NeoFocus-Acquisitions and JV in Brazil: why and how to proceed?

Acquisitions and Joint-Ventures in Brazil:
Why and how to proceed ?
Jérôme Kelber
Paris, 05th June 2014
Company confidential - © NeoFocus Strategy & Finance 2014 CCI Paris IDF - 20140605 - Acquisitions and JV in Brazil 1

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Company confidential - © NeoFocus Strategy & Finance 2014
CCI Paris IDF - 20140605 - Acquisitions and JV in Brazil 2

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Agenda Page
1. Why Brazil? 5
2. Why an acquisition or a joint-venture? 26
3. Identify the target 40
4. Conduct the transaction 44
5. Side benefits 48
6. Appendix 53

11/2009 09/2013
Source: The Economist

Brazil has been through 20 years of near-continuous growth
Real GDP value 2013, 1994-2013 Real GDP growth, 1994-2013
5 000
4 500
4 000
3 500
3 000
2 500
2 000
Achievement: sustained and steady growth
X1,8
X1,4
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
8,0%
7,0%
6,0%
5,0%
4,0%
3,0%
2,0%
1,0%
0,0%
-1,0%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
+3,1%/yr
+2,8%/yr
Source: IBGE (Instituto Brasileira de Geografia e Estatísticas)

Brazil today ranks 7th amongst global economies and expects to
reach 5th by 2020
Achievement: an economic superpower
Exemplary economic
• Inflation target:
5- 6%/y
• Primary surplus
• Floating exchange rate
Strong nominal
growth
• 2012: U$ 2,253 bn (x5)
R$4,402 bn (x3)
• 2002: U$ 504 bn
(R$ 1,478 bn)
• 45% of Latin America
• 2014 projection: +1,7%
• > Russia #8, >India #10
• <UK #6, France #5
Substantial Forex
reserves
• Brazil’s Forex reserves:
‒ 1999: $36 bn
‒ 2013: $376 bn
• EU: $1,356 bn
• USA: $135 bn
• France: $54 bn
policy
1) FDI: Foreign Direct Investment
Source: World Bank, IBGE (Instituto Brasileira de Geografia e Estatísticas), Banco central do Brasil, Credit Suisse
Growing FDI(1)
• 2013: $65 bn foreign
direct investments
into Brazil (Russia: $94
bn; India: $28 bn)
• 2014e: $70bn
• 2002: $17bn, 2007: $35bn
• #5 destination behind
China, USA, UK & France

Brazil’s macro-economics are sound
Achievement: economic and financial stability
Reassuring
credit ratings
• Investment grade
reached:
‒ 2008: Standard &
Poor’s + Fitch: BBB-
‒ 2009: Moody’s: Baa3
• 2014:
‒ Standard & Poor’s
BBB, then BBB- on
24/03/2014
‒ Moody’s BAA2
Improving
“Country risk”
• 2014: EMBI+spread:
+245 basis points
(2004: +541, 2002:
+1445)
• 2013: decreasing public
debt (gross: 57,2% of
GDP, net 33,8% of
GDP)
Tamed inflation
• INPC:
− 2014e: 4,5%
− 2013: 5,9%
− 2012: 5,85%
− 1995: 2500%
Early repayment of
IMF loans
• 1998: $41 bn IMF loan
(Asian financial crisis)
• 2002: $30 bn credit line
(pre Lula’s election)
• 2005: $26,3 bn early
repayment of the
amounts used
• Forex reserves:
‒ 1999: $36 bn
‒ 2013: $376 bn
‒ UE $1,356 bn, USA $135 bn,
France $54 bn
Source: Standard & Poor’s, Moody’s, Fitch, IBGE (Instituto Brasileira de Geografia e Estatisticas), INPC Indice Nacional de Preços ao Consumidor, JP Morgan EMBI Emerging Market Bond Index

