cloud by the end of this year. Itaú revealed the goal of reaching 50% of cloud operations by the end of 2022. Santander also intends to eliminate all paper of its transactions by 2022, which will allow the bank to become even more agile and significantly improve product launch time and customer experience and reduce environmental impact.

At CIAB Febraban, the country’s main banking technology event, held last month, bank executives spoke about the importance of investing in this segment, not only to improve processes in the backoffice, but mainly to offer an increasingly enjoyable experience to users. A survey commissioned by the Brazilian Federation of Banks (Febraban) to Delloite showed that banks in Brazil invested R$25.7 billion in technology in 2020, up 8% from 2019. Among the executives of 21 institutions consulted, 93% mentioned artificial intelligence as an investment priority, process automation being in second place (80% of the answers).

Fitch stated, in a report released this month, that digital transformation is not a new concept for traditional banks, but the acceleration of digital channels brought by the pandemic, coupled with the growing activity of fintechs will force them to maintain heavy investments in technology. “These investments will be fundamental to the defense of their franchises and business models.” The rating agency says that after the pandemic, market dynamics in the short term will lead to fiercer competition for digital products and promote joint ventures or acquisitions, given the reduced sources of funding and risk aversion of investors.

“Today, with the mobile phone, the customer opens an account wherever he wants,” Bradesco CEO Octávio de Lazari Jr. told Valor recently. “What I need is to specialize the teams, have adequate products and services and a user-friendly digital journey.”

Source: Valor international

New law may inject R$350bn in Brazilian economy

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A total of 30 million people will now have a greater chance of paying their debts. In force since July 2, the Over-indebtedness Law provides for a kind of judicial reorganization for individuals, forcing creditors to sit down at the table to negotiate. It has rules with capacity to inject R$350 billion into the economy, a study by the Order of Economists of Brazil (OEB) and the Institute of Humanist Capitalism shows.

The amount refers to what is no longer committed to the payment of debts. Today, 70% of households are in debt — the highest proportion in a decade, according to the National Confederation of Commerce of Goods, Services and Tourism (CNC). It corresponds to 60 million people, half in the over-indebted category, according to the Brazilian Institute for Consumer Protection (Idec).

The law, according to judges and experts in the matter, brings an important mechanism for securing settlements. The absence without justification of the creditor at the discussion table puts it at the end of the queue for receiving credit. In addition to generating the suspension of the debit collection and the interruption of the incidence of charges, such as interest.

“It is a measure that induces the creditor to put out conditions to make an agreement. Once at the negotiation table, we see good proposals, up to 80% discount on debt,” says Carolina Gabriele Spinardi Pinto, judge at the Court of Justice of Paraná (TJ-PR) and coordinator of Cejusc Endividado, the Judicial Center for Conflict Resolution and Citizenship specifically focused on debt cases.

With discounts and deadlines for payment, the over-indebted can return to the market. According to the regulation, it is the person who cannot pay the overdue debts anymore or approaching due date. That happens either because of a sharp drop in income — a marked situation in the pandemic, with 14.8 million unemployed – or unchecked spending, which in many cases leads the debtor to commit a significant part of the income or even take out new loans to pay old bills.

Women who earn one to three minimum wages represent the majority of the over-indebted, according to research by the Federal University of Rio Grande do Sul (UFRGS). According to Serasa Experian, the average debt is R$3,900, mainly with credit cards (29.7% of the total), retail (13%) and electricity, water and gas (22.3%).

“Household consumption drives short-term economic growth. It is the consumption in the supermarket, the electrician, the small repairs. Today, the over-indebted people cannot think about it,” says economist Manuel Enriquez Garcia, president of the OEB and professor at University of São Paulo.

Result of nine years of discussions in Congress, the new law (nº 14.181, of 2021) updated the Consumer Protection Code (CDC) and works on two fronts: brings a remedy for the disease of over-indebtedness — the renegotiation of debt — and a vaccine against the rampant granting of credit, which especially affects the elderly and public employees, who have stable income. It begins with the process of administrative negotiation and proceeds, if there is no agreement, to the judicial sphere.

