Firms have started to set up positions, often with the idea of helping to put things in order and taking seats on the board
Mateus Tessler — Foto: Rogerio Vieira/Valor
A group of companies listed on the Brazilian stock exchange B3 and in need of capital to clean up their balance sheets have become the target of a new market strategy involving the purchase of shares by asset management companies specializing in restructuring. This year, with many companies also undervalued on the stock market, some asset managers have started to take positions, often with the idea of helping to put the house in order. In addition to injecting capital, they are also looking for board seats.
In order to face less risk, specialized managers make a complex plan. They work out an equation to build up exposure, because buying a relevant position on the stock market alone affects share prices. In general, the focus is on companies that need cash to fix their balance sheets.
At Jive, an asset manager known for its work in the “special sits” market, up to three listed companies are on the table. According to managing partner Mateus Tessler, the first step is to buy the companies’ debt in the market, which Jive has done with these targets.
As the negotiations progress, including a prior agreement with the company’s management team, the idea is to negotiate a capital increase through a follow-on offer, an operation in which Jive can act as an anchor, with a clause in the prospectus providing for warrants that would allow an increase in future stake through the purchase of a new block of shares at a certain pre-defined discount.
This could be a way to make current shareholders more comfortable with the inevitable dilution of their stake in the offering, given the devaluation of the shares on the stock exchange.
“We are looking at cases where the company is doing well operationally but has an inadequate capital structure,” said Mr. Tessler. The plan includes, according to him, buying the debt on the market at a discounted value, on the one hand, and negotiating a capitalization, on the other.
According to the executive, while the same can be done with privately held companies, the focus has been on publicly traded companies. “I like the idea of having a capital market as a source of liquidity and M&A [mergers and acquisitions, in financial jargon],” he said. According to sources, this would be the case with Infracommerce, which last week announced its intention to do a follow-on, coupled with warrants. In recent months, according to sources who spoke on condition of anonymity, the company had been talking to funds seeking an injection of capital, and the offering was a way of attracting those investors.
In a similar move, funds increased their position in the CVC travel agency with an offer of shares and warrants. The follow-on had been agreed between the company and creditor banks in the process of renegotiating debt. In this way, founder Guilherme Paulus returned to the company.
WNT, the asset management company led by Valério Marega, has been aggressive in this strategy. It recently bought shares in the online retailer Westwing, where it has just appointed members to the board, after reaching a 28.7% stake. Another company that made the same move was the investment firm TC, with very undervalued shares. In both cases, however, the asset manager’s entry was made by buying shares on the stock exchange and no capital increases were agreed. Mr. Marega declined to comment, citing a quiet period.
Signal Capital, which has already entered the capital of companies with an eye on the restructuring thesis, is analyzing some cases, one of which, involving a listed company, is in a more advanced process, said partner Ricardo Fernandez. According to him, the asset manager has recently received about five cases in which companies are looking for capital and management help with a view to restructuring.
Mr. Fernandez points out that the best way to proceed is to negotiate with the company before the IPO to agree on an injection of funds, which could be through a private placement, and a new shareholders’ agreement that will allow participation in the company’s governance, including a seat on the board. After those steps, the work will be to make Signal’s entry possible, which could be done through a stock market auction, called a “block trade,” in which one of the shareholders would sell shares for the fund’s entry.
“The best way is to have an agreement, and companies in need of restructuring are more open to that kind of conversation. These companies are generally not just looking for money,” said the executive.
Some private equity funds that buy stakes in companies are also pursuing a strategy of buying shares on the stock market not with an eye to restructuring, but to take advantage of the price of certain stocks that are considered attractive to build a position. According to the managers of some of these funds, however, the idea is not to have an active presence, such as a seat on the board, since one of the strategies is to have the flexibility to take advantage of positive moments for divestment.
Mr. Fernandez of Signal said he has also looked for opportunities to buy shares in undervalued publicly traded companies, especially those the asset manager already knows and names already in his funds. “We’ve looked closely at some cases to take advantage of shares on the exchange that are very cheap in companies where we see that the screen price doesn’t match,” he said. He points out that, unlike equity funds, private equity has longer liabilities and can therefore have more patience to hold the stock.
The electricity company Light, which is currently undergoing a controversial court-supervised reorganization, is another recent example. Businessman Nelson Tanure’s position in the company reached 30%, with purchases only on the stock market. This is how he got into companies like Aliança (formerly Alliar) and Gafisa. His strategy was to buy shares in companies that were depreciating and needed to be restructured. Mr. Tanure declined to comment on the matter.
*Por Fernanda Guimarães — São Paulo
Source: Valor International