Brazilian population’s own views on Brazil’s current economic
situation is certainly much more positive than The Economist’s…
Military régime (01/04/1964 – 15/03/1985) Nova República (15/03/1985 – today)
Cumulative inflation 1970 - 2000: 602 702 873 063 167% (602 trillion %)
Between 1985 and
1995: 12 finance
ministers
416%
65%
1783%
1038%
2781%
1477%
480%
1158%
15%
Yearly
inflation
3000%
2500%
2000%
1500%
1000%
500%
0%
Since 1995: 12
finance ministers
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Cruzeiro novo
13/02/1967
Cruzeiro
01/11/1942
Real (Portugal)
Reis (conto 106)
Successive
Brazilian
currencies
Real
01/07/1994
Cruzeiro real
01/08/1993
Cruzeiro
16/03/1990
Cruzado novo
16/01/1989
Cruzado
28/02/1986
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
19% 19% 16% 16% 35% 35% 46% 39% 41% 77% 110% 95% 100% 211% 224% 235% 65% 416% 1038% 1783% 1477% 480% 1158% 2781% 1094% 15% 9% 7% 2% 20%
IGP-DI ((Indicie Geral de Preços de Mercado-Disponibilidade Interna). De 1989 à 1997, IGP-M (Indicie Geral de Preços de Mercado). Nova República ou Sexta República Brasileira
Source: IPEA (Instituto de Pesquisa Econômica Aplicada), Almanaque Folha,

Brazil’s economic performance must propel other development
components, or else growth may slow down
Strengths
•Under control, favorable demography
• Immediate demographic window of opportunity
•Abundant natural resources
•Fast growing middle class
•Strong internal consumption demand
Challenges/Opportunities
•Significant degrading of trade balance
•Domestic added value still too limited
• Infrastructure must be significantly improved
•Political, administrative and fiscal systems in need of
improvements
•Social inequalities remain strong:
– education
– public health
• Economic growth engines are present and
sustainable
• Growth relies in part on the domestic market
•Economic growth has exerted extra pressure on
the economic, political and social structures
• Deep reforms are necessary to avoid holding up
development

Demography makes Brazil a major country, without excessive
pressure in the short term
Population
Strength: under control, favorable demography
•2013: 199 million inhabitants
• 50% of LatAm (404 M), 40% of the European Union (507 M), 3 x France (66 M)
•Urbanization: 86% of total population (France: 85%)
•Density: 23 inhabitants / km² (France: 114)
248
million
in 2050
Demography
• 30% <14 year old,
• 62% <30 yo
• Mild demographic
pressure
• ~1500: ~5 M inhabitants
• 2013: 897,000 indians, inc. 67
uncontacted tribes (World’s
#1)
• 1960: 62 M
• 1980: 120 M
• 2000: 175 M
Source: IPEA (Instituto de Pesquisa Econômica Aplicada), Motoboy Zona Norte

The strong decrease of Brazil’s birth rate makes it a young country
with an immediate but rather short term window of opportunity
Strength: an immediate demographic window of opportunity
Age pyramid, by gender, 2000 and 2035e
Source: IPEA (Instituto de Pesquisa Econômica Aplicada),
Male Female

Brazil benefits from abundant natural resources
Strength: abundant natural resources
Natural resources
•“Green gold”: 8% of world’s arable land: 595 M ha, of which
only 75 M ha are cultivated (13%)
• 1st exporter of biofuels (2d producer of bioethanol), coffee, orange
juice, beef and poultry meat, soya, tobacco…
• n°1 GMO surface in the world
•“Black gold”: 2,6 M barrels/day (=Kuwait)
• Should quadruple thanks to the mega pre-salt reserves discovered
in 2006 off the shores of the Rio state
•Will make Brazil one of the world’s largest producers (Russia 10,3
Mb/day, Saudi Arabia 10,0 Mb/day)
•“Grey gold”: 3rd world producer of iron, natural resources in
bauxite, gold, manganese, nickel, phosphates, platinum,…
•“Blue gold”: 12% of world’s fresh water reserves, producing
93% of Brazil’s electricity
Source: US Energy Information Administration, Jeune Afrique; Le Temps, Index Mundi, FAO