“The law does not favor default. It is about giving the debtor conditions to pay their debts and, with this, reinsert the consumer into the economy and avoid social exclusion,” says judge Rafael Velloso Stankevecz, who judges consumer cases in the Small Claims Courts of the TJ-PR.

That is why the norm requires “the preservation of the existential minimum” in repaying debts and granting credit. For Cíntia Falcão, legal consultant at the National Association of Credit, Financing and Investment Institutions (Acrefi), the law brings advances, but needs improvements. “In order not to generate legal insecurity in relations, such as, for example, clarifying the concept of existential minimum.”

In the opinion of Mr. Garcia, with USP, it is reasonable to reserve 35% of the debtors’ income to pay off debts and the remainder (65%) to cover expenses for food, housing and clothing. “Judges tend to accept this proportion. It has support in maintenance sentences, in which a third of the person’s income goes to the payment of alimony,” he said.

The first obstacle, then, is to convince all creditors to negotiate. In the Court of Justice of Rio Grande do Sul (TJ-RS), almost 39% of the hearings fail due to the absence of creditors. For Judge Dulce Ana Oppitz, coordinator of the Cejusc of Porto Alegre, the rate tends to plummet. According to her, measures to suspend the collection of debt and to put the absent creditor at the end of the queue can be applied in cases with or without judicial process. “The attendance will be higher and also the possibility of agreement,” she says.

The TJ-RS was a pioneer in creating, in 2007, a center for renegotiation of debts before the judicial process. The agreement rate is around 40%. In TJ-PR, where the project began in 2010 and was extended to the entire state in 2019, 25% of cases are successful.

If no agreement is reached, according to the law, the consumer can request the initiation of a lawsuit for over-indebtedness. In this case, it is the judge who will draw up a compulsory payment plan. It is what has been called judicial reorganization for individuals. “If big companies have a second chance, why wouldn’t people have it?” says Tiago Basilio, public defender in Rio de Janeiro.

According to Professor Claudia Lima Marques, who was the rapporteur of the commission of legal experts that drafted the Law of Over-indebtedness, the judge has a limit. “He must guarantee the creditor, at a minimum, the payment of the principal with monetary correction,” she explains. In addition, the plan should provide for full payment of the debt in up to five years.

Source: Valor international

Revenues to reach all-time highs, Guedes says

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After the federal collection reached an all-time high in the first half, Economy Minister Paulo Guedes said that the “historical levels” of revenues will be exceeded this year. Mr. Guedes reinforced that part of the increase in revenues will be transformed into tax reduction and asked the Secretariat of Federal Revenue to be moderated regarding the tax overhaul.

On Thursday, the government discloses the bimonthly report of revenues and expenses, which, in addition to capturing the significant increases in revenues, will also show a drop in spending that will make it possible to unlock R$4.5 billion in this year’s budget. In the report released in May, the projection for spending this year exceeded the spending cap by this amount.

Thus, although President Jair Bolsonaro said on Wednesday that revenue went up “frighteningly,” allowing the unlocking of the money, revenues were not what paved the way for more spending. “I’m even positively worried, revenues went up frighteningly. We decided to unlock all the resources provided for in the budget of the ministries,” he said in an interview broadcast on his social media channels.

In June, revenues had a real increase of 46.8% compared to the same month of 2020, and reached R$137.2 billion, the highest for the month since 2011. In the semester, revenues reached the highest level of the historical series, of R$882 billion (without adjustment), a real increase of 24.5% over the same period of 2020.

Mr. Guedes said the figures show the “vigorous resumption” of economic growth. “We will exceed the level of the 2015 GDP, when it began to fall, and consequently the level of revenue,” he said.

Even if Brazil stopped growing from now on, he added, we would already have that level of sustainable revenues. “This is important because a lot of people are saying, ‘But what if next year it doesn’t grow, it only grows 2% or 3%?’. Well, the level of revenue, with the tax regime that we have today, will be maintained,” he continued. With this, he sought to counter the assessments that the revenue growth is transitory.

