Targets: Brasif; Eurotrade
Price: $500M ($250M each)
Sponsor: Advent International
Sellers: Jonas Barcellos; Shareholders
Financial Advisor: Buyers: Credit Suisse First Boston; Sellers: Merrill Lynch
Legal Counsel: Buyer: Tozzini, Freire, Teixeira e Silva
Accountant: Buyer: Deloitte & Touche; PricewaterhouseCoopers
Advent International recently closed its third acquisition using equity from its third Latin America-dedicated fund. In late March the firm acquired Brasif, a Brazilian travel retailer, and its logistics and purchasing platform, Eurotrade. Both entities carried price tags valued at $250 million, each.
The two companies reported combined 2005 revenues of about $262 million and same-year EBITDA of about $39 million. Sao Paulo-based Brasif operates 51 stores, 29 of which are duty-free shops located in the major Brazilian airports. The remaining 22 locations are evenly split between airport-based duty-paid stores and domestic retail outlets. Duty-free sales account for 87% of the company’s revenue.
“Airports increasingly are becoming more and more like shopping malls, only instead of cars in the parking lot, you have planes,” said Advent Partner Erwin Russel. “The Brazilian market is a great place for this investment because passenger flow is increasing 15% per year, which is great for future growth,” he added.
Brasif and Eurotrade will be rolled into Dufry AG (SWX:DUFN), a global duty-free retailer controlled by Advent. Advent floated Dufry, which operates in 33 countries, on the Swiss Stock Exchange in February after acquiring the company in March 2004. Funds for the buyout were split 20%/80% between Advent and Dufry, respectively.
Advent, which made six airport-related investments prior to this one, had been eyeing Brasif years before it was given the opportunity to acquire it. “We kept dating Brasif on an on-and-off basis until November of last year, when the owner of 92% of the business finally thought the time was right for a sale. He was 86-years-old and had no successor.”
Once the owner, Jonas Barcellos, saw that conversations with Advent were getting serious, he retained Merrill Lynch for financial advice. The investment bank held an auction which included other financial buyers, Russel said.
Dufry was the perfect investment partner to invite into the transaction, he noted, as it would bring its operational expertise and ability to realize synergies into the investment. Advent currently controls 51% of Dufry’s voting shares and about 40% of its capital.
As for Advent’s attraction to the travel retail sector, Russel said it is niche in the consumer market made up largely of wealthy customers that—because of the limited time they have to shop—are very focused buyers.
Another crucial ingredient, Russel said, is the limited amount of space available for these travel retail locations—be it airports, cruise ships or the like. “This means that you typically will be the only one selling any one particular good in that particular location. It’s an implicit monopoly. If you have the right proposition, you have a good chance of making a sale.”
Perfumes and cosmetics make up between 25% and 30% of Brasif’s sales, while beverages account for 20% and electronics make up 15% to 20%, Russel said.
“We’re seeing a real growth opportunity with jewelry and watches, which are supposed to make up 20% to 25% [of sales], but right now is only at 15%,” Russel said. The remainder of the Brasif’s sales comes from clothing, souvenirs and snacks, he added.
Advent’s Latin America Private Equity Fund III LP, which was tapped for this transaction, raised a total of $375 million before closing last year. —A.N.