“GP Investments has benefited from benign economic and industry trends; four years of stable, economic growth; low levels of competition; and attractive valuations with a good arbitrage between private and public markets.
We expect some changes over the next couple of years with the likely arrival of larger international private equity firms and increased competition for assets driving up entry prices. It also seems inevitable that economic conditions will be more uncertain.
But we have been in this market for 15 years and we are well placed to weather any change in conditions, having demonstrated out abilities not just as deal makers but creating value by growing and improving businesses, managing them for profit.
In the past we have been able to make money from margin growth and multiple expansion. In 2008 we will see more leverage going into transactions with local money at reasonable rates.
We will use leverage selectively to enhance returns and to allow us to compensate for the increase in valuations as competition heats up.
Globalisation has been a huge boon for the region, but it is vulnerable now to any slow down in demand for commodities. Any borrowing will be constrained by the business’ ability to pay down debt from cashflow.” Antonio Bonchristiano, managing partner, GP Investments
Amid all of the brouhaha surrounding The Blackstone Group’s initial public offering this summer another quoted private equity company was steadily getting on with business, having listed the year before. It would be a surprise to some, but not readers of PEO, that this firm was the Brazilian GP Investments, hailed in today’s issue of UK periodical The Economist, as the acceptable face of private equity.
A year after floating, GP Investment’s shares are trading at three times the offer price, in marked contrast to Blackstone’s performance, and the firm has had a spectacular success matching the region’s record fundraising with its latest $1.3 billion fund.
It participated in two landmark transactions. First up was the $1 billion acquisition of Pride International’s Latin American Land Drilling and E&P Services Businesses in August, the region's largest deal and GP’s first non-Brazilian deal, in August.
One day after the acquisition of Pride, GP Investments took a $642 million controlling stake in Magnesita, a producer of refractory material in Latin America. Both transactions came at the height of the subprime crisis in August 2007 and underlined investor confidence in the region.
The firm also opened its first office outside of its home market in Mexico, highlighting its regional ambitions.