The results in the half year are good on virtually all taxes, said the special secretary of Federal Revenue, José Tostes. He highlighted, for example, the revenue of companies. The revenue with Business Income Tax (IRPJ) and Social Contribution over Net Profit (CSLL) totaled R$190,1 billion in the first half, real growth of 34.5% over 2020.

Mr. Guedes congratulated the Secretariat of Federal Revenue for the results, but called for moderation in relation to income tax reform, under discussion in Congress.

Source: Valor international

Softbank-backed Vtex valued at $3.75bn in Nyse debut

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When Mariano Gomide de Faria and Geraldo Thomaz finished the mechanical engineering course at the Federal University of Rio de Janeiro (UFRJ) in 2000, the reality was very different. There wasn’t plenty of capital for technology or international interest in Brazilian innovation, and e-commerce barely existed. With limited resources, they founded Vtex, a company in the now coveted universe of Software as a Service (SaaS), one where capital is not lacking.

The company debuted on the Nyse today valued at $3.75 billion, more than double what Vtex itself was valued 10 months ago in a closed round. It raised $361 million in the IPO and shareholders Tiger, Softbank, Long Pine and Constellation had relevant participation in the offering.

The stock was priced at $19 in the IPO, above the suggested range between $15 to $17. High demand helped drive the debut – the stock rose as much as 25.5% during the afternoon and closed up 16.74%.

“The long-term vision of our team and our investors helps a lot, beyond global liquidity,” Mr. Faria told Pipeline. “We didn’t have all that capital in the beginning. Twenty-one years ago, there was no Coca-Cola machine in Brazil. It is very emblematic because to have a Coca-Cola machine you have to have single-digit inflation or the hardware can not adapt the requests for coins,” added the company’s co-founder and co-CEO, associating the lower interest rates and inflation in check to the financial flow for new companies.

For him, the demand at the IPO is also an example of investors’ bet on the expansion of e-commerce in Latin America, after the pandemic caused companies and consumers to accelerate their changes in consumption habits. “Latin America grows 36% per year in e-commerce, it is the fastest growing region in the world, and with a penetration of only 6%, while the worldwide penetration of e-commerce is 18%. It has a huge space for organic and sustainable growth,” he said.

Despite already being in more than 32 countries in Latin America, North America, Europe and Asia – recently, it opened its Singapore office –, the region remains the company’s main market.

Prior to setting up Vtex, the only professional experience of the two friends had been as interns at Icatu – where they worked in the same bay as another intern who attended UFRJ’s economics course, XP’s Guilherme Benchimol. From the founding of the company as recent graduates until the end of 2008, Vtex had fewer than 10 employees, until it was called by Walmart to take part in the development of software for e-commerce in emerging markets. The contract changed the game, putting Vtex on the radar of multinationals.

Motorola, for example, hired Vtex for a store in Brazil. Shortly after, it had implemented the software in three local stores and now uses the service in 39 countries. Whirpool also started local, turned regional and is now a customer of Vtex even in Russia, says Mr. Faria.

Two years ago, the company had 400 employees, today they are 1,200 – 37% women. In recent years, the company has made three closed rounds of fundraising, was considered a unicorn last year at $1.7 billion of valuation, period in which it also passed the $100 million threshold in revenue.

The new funding will accelerate the development of technologies and strengthen the performance in the countries where Vtex is already present. The company has also invested in training digital professionals, a regional bottleneck. “We have a dilemma in the digital industry that is the lack of talent, and we made the decision to control our future in this sense, with two programs: Women in Digital, to train women for the digital market, and Tetrix, a challenge that, in the last edition, had 76,000 subscribers from all over the world,” he says.

A manager who invested in Vtex in the IPO considers that today the company is much less Brazilian and much more global, due to its performance profile, customers and prospects. For Mr. Faria, it is actually a milestone of the new national economy. “We are changing this stereotype of Brazil as a soybean seller to a country that provides digital service to the world,” Mr. Faria said.

