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Darling Ingredients buys Brazilian Gelnex for $1.2bn

Two giants are little known by consumers, even though most have possibly already consumed some of their products used as inputs for the food, pharmaceutical and cosmetic industries

10/19/2022

Texas-based Darling Ingredients agreed to buy the Brazilian company Gelnex for $1.2 billion in cash. This is the biggest deal in Brazil’s consumer sector this year, stitched together by Santander on the selling end and Morgan Stanley on the buying end.

The two giants are little known by consumers, even though most have possibly already consumed some of their products used as inputs for the food, pharmaceutical and cosmetic industries.

Gelnex is one of the world’s largest manufacturers of gelatin and collagen peptides, with four plants in Brazil, one in Paraguay and another in the United States. It exports ingredients used in supplements, cereal bars, dairy beverage, candies, pills, and beauty products to over 60 countries. The company founded in Itá, Santa Catarina, has the capacity to make nearly 50,000 tonnes a year of collagen.

In the competitive process, Darling beat the proposals of international private equity funds and protein giants – Brazilians JBS and Marfrig studied the business, according to Pipeline, Valor’s business website. The relevance of Gelnex’s raw material, which are pork and beef by-products, justifies the interest of the protein companies, which saw high synergy in the operation.

JBS started betting on the segment this year. In August, the meatpacker unveiled an investment of R$400 million in its newly created Genu-In, with ambitions to compete in the market with Rousselot, Darling’s brand, and Germany’s Gelita. Marfrig does not make use of pig skin and bovine leather by-products, it only sells them, which led it to consider a transaction.

The deal has also drawn international funds due to its size since it is not so common in Brazil’s M&A environment checks over a billion dollars. Gelnex was until now controlled by three holding companies – Gel Holdings, Ibo Participações, and Itá Investors – represented by a group of directors but owned by a local businessman.

Darling also operates in other segments, transforming edible by-products and food waste into sustainable products and renewable power. It is a behemoth with 250 plants in 17 countries that reuses almost 15% of the world’s meat industry waste into products such as green energy, renewable diesel, collagen, fertilizers, and feed. Rousselot alone has 11 plants.

The company’s origin can be traced back to a family business in Chicago, but its current headquarters are in Irving, Texas. This is Darling’s second acquisition in Brazil this year alone. South America’s largest country is considered a strategic market by CEO and chairman Randall C. Stuewe. In May, the company unveiled the purchase of the Fasa group for $542.6 million in cash.

“Brazil will play a big role in feeding a growing world population, which makes it a premier location to grow our specialty ingredients business,” he said earlier this year. This time, Mr. Stuewe reinforced the bet on the specific demand for collagen. “Driven by strong growth in demand for collagen products in the global health and nutrition market, we anticipate the collagen peptides market to double in the next five years,” he said in a statement.

With shares traded in the U.S., Darling is valued at $12 billion. The proclaimed sustainability in the company’s business has been reflected in the market: the stock jumped 340% in five years. The size of the acquisition put pressure on the stock on Tuesday, and the company fell by 4%. Even so, they are up 6% this year, compared with S&P500’s 23% drop and Dow Jones’s 17% decline.

Gelnex communicated the operation to employees on Tuesday, Pipeline has learned. The company did not return requests for comment

The deal is expected to be closed early next year, after regulatory approvals

*By Maria Luíza Filgueiras — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Copel buys EDP’s wind farms for R$1.8bn

With acquisition, Paraná’s state-owned company has a total generating capacity of 6.7 GW

10/07/2022

Daniel Slaviero — Foto: Divulgação

Daniel Slaviero — Foto: Divulgação

State-run Copel (Companhia Paranaense de Energia) has acquired the wind farms Aventura and Santa Rosa & Mundo Novo from EDP Renováveis for R$1.8 billion. In all, there are nine wind farms in operation in the municipalities of Touros and São Tomé, in Rio Grande do Norte, totaling 260.4 megawatts of installed capacity.

Of the total, the amount of R$965 million is expected to be paid via equity, and the remainder can be paid through funding or with its own money. The project has long-term financing with maturities up to 2043 contracted with Banco do Nordeste (BNB) with rates of IPCA (Brazil’s benchmark inflation index) + 2.19% per year (Aventura) and IPCA + 1.98% per year (Santa Rosa & Mundo Novo).

Most of the power generated (76.5%) was sold in auctions in the regulated environment, and 13.7% of the power generated is sold in the free market. There is still 9.8% left for new contracts.