Brazil’s economic development has enabled a fast growth of the
middle class, which now constitutes over half of the population
Strength: fast growth of the middle class
A Upper-upper
B Lower-upper
C Middle
D Poor 536 282 802 422
E Very poor 0 0 536 282
M people %
A & B
C
D & E
8,8 12,9
45,6 55,4
92,9 83,3
13,3
65,9
96,2
22,5
105,5
63,6
200
180
160
140
120
100
80
60
40
20
0
1993 1995 2003 2011
2012: 1US$ = 1,90 R$
Source: SAE (Serviço de Analises Estatisticas), FGV/CPS (Fundação Getúlio Vargas – Centro de Políticas Sociais), Quest Investimentos
Household
monthly
income
(2012)
Min Max
Class R$ US$ R$ US$
class
4963 2612 14521 7643
class
1731 911 4963 2612
class
802 422 1731 911

B2C: high growth of GDP and income per capita have induced a
high growth of domestic demand
Strength: strong domestic consumer demand
Per capita GDP, US$, 1994-2013
14 000
12 000
10 000
8 000
6 000
4 000
2 000
X10
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: IPEA (Instituto de Pesquisa Econômica Aplicada), Motoboy Zona Norte (IPEA), Shopping Cidade Jardim

Brazil’s domestic demand development strongly impacts its trade
balance
Challenge: significant degradation of trade balance
Trade balance, 12 months accrued, US bn
2003:
‒ Exports $73 bn
‒ Imports $48 bn
‒ Balance +$25 bn
Source: SECEX/MDIC,
2013:
‒ Exports $242 bn (x3,3 vs 2003)
‒ Imports $240 bn (x5 vs 2003)
‒ Balance +$2 bn

B2B: Brazil’s domestic added value must grow
Challenge/opportunity: domestic added value still too limited
Exports by category of value
Source: SECEX/MDIC
addition, %, 2013
Imports by category of value
addition, %, 2013

Brazil has created the conditions of a $600 bn+ ambitious
investment program in infrastructure
Challenge/opportunity: infrastructure need significant upgrade
Improving infrastructure
• Ports (Paranaguá – PR, Santos – SP, Vitória – ES, Suape – PE)
• 2012 Concessions Act – competition between private and public ports
• Airports (Cumbica – SP, Viracopos – SP, Manaus – AM, Fortaleza – CE)
• Concessions for Galeão-RJ (Odebrecht), Cumbica-SP (Ivepar/ACSA S. Afr.)
• Road network
• Programa de Inv. em Logistica (PIL-PAC), concession of 7,000 km of motorways
• Corredor logístico BR-163 – Rio Tapajos (MT >PA, soya, Bunge, Cargill, Hidrovias
do Brasil and Cianport)
• Railway network
• Concession of 11,000 km of railways (on a total network of 29 000 km1)
(1) Total railways network length: USA 225 000 km, China 86 000 km, France 30 000 km, Brazil 29 000 km
Source: Layher Scaffolding, LLX, Brasil Econômico, other
Porto do Açu, RJ

Significant progress must still be made on the political,
administrative, fiscal fronts …
Challenge: Political, administrative and fiscal systems need improvements
Political, administrative and fiscal complexity Corruption
Source: Veja

… in education as well, as it now slows down the country’s economic
development…
Challenge: social inequalities remain strong - Education
Literacy map of Brazil (2009) Illiteracy by age and gender (2009)
Source: MTE-Minstério do Trabalho e Emprego PNAD 2009, blog Leticia Pinheiro
Education
Private Public
Total
Female
Male
-

Brazil’s education sector is highly under dimensioned compared to
the needs of its economy…
Challenge: social inequalities remain strong - Education
PISA 2012 – Students’ performance in mathematics – selected countries
Brazil
OECD
Source: PISA Programme for International Student Assessment 2012, performance of students in mathematics, median, on a selection of countries
•In 2012, Brazil ranked
57 out of 65
participants to PISA
(math, reading and
science)
• Difference of resources
between socio-economically
favored and disadvantaged
schools was one of the largest:
4th out of 62
• The percentage of students
having repeated at least one
class was one of the highest: 7th
out of 64