Source: Valor international

Santander tests new investment product


Santander is testing a new form of investment distribution through specialized offices. The Spanish bank opened three units – in Curitiba, Rio de Janeiro and Recife – that, together with the one in São Paulo, have worked as a pilot for offering the service outside bank branches. At the same time, the group is gearing up to operate through independent financial advisers after acquiring a 60% stake in Toro Controle (owner of Toro Corretora and Toro Investimentos) through Pi DTVM last year.

With the offices, Santander taps a model that is beginning to take shape in rival Itaú Unibanco. With Toro, it will explore a new front, in which Banco Safra has been investing for about a year through the SafraInvest platform. Bradesco was already active in this field with brokerage Ágora and has been betting on an army of specialists to be closer to customers, constantly harassed by digital brokerages.

Pi was created in early 2019 with the proposal to be fully digital and take potential conflicts of interest in offering investments off the table. With no distribution effort through managers or independent financial advisers, it returns to the client part of the fee that would remunerate these professionals, such as rebates on funds, for example. Now with Toro, Santander chooses a hybrid model, including face-to-face service.

“Pi plus Toro consolidate our full-fledged investment platform to explore the open sea. Through Toro, we will open the external channel with in-house and independent advisers,” Luciane Effting, Santander’s executive head of investments, said. “With this, Santander now has a comprehensive structure that addresses investments, with specialized advisers within branches and new offices. In addition, with Toro, it is not limited to a digital advisory. In the final decision, humans are relevant.”

The banks’ bet on a mixed service model happens because interaction with professional advisers is still among Brazilians’ preferences despite the digital expansion seen during the pandemic. A recent survey by Anbima, the association of securities firms, and conducted by pollster Datafolha showed that 41% of respondents want to talk to a manager or specialist when closing a deal.

At Santander, this project is in line with the investments in technology planned for 2022 to make digital access more user-friendly.

In the offices, the bank’s own employees have been providing the service. Ms. Effting does not reveal the size that this type of service can have, but says that, if it works, the intention is to spread the model across the country. “The idea is to bring customer service closer to clients, because they see value in this,” she said. “The plan, the ambition, is big.”

The external advisory model within large banks was started by Itaú in the first quarter and the plan is to have 120 to 130 offices by March 2022, according to Claudio Sanches, head of investment and pension products at the bank. The project, which started in São Paulo, will be emulated in Minas Gerais, Santa Catarina and Espírito Santo, besides the Northeast or South regions. Of the 700 people in the íon offices – a reference to the digital platform being built – the team may expand to 2,000 professionals.

At Bradesco, the commercial team for investment products reaches 900 specialists in the branch network and another 300 in a central office to reach where the bank has no physical presence, executive director José Ramos Rocha says. With Ágora, the group operates through independent advising offices to tap those who do not have an account with the bank.

“There is no right or wrong model, time will tell. At the bank, we continue to focus on our employees, on training, and we think there is room to increase,” Mr. Rocha said. “The recovering economy will bring more investor clients. We identify opportunities, expand the model and, in parallel, Ágora works to increase the base of independent financial advisers.”

Source: Valor international

Competition stirs hospital market, boosts growth

How China and India Are Disrupting the Global Healthcare Sector

Consolidation in the health sector is already affecting philanthropic hospitals of excellence that serve the high-income classes. The Sírio-Libanês Hospital is carrying out a restructuring project to protect it from the expansion of large groups. Among the actions planned are the hiring of a professional CEO, creation of new sources of revenue, such as a medical school, and the retention of doctors from the competitors, Valor has found out.

Sources also say that Sírio-Libanês is already looking for names to run the hospital. Some of them are José Loureiro, former president of the educational group Laureate Brasil; Antonio José Pereira, CEO of Hospital das Clínicas; and Mohamed Parrini, of Hospital Moinhos de Vento – the three of them are executives without a background in Medicine.

