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How to spot a Brazilian falling knife

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10/22/2015 10:42 AM Article

 

This is an article about the Brazilian PE and M&A

industry. There is a cautious shy optimism in the midterm.

A light sense that, after a long hard winter, the

Brazilian government is finally trying to do the right

thing about the economy. People are not sure though.

There is still a long way togo, but the willingness of

the new economic team and their commitment to

market practices appear to be real and focused . ln the

macroeconomic sphere, the local currency lost a lot of

value in relation to other currencies, the cost of capital

increased- thus making local companies more flexible

in terms of pricing - and the pricing expectations of

Brazi lian entrepreneurs have beco me more realistic.

As such, Brazil should be a no-brainer "buying market"

for foreign parties interested in PE/M&A. A very large

portion of this industry rel ies on buying assets cheap,

turning them around and then selling them ata

premi um. This is not happening as fast as it should.

When t rying to determine the reasons for the slow

(although steady) pace of investments in the industry,

lawyers and Brazilian bankers f requently have to deal

with the metaphor of "investors resisting to catch a

falling kn ife".

Hence the title.

lt is a very good metaphor for the current state of affai rs

of the Brazilian market. One might get hurt catching a

falling knife, as one might h ave big losses if the timing

of an investment is wrong. Therefore, this article is

about how to spot and differentiate between good

assets and falling knifes. At the end of the day, it is only

a matter of vis ibility.

The answer is simple and has been tested worldwide

ove r centuries. Butit is not at al i easy to. implement.

Get a partner.

A local one.

Pick your partner well.

 
 
 

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