With the acquisition, the state-owned company of Paraná has a total generating capacity of 6.7 GW, including hydro, thermal, wind, and solar. The company’s goal is to have a more diversified portfolio, reducing exposure to hydrological risk. The operation will be carried out by Copel GeT, a wholly-owned subsidiary of the company.

CEO Daniel Slaviero highlighted the strategic location of the farms and the importance of acquiring an operational asset for the business. According to him, the company consolidates its presence in Rio Grande do Norte and increases its wind generation capacity by 28%, thus reaching 1.2GW of wind generation in its portfolio.

“The acquisition achieves a major strategic goal, which is to recompose the EBITDA with the sale of Copel Telecom to focus on the power business. The largest investment plan is focused on Copel Distribuição, but the company has the muscles to make those acquisitions in power generation” and “brings what matters most, which is a double-digit return,” he said.

Cássio Santana da Silva, the company’s chief business development officer, said that with the EBITDA plan the company reaches a turning point and will start to analyze closely greenfield assets, which “despite having more risks, bring higher returns.”

In the view of Marcelo Sá, a utility analyst at Itaú BBA, the management team has done an important job by improving efficiency, selling non-strategic assets, implementing governance improvements, and acquiring the Vilas wind farm in 2021.

“The company now has a clear dividend policy, in addition to control mechanisms such as investment committees, which reduce the risk of capital allocation. The growth strategy focused on M&A is the most appropriate, with much lower execution risk, since the current moment is challenging for the development of new renewable projects, given the increase in Capex costs and the drop in power prices,” he said.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: XP’s acquisition of Modal can be a masterstroke

Em troca de ações, XP compra 100% do Banco Modal por R$ 3 bilhões

The acquisition of Banco Modal by XP Inc. brings to the financial group founded by Guilherme Benchimol R$30.4 billion in assets under custody, 501,400 active clients and a portfolio line of credit of R$606.8 million, data from the third-quarter results show. It may seem little for XP, which was already near R$800 billion under its umbrella, with 3.3 million active clients and R$8.6 billion in collateralized credit operations. But far from being a negligible step in the consolidation of the investment market in Brazil, XP’s bid can be considered a masterstroke.

With the countless agreements closed by Modal, such as the sale of up to 35% of its capital to Credit Suisse in mid-2020, the digital bank was one competitor with the potential to cause problems to XP. In the premium segment, which serves customers with at least R$300,000 in assets, Modal had been offering asset allocation with the Credit Suisse brand. Modal’s mobile application made available 28 exclusive funds from the Swiss group’s private banking in Brazil and the plan was to reach 40 in the first quarter of 2022.

In a meeting with investors in mid-December, Modal CEO Cristiano Ayres said that more than just a pretty name, the presence of Credit Suisse was the way to offer financial advice similar to what is done with large fortunes. The relationship with the Swiss group also paved the way for Modal to take part in the syndicate of banks in capital market operations and distribute assets originated by the firm to its retail base.

The foreign partner’s seal of approval also helps draw independent and professional brokerage firms to the platform, Mr. Ayres said. Modal had been moving forward in this distribution channel since the acquisition of the research company Eleven, which already had relationships with several asset management firms, including competitors.

Another front in which Modal had been investing was in the so-called “B2B2C,” in which it offered financial services to various partners. It already had agreements with companies such as Rappi, Dotz and Conta Black.

Acquisitions made by Modal to create an “ecosystem of financial well-being” are also in line with the businesses where XP demarcated its territory, including financial education and training of professionals, whether in investments or technology.

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Arezzo expands with another acquisition

O futuro da Arezzo (ARZZ3) com a Reserva e outros destaques do dia

The Arezzo & Co group Tuesday morning announced the purchase of the luxury brand Carol Bassi, created by Anna Carolina Bassi, for R$180 million – an amount that may reach R$220 million if performance targets are met by 2025. The payment of the operation will be divided into installments, most of it in cash and also in shares.

The acquisition adds to the first collection of Schutz, one of the group’s main footwear brands, and to the first items of Reserva, a men’s fashion brand acquired in the last quarter of 2020.

The size of this market – destined to classes A and B, that is, with average income ranging from R$ 10,500 to R$ 23,000 – is R$15 billion, says the group. In the case of Schutz, the first collection should hit the stores in March and, by 2026, will account for half of the brand’s revenues.