…and the same applies to public health, a long term instability
factor
Challenge: social inequalities remain strong – Public health
•2013:
•Health spending: 7,6% of GDP, of which public sector 46%
(USA: 15,2% / 45%, Germany: 11,1% / 78%, LatAm: 6,7% / 54%)
•1 nurse per 1000 inhabitants (OECD: 4/1000)
•Geographic distribution is
unequal, some regions
receive much less than
others, of which the North
and North-East are prime
examples
- This queue is for those who wait.
- And this one for those who don’t need to wait anymore.
SUS: Sistema Único de Saúde – Brazil’s Public Health System, created by the constitution of 1988, on which 80% Brazilians depend
Source: Rede Brasil Atual, TopSeguroSaude.com.br, MundiHoje.com.br
Salvador (BA) public hospital
Natal (RN) public hospital

Brazil’s impressive economic performance is yet to have a positive
impact on other components of development
Brazil’s Human Development Index (HDI) 2012
•Index: 0.73
•Rank: 85
HDI trend 1980 - 2012
1,000
0,950
0,900
0,850
0,800
0,750
0,700
0,650
0,600
0,550
0,500
980
985
990
995
2000
Source: UNDP (United Ntions Development Programme)
Components
•Health: life expectancy at birth (years)
73,8
•Education: average education (years)
7,2
•Income: GDP per capita (in constant 2005 US$)
$10 152
•Inequalities: inequalities-adjusted HDI
0,531
•Poverty: multi-dimensional poverty index
0,011
•Gender: gender inequality index
0,447
2005
2010
2015

France’s Human Development Index (HDI)
France’s Human Development Index (HDI) 2012
•Index: 0.893
•Rank: 20
HDI trend 1980 - 2012
1,000
0,950
0,900
0,850
0,800
0,750
0,700
0,650
0,600
0,550
0,500
980
985
990
995
2000
Source: UNDP (United Ntions Development Programme)
Components
•Health: life expectancy at birth (years)
81,7
•Education: average education (years)
10,6
•Income: GDP per capita (in constant 2005 US$)
$30 277
•Inequalities: inequalities-adjusted HDI
0,812
•Poverty: multi-dimensional poverty index
n.d.
•Gender: gender inequality index
0,083
2005
2010
2015

Agenda Page
1. Why Brazil? 5
5. Side benefits 48
6. Appendix 53

Brazil’s economic performance must propel other development
components, or else growth will slow down
Weaknesses / Risks
•Multiple import barriers:
- Mercosul
- Protectionism in Brazil
•Strong labor shortage
•Long lasting shortage of skilled labor
•Very high cost of capital
•Weak innovation ecosystem
Opportunities / Risks
•High margins
•Numerous incentives
•Social inequalities remain strong
- Education
- Public health
•The combination of protectionist policies
and strong recent economic
development have multiplied the
bottlenecks in Brazil
•Realization of growth potential has
therefore been limited
•Brazilian authorities are aware of the need
to support local implementation of foreign
companies to modernize the economy
•The benefits of a local implantation are
many
Company confidential - © NeoFocus Strategy & Finance 2014 CCI Paris IDF - 20140605 - Acquisitions et JV au Brésil 27

Brazil is part of Mercosul, a free trade zone with few barriers
internally, but with substantial import barriers from outside
Weakness: import barriers
Mercosul
•Mercosul
•Created by the treaty of Asunción on 26/03/1991, signed by Brazil, Argentina, Paraguay,
Uruguay and 6 “associate members” (Bolivia, Chile, Colombia, Equador, Peru,
Venezuela)
• Zero import duties on goods traded within the area (with a few exceptions)
• Trade with third party countries is subject to a Common External Tariff (CET), with duty
rates of 0 to 20% (14% on average). Each state can also decide unilaterally to impose a
temporary rate of up to 35%
• Since 2010, member states can also make exceptions to the CET on up to 100 products
• Every 6 months, 20% of the CET tariffs can be modified
Pacific Alliance vs Mercosul
Source: Commission Européenne (http://madb.europa.eu/madb/barriers_result.htm?sectors=none&countries=BR&measures=none) , Wall Street Journal, Quartz qz.com, CommSec

