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DEAL OF THE YEAR: Private Equity Deal

Jan 1, 2013

Mubadala / EBX

Most things Brazilian billionaire Eike Batista does publicly make headlines. But a $2 billion deal for a stake in his holdco – EBX – from Mubadala Development Company got LatAm growth companies dreaming.

The world’s sovereign wealth funds are highly prized private investors, however, actual transactions in Latin America have been few. So for Mubadala, Abu Dhabi’s sovereign vehicle, this was a double first – its first LatAm investment, and the first time Batista had let a strategic partner into his holding company, the umbrella for one of Brazil’s most visible and high-growth conglomerates.

The deal gave Mubadala preferred equity securities worth 5.63% – the unusual decimal reflecting Batista’s penchant for his favorite number – of the Centennial Asset Brazilian Equity Fund, the vehicle through which Batista controls EBX.

The proceeds are to be used in the underlying businesses of new ventures. It underscores the small but growing trend of big-ticket Middle East equity investments in LatAm, following the pre-IPO investments in Santander Brasil and a pre-IPO piece of BTG Pactual made by others.

"Mubadala decided to use Eike [Batista] as a vehicle for Brazil," says Marcus Silberman, co-head of global emerging markets M&A at Credit Suisse, which with Itaú advised EBX on the transaction. Goldman Sachs advised Mubadala.

The price suggested a valuation of $35.5 billion for the privately held group, which is made up of 11 known business units, analysts said at the time. This is a guess, of course, as only five members of the EBX family were publicly listed.

Basing the measure purely on the value of the listed companies, the price paid by Abu Dhabi was a 40% premium above market value, according to an estimate at the time by Gustavo Gattass, head of research at BTG Pactual. However, the valuation could be affected by many factors, such as the size of EBX’s cash position, which there is no way for the public to know.

Bankers say they are spending more and more time pitching sovereign wealth funds with investment opportunities in a diversifying number of LatAm sectors, with the caveat that Middle East buyers need size. Interest is up, but the transactions are hard to put together – they say, as few details of their makeup ever make it public. Silberman says discussions with Mubadala lasted for more than one year.

"There is a lot of interest," Silberman says. "Mubadala will continue to look for opportunities in Brazil. This trend will continue. Latin America is rich in natural resources."

This interest does not yet appear for public equity transactions, in which tickets are not big enough to meet buyers’ appetite for large stakes. At this point, sovereign funds have a preference for pre-IPO investment in big names that are sector leaders. Natural resources, financials and infrastructure – particularly if Canadian pension funds are included in the government-linked basket – have been the main areas, as the tendency starts with the most solid sectors.

Others in the non-government space have followed Mubadala into Batista companies, with GE coming into EBX in May for $300 million, on similar terms to Mubadala. At the operating company level, Germany’s E.On had already bought in to $472 million of power generator MPX.

The deal was also well timed from Batista’s point of view. It came before his OGX oil and gas company announced lower production targets in June. OGX shares plummeted, and the news had a knock-on effect on Batista’s other companies. Since then, Batista appears to have put off plans to IPO other units, even EBX itself, and has put more of his own cash into the companies. LF

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