The brand Carol Bassi was created by the designer from São Paulo in 2014, inside the store of her family’s business, Guaraná Brasil. Today there are two stores, in São Paulo and Rio de Janeiro, and presence in 90 multi-brand points in more than 20 states. The monthly turnover of its own stores reaches R$3.5 million. This year, the projection is of R$58 million in revenues, with R$ 36 million coming from the São Paulo store alone, at the fashionable Shopping Cidade Jardim Mall.

“Carol’s story is very similar to mine”, says Arezzo CEO, Alexandre Birman, about the acquisition. One of the brand’s highlights, according to him, is the “very high sales”.

Even without its own sales website, the brand has a strong digital community. There are more than 320,000 followers on Instagram and 55 groups on WhatsApp, where sellers update with information about the launches twice a day, for more than 8 thousand women from class A. In addition, no product is sold at a discount. The remaining pieces of collections are used in philanthropic bazaars, whose income is reverted to social projects.

The group’s goal is to place the brand in its digital ecosystem for online sales and also to create its own sales channel on the internet, which does not exist today. In the physical stores, there may also be integration between the brands. In the offline channel, by the way, Carol Bassi should gain between 15 and 20 new stores in 2022, says the company, and the multi-brand operation will also be strengthened, according to Mr. Birman.

In addition, Arezzo intends to develop footwear and handbag categories for Carol Bassi, with average prices of R$890 for footwear and R$2,000 for handbags.

With the brand, the company does not gain industrial muscle, as it was expected with the failed attempt to buy the textile clothing company Hering. Still, it strengthens its strategy to be a “house of brands” and consolidates the performance in the high-income fashion market, which, besides being stable, is experiencing a moment of growth.

“At that moment [the offer to Hering] we saw synergy with Reserva. But Reserva’s numbers are also coming along very well, with strong growth,” says Mr. Birman. Reserva was purchased in October 2020 for R$715 million.

This year the group, already with the founder of the Rio de Janeiro brand, Rony Meisler, in charge of the apparel operation, announced the incorporation of the urban fashion brand BAW Clothing, acquired for R$ 105 million.

“The focus now in the short term is to enter the women’s apparel market in the AB classes,” he says, highlighting that the team responsible for the merger and acquisition operations continues to monitor opportunities. “We entered this era of expansion with acquisitions.”

Source: Valor international

https://valorinternational.globo.com/

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Jewelry maker Vivara negotiates acquisition of competitor H.Stern

Jewelry chain Vivara is in talks to buy competitor H.Stern. The deal would be closed in cash and shares, and Vivara considers a secondary offering to raise part of the funds, said an executive close to the companies, without revealing numbers. Before its IPO in October 2019, Vivara held talks with the owners of H.Stern, who had hired Bank of America as a financial advisor – but the companies did not reach an agreement. This time, the jewelry maker founded by the German Hans Stern in 1945, in Rio de Janeiro, resumed negotiations with the Kaufman family, owner of Vivara. H.Stern has 70 stores and targets higher-income buyers. Vivava, maker of more popular jewelry, has 236 stores, growing e-commerce and is valued at R$7.3 billion at São Paulo-based exchange B3.

Source: Valor international

https://www.valor.com.br/international/briefs

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Brazil antitrust regulator to approve AT&T-Time Warner merger: media

Brazil’s antitrust regulator Cade is set to approve AT&T Inc’s (T.N) acquisition of Time Warner Inc (TWX.N) on Wednesday, with conditions.

AT&T agreed to buy Time Warner last year for $85 billion in a transaction it has said it hopes to conclude by year’s end.

Cade said it could not comment on cases under analysis for legal reasons, adding that the deal was on the agenda for Wednesday’s session.

The regulator has the power to issue a final and binding decision at that meeting.

Cade would not order AT&T to sell its ownership of Sky, which is the second-largest subscription television service in Brazil, the newspaper said without detailing what conditions would eventually be imposed by the regulator to clear the deal.

The deal will also be subject to the authorization of telecommunications regulator Anatel, Valor said.

The superintendent’s office of Cade said in August it had recommended changes to the deal as it could harm competition in Brazil’s pay TV market.

In Latin America, Mexican and Chilean regulators have already approved the deal.

Source: Reuters

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Kroton turns to premium school market

Kroton plans make its first acquisition of basic-education school this year. The education company is holding talks with 16 schools and negotiations have reached due diligence efforts in three of them.