Access to the Brazilian market by exporters is made difficult by a
number of measures
Weakness: import barriers
Brazil’s protectionism
•Import restrictions
• Import duties (see Mercosul)
• Import licenses
• Specific domestic standards (e.g. labelling and user guides in Portuguese)
• Special regimes (telecoms, insurance, sea shipping, textiles and leather)
• FDI limitations or specific conditions on certain sectors (air transport, agriculture, health,
rail/road/sea shipping, cash handling, architecture, postal services,…)
•National preference on 25% of public tenders
• The « Buy Brazil Act » n°12.349/10 (15/12/2010) amends public tender regulations (federal,
state and municipal levels): they are open to international bidders provided they have a legal
entity in Brazil, and preference is given to goods and services produced in Brazil on 25% of the
public tenders
•WTO:
•WTO ranks Brazil as n°1 for new protectionist measures enacted in 2013: 39 measures
identified in Brazil out of 407 identified in total (India ranks n°2, USA n°3, Argentina n°4)
• The EU which absorbs 20% of Brazil’s exports, formally sued Brazil at the WTO for its vehicle
import duty (30%)
Voitures FIAT à Oliveira (MG)
Source: SECEX, European Commission (http://madb.europa.eu/madb/barriers_result.htm?sectors=none&countries=BR&measures=none) , february 2014 WTO report, Reuters

Brazil’s accelerated development created an “economy of shortage”
in many respects, and particularly in terms of workforce
14,0%
12,0%
10,0%
8,0%
6,0%
4,0%
2,0%
0,0%
Weakness: labor shortage
Unemployment rate(1), metropolitan areas, 2002-2013
2002.03
2002.09
2003.03
2003.09
2004.03
2004.09
2005.03
2005.09
2006.03
2006.09
2007.03
2007.09
2008.03
2008.09
2009.03
2009.09
2010.03
2010.09
2011.03
2011.09
2012.03
2012.09
2013.03
2013.09
(1) Taxa de Desemprego (período de referência de 30 dias), das pessoas de 10 anos ou mais de idade, por Regiões Metropolitanas, Frequência:
Mensal de 2002.03 até 2014.02, Regiões metropolitanas (RMs): Recife, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo e Porto Alegre.
Atualizado em: 27/03/2014
Source: IPEA (Instituto de Pesquisa Econômica Aplicada), IBGE

Skilled and experienced workforce is not sufficiently available to
cover the needs of the economy
Weakness: lasting shortage of skilled workforce
Manpower - Global Talent Survey (2013, extract)
% of companies meeting difficulties in recruiting in 42 countries
85%
68%
61%
Brazil (n°2): 68%
World average: 35%
France (n°26): 33%
41%
41%
39%
38%
37%
35%
35%
35%
34%
33%
32%
30%
28%
22%
21%
17%
13%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Japan
Brazil
India
Argentina
Austria
U.S.
Mexico
Switzerland
Germany
Global average
China
Canada
France
Poland
Colombia
Peru
Belgium
Norway
Italy
UK
Spain
Ireland
North Am. South Am. Europe+ME Asia
Source: Manpower, MTE-Minstério do Trabalho e Emprego, MBAatlântico, Policia Federal
3%
3%
Work permits granted to
foreigners, per year
Year Number
2009 42 914
2010 56 006
2011 70 524
2012 73 022
• 88% technical or higher
education
• Number of foreigners living in
Brazil: 942 000 (+84% since
2000: 510 000)
• Active population 2012: 95,3
million
• 2013: simplification of work
permit attribution conditions