He who takes the challenge will work together with physician Fernando Ganem, announced in April to replace Paulo Chapchap, who has presided over Sírio-Libanês for the past five years and was hired three weeks ago by medical diagnostics company Dasa as strategic advisor for the group’s hospital business.

Sought for comment, Sírio-Libanês confirmed that it is changing its corporate structure. “With the composition of the new board of directors of Sociedade Beneficente de Senhoras Hospital Sírio-Libanês in April 2021, the institution began a management restructuring process, taking into account the needs of patients, its clinical staff and the current scenario of the hospital sector. Next week, the Sírio-Libanês Hospital will receive a new manager for the financial team. The institution is following the market and mulls the need to bring in new executives with the abilities required for this transformation,” it said in a note.

The worries are well-founded, and the order is to prevent doctors from leaving Sírio-Libanês to work for competitors. The large groups are extremely capitalized and investing in research and medical centers of excellence and hiring renowned doctors – that is, following the same pattern of philanthropic hospitals.

Rede D’Or, for example, has taken to its team names like Paulo Hoff, an oncologist who worked for ten years at Sírio-Libanês, and surgeon Antonio Luiz Macedo, from Hospital Albert Einstein. Besides hiring the top-notches for very high salaries, Rede D’Or has already invested more than R$1 billion in the construction of Vila Nova Star – a very high-standard hospital that has become a reference in a few years – and recently the Moll family, parent company of Rede D’Or, announced a R$500 million donation for scientific research.

This restructuring at Sírio-Libanês is being led by the new board elected in May, a group that was opposed to the previous management. In recent years, there has been a power struggle between the board of directors and the councils of the ladies of the charitable society. The opposition took over, electing businesswoman Denise Alves da Silva Jafet, granddaughter of the hospital’s founder, as chair of the board. The board of directors also includes now four independent members: Anis Chacur Neto, former president of ABC bank; Chaim Zaher, CEO of Grupo SEB Educação, Marcos Rocha Awad, director of São Francisco Saúde (acquired by Hapvida) and Henrique Luz, formerly with PwC.

Mr. Zaher was invited to help unblock a project for the creation of a medical school that, for years, has been ready on the drawing board even before the competitor Albert Einstein created its medical school – which is today one of the most prestigious in the country. Sírio already has an education arm with renowned specialization courses.

People familiar with the matters also say that other sources of revenue are being analyzed, such as pharmacies, similar to what exists in the United States, the expansion of telemedicine, and new partnerships. The project is still provisional, and the idea is that the new CEO will help develop the business plan. In 2019, the Sírio-Libanês Hospital reported revenues of R$2.2 billion, up 10% from 2019.

The new board is still deciding which path to follow. The previous administration opted for a more expansionist strategy, with a diversification of health services such as consulting services for the corporate market, diagnostic medicine, and the opening of a Sírio-Libanês unit in Brasília. This geographic expansion was the reason of many clashes in the last few years between the deliberative and community councils that had opposing views. The current command prefers to grow only in São Paulo and continue serving affluent patients, sources say.

The large groups are expanding across the country, gaining scale to reduce costs and seeking capital in the financial market. The philanthropic hospitals of excellence operate basically in São Paulo – a city that became a reference in quality hospital care due to the non-profit health institutions that reinvest their earnings in research and quality. In other words, philanthropic institutions are responsible for keeping quality standards high, encouraging the consolidating groups to invest to match them and even go beyond.

The philanthropic groups are not in a standstill before the competition. They have been seeking alternatives. BP (Beneficência Portuguesa) no longer has 60% of its medical care focused on Brazil’s public healthcare system SUS, the Hospital Alemão Oswaldo Cruz has a unit that works exclusively with a performance-based remuneration model, and Albert Einstein opened this year a unit in the state of Goiás.