Brazil’s leading for-profit college, with a market share of around 15%, wants to attain the same share in so-called premium schools by 2022, according to people familiar with the business. Premium schools charge monthly tuition of over R$1,200. The tuition rises to around R$2,000 in São Paulo state and Rio de Janeiro. The R$25 billion a year premium school market generates 44% of the industry’s revenue.

The strategy adopted by Kroton is to purchase recognized brands in several states, expanding them and opening new units in the school’s market. The company wants to start with 600 students, rise that number to 900 in the second year of operation and enroll 1,200 to 1,400 students by the third year, which then would allow an operating margin of 30%.

Kroton wants to use the strategy for its Pitágoras school in Minas Gerais. It currently operates a single school of the brand in Belo Horizonte, in addition to a learning system adopted by around 220,000 students in 672 Brazilian schools.

But the real targets of Kroton are markets lacking premium-school options, which automatically sidelines the city of São Paulo. Grupo Eleva, controlled by 3G Capital founder Jorge Paulo Lemman, appears to be following the same path. Sources said Eleva recently purchased Nota 10, a premium school with units in three cities of Mato Grosso do Sul.

Around 6,300 schools throughout Brazil operate in the R$1,200 range of monthly tuition. Bain & Company data also show there are only 49 schools with more than 2,000 students, driving investor interest in the assets.

The possibility of offering extracurricular courses for the spare part of the school day also drives interest. This market generates R$40 billion a year. Kroton plans to offer English lessons and homework assistance, in addition to other activities including sports in partnership with specialized schools.

Kroton will not operate in the “super-premium” school market – the segment in which the likes of SEB and Eleva are betting strongly – where tuition costs around R$5,000 a month. On Tuesday SEB opened a unit of its premium school Concept in São Paulo, in the former building of Sacré-Couer school, which consumed investments of about R$75 million.

Source: Valor Econômico

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NTS sale is landmark for Brazilian gas industr

Petrobras’s sale of Nova Transportadora do Sudeste (NTS) to Canadian group Brookfield represents a mark for the natural gas industry in Brazil. By putting an end to the de facto monopoly that the state-controlled company had in the transportation of gas, the deal becomes an important first step toward reducing the vertical integration of the sector, but by itself is not yet enough to make the market develop fully, experts told Valor.

On September 23rd, Petrobras announced that its board of directors approved the transfer of 90% of NTS shares to the consortium led by the Canadian fund for $5.19 billion. The first installment of the deal, representing 84% of the total, or $4.34 billion, will be paid when the transaction is completed, which should happen still this year. The remaining $850 million will be paid over five years. Petrobras said the sale “encourages new investments in the expansion of gas transport infrastructure” and favors the development of a competitive environment in the country.

Gas consumers, producers and traders see the need of some adjustments in the regulatory framework to bring new players to this market. The sector eagerly awaits the launch of a package of regulatory changes that the Ministry of Mines and Energy expects to present to the market in October.

One of the main fronts for the government is the sharing of infrastructure considered essential for producers to reach the consumer market, such as gathering pipelines, processing units and re-gasification plants. The Gas Law ensures the right of free access for third parties only to the transmission pipelines, but there are entry barriers to the rest of the chain.

Source: Valor Econômico S.A.

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Aché buys Tiaraju drug company

Aché announced its second acquisition in less than two months: a deal for Laboratório Químico Farmacêutico Tiaraju, in Rio Grande do Sul. The price was not disclosed, but the agreement includes the right to drugs and nutraceuticals being developed by Tiaraju and is part of a R$160 million budget for investments in 2016. Aché will add to its portfolio 12 phytotherapeutic drugs, a market that reached R$1.1 billion last year, and win clout to compete with Brazil’s market leader in the area, Takeda Pharmaceuticals.

Source: Valor Econômico S. A.

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China Three Gorges looking for more acquisitions in Brazil

China Three Gorges (CTG) is now focused on the Brazilian market, and evaluates various opportunities for mergers and acquisitions, Li Yinsheng, president of CTG Brasil, told. Until then, CTG’s focus was on completing the operational transition of the Jupiá and Ilha Solteira hydroelectric plants, bought in a re-auction in November last year (2015) for R$13.5 billion. “We have an M&A team that is evaluating different opportunities in Brazil,” Mr. Li said. In addition, the company is still studying greenfield projects, always with a focus on hydro and wind power sources.

Source: Valor Econômico S. A.

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