Actis makes $58m pre-IPO play in Brazil

The emerging markets-focused firm has struck its third Brazilian deal in three months, backing Brazil’s largest independent brokerage firm, XP Investimentos.

Actis will pay $58 million for a minority stake of undisclosed size in Brazilian brokerage firm XP Investimentos. The investment will be made from its $2.9 billion third fund.

The emerging markets private equity firm said in a statement it would work with XP to prepare it for an initial public offering, which it said would make it Brazil’s first publicly listed company in the sector. Improvements to XP’s technology, products, network expansion and “the pursuit of selective acquisitions”, could also be financed by Actis’ investment, according to the statement.

Subject to approval by Brazil’s Central Bank, Actis’ latest Brazilian deal will mean the firm has invested nearly $170 million in the country over the past three months. In September, it invested $58 million in supermarket chain Companhia Sulamericana de Distribuição. Last month, it paid $53 million for a stake in cleaning products manufacturer Gtex Group.

Brokerage firm XP was launched in 2001 and now has more than 215 branches in 100-plus Brazilian cities, serving over 70,000 customers, according to the statement.

Actis said it believed strongly in the potential growth of the sector, citing statistics that only 0.3 percent of Brazilians were currently direct stock market investors, a group expected to number 5 million people in “coming years”.

“This investment reflects our confidence in Brazil and the strong growth potential of the market segment,” Chu Kong, co-head of Actis in Latin America, said in the statement. “Actis has a successful track record in the financial sector and will bring this expertise to leverage XP’s growth.”

Last year, Actis purchased a 9.33 percent stake in Egypt’s Commercial International Bank (CIB) for $244 million from a Ripplewood-led consortium. Its other current financial services investments include Banque Commerciale du Rwanda, the second largest commercial bank in Rwanda; the National Stock Exchange of India; and Ugandan financial services firm DFCU.

Latin America’s financial services sector is popular with global and emerging markets private equity firms alike.

General Atlantic made its debut Latin America investment in August 2007 in Argentina-based online trading platform MercadoLibre, which later that year had an extremely successful IPO and continues to trade far above its offer price. The same year, General Atlantic also backed Brazil's equities, futures and commodities exchange, BM&F Bovespa.

Last year, Advent International entered the Brazilian credit markets with the R$360 million ($171 million at the time) purchase of a 30 percent stake in CETIP, the largest central depository for private fixed income securities and over-the-counter derivatives in Latin America.