Source: Valor international

Government to use provisional measure to regulate railways

Railway Traffic Automation - Railway Traffic Automation - Iskra

The Minister of Infrastructure, Tarcisio Freitas, said that the federal government will send to Congress a Provisional Measure (MP) to boost private-sector investment in the railroad sector. In a live-streamed interview with Valor on Tuesday, in partnership with the National Association of Railway Carriers (ANTF), he said that the bill that creates a new legal framework for railroads has been stuck in the Senate since 2018 and that is why the government has decided to change its strategy.

The tactic resembles, in a way, the one used in the privatization of Eletrobras, which also had a bill stalled in Congress and only took off when it was turned into an MP. In the case of railroads, bill 261 was presented in 2018 by Senator José Serra (Brazilian Social Democratic Party, PSDB, of São Paulo), but little progress was made. The rapporteur, Jean Paul Prates (Workers’ Party, PT, of Rio Grande do Norte), is still discussing changes to the text.

According to the minister, the government intends to send the MP to Congress to accelerate the approval of the new framework. One of the main changes is to allow new railroads to be built by the authorization regime, through free initiative of the private sector. Today, it can only invest in concession projects auctioned by the government.

The Ministry expects to make possible investments of around R$25 billion in new railway stretches, such as Sete Lagoas-São Mateus and Pirapora-Unaí.

According to Mr. Freitas, the delay in the approval of the 2018 bill has led different states to create legal frameworks that provide for the authorization regime. He cited Mato Grosso’s state railroad project, launched this week. “The state law is quite welcome,” he said. However, the minister evaluates that other cases may not have the same “synergy” with the planning of the federal network.

“It is necessary to discipline the subject a little so that we can make state and federal initiatives coexist, without loss of efficiency in the connection of these projects. Maybe, for this reason, it is more efficient to issue this provisional measure today, since our initiative of promoting the discussion within the scope of the bill has not succeeded,” the minister said.

Mr. Freitas said that the authorization regime, established in the MP, is one of the three pillars of the Bolsonaro administration’s strategy to expand private-sector investment in railroads.

Two other expansion fronts involve offering new concessions in auctions, such as the stretch of the North-South Railroad won by Rumo in 2019, and the early renewal of contracts, as occurred with the Malha Paulista, also owned by Rumo, and Vale’s railroads – Ferro Carajás and Vitória-Minas.

The goal is to promote the “rebalancing” of the Brazilian transport mix with a greater participation of railways and to increase the supply of cargo transport from the current 21.5% to more than 35% by 2035 – only with concessions and the renewal of contracts. If investments are allowed through the authorization regime, railroads could reach a 40% share in the country in the same period.

The minister stated that the new railroads will reduce the price of freight as a consequence of the greater competition between the different logistics branches.

Paulo Resende, director of business school Fundação Dom Cabral, agrees with the minister’s projections. “Raising the participation of railroads in cargo transportation to 36% could make Brazil reduce its total logistics costs in commodities by 35%, especially in the agricultural bulk segment,” said Mr. Resende, who heads the institution’s Logistics, Supply Chain and Infrastructure Center.

For Mr. Resende, one of the main challenges for planning in the railway sector is to conceive the projects as “multimodal,” capable of interacting with other means of transport. “Every time one talks about railroads in Brazil, they discuss an isolated project. This is a very serious mistake. Railroad is a multimodal corridor by nature,” he said, also in Valor’s live-streamed interview.

When talking about the railroads through authorization, he highlighted that the model serves especially the small stretches, with an extension of less than 200 kilometers, called “shortlines” in the United States.

“These are railroads that do not work, they are not attractive, under the concession system as we know it. So, without a permission model, we immediately doubt the opportunity to invest in a shortline,” said the director of Fundação Dom Cabral.

The Ministry of Infrastructure estimates that a total of R$31 billion in investments for the railway sector have already been contracted with the private sector since 2019. A good part of the contracting had been structured in previous administrations. This is the case of the concession of the 1,500-kilometer stretch of the North-South Railroad, won by Rumo in the first three months of the current administration. The 30-year contract foresees an investment of R$2.8 billion in route that connects Porto Nacional, in Tocantins state, to Estrela d’Oeste, in São Paulo.

Source: Valor international