The high cost of capital favors FDI1 but penalizes the capitalization
and growth of Brazilian companies
Weakness: high cost of capital
Very high
interest rates.
• Day to day interest rate
of the Central Bank:
(SELIC): 10,65% (2014)
• => Commercial interest
rates (per annum)
• 35-45% (for
businesses)
• 45-100% (for
households)
SELIC2 rates (day to day, annual equivalent, 1996-2014)
% Max 45%
50
45
40
35
30
25
20
15
10
5
0
(11/09/1998)
Today
10,75%
((27/02/2014)
janvier-96
janvier-97
janvier-98
janvier-99
janvier-00
janvier-01
janvier-02
janvier-03
janvier-04
janvier-05
janvier-06
janvier-07
janvier-08
janvier-09
janvier-10
janvier-11
janvier-12
janvier-13
janvier-14
(1) FDI: Foreign Direct Investments
(2) (2) The SELIC rate is a day to day rate target fixed by COPOM (Comitê de Politica Monetaria do Banco Central do Brasil). It is the rate on which the Central
Bank of Brazil bases its loans to banks and is used in Brazilian economy as a reference index to determine interest rates
Source: Banco Central do Brasil, Istoe. Illustrations Fundação Amazônia Paraense, charge Cicerex

Brazil ranks #64 / 142 countries for its capability to generate
innovation
Weakness: a weak innovation ecosystem
•The « Global Innovation Index » measures the
capacity of a country to innovate through the
evaluation of an exhaustive set of components
contributing to innovation generation
•Institutions:
• Political, legal, « ease of doing business »
•Human capital and research activities
• Education, higher education, R&D activities (public and private)
•Infrastructure
• Accessibility of IT & communication technologies, other
infrastructure
•Market sophistication
• Credit, investment, trade, competition
•Business sophistication
• Knowledge workers, university/industry links, knowledge
importation
•Innovation production
• Knowledge creation, impact and diffusion
• Innovation production: immaterial assets, innovative products
and services, online creativity
Global Innovation Index 2013
5-USA
14-Israel
15-Germany
20-France
22-Japan
26-Spain
29-Italy
28-Czech Republic
Brazil
35-China
46-Chile
52-Uruguay
54-Serbia
55-Greece
56-Argentina
57-Thailand
58-South Africa
60-Colombia
62-Russian Fed.
32-Malaysia
114-Venezuela, Bolivarian…
63-Mexico
64-Brazil
65-Bosnia
66-India
68-Turkey
69-Peru
71-Ukraine
85-Indonesia
92-Morocco
North Am. South Am. Europe+ME Asia
70
60
50
40
30
20
10
0
2-Sweden
3-Ukraine
1-Switzerland
Source: www.globalinnovationindex.org

Due to its history, Brazil developed a very specific culture, making
it a complex environment to operate in
Risk: strong and sometimes invisible local specificities
Different contexts and environments…
Institutions
Natural
environment
Economy
Family
circle
History Religion
Source: Geert Hofstede, NeoFocus
…result in different cultures
• Geert Hofstede’s cultural profiling model
Power distance
100
80
60
40
20
0
Long term
orientation
Brazil
France
Uncertainty Assertiveness
avoidance
Power
distance Individualism Assertive
ness
Uncertainty
avoidance
Individualism
Long term
orientation
Brazil 69 38 49 76 65
France 68 71 43 86 39
Social circle
Professional
circle
Society

In 2013, Brazil ranked #72 / 177 amongst least corrupted countries, on
par with South Africa, Serbia and Bosnia
Risk: corruption still present
Corruption Perception Index 2013
Source: Transparency International.
• 2013 ranking (extract):
‒ Denmark n°1 (score: 91)
‒ Canada: n°9 (score: 81)
‒ Germany: n°12 (score: 78)
‒ UK: n°14 (score: 76)
‒ US: n°19 (score: 73)
‒ France: n°22 (score: 71)
‒ Spain: n°40 (score: 59)
‒ Cuba: n°63 (score: 46)
‒ Italy: n°69 (score: 43)
‒ China: n°80 (score: 40)
‒ Morocco: n°91 (score: 37)
‒ India, Colombia: n°94 (score: 36)
‒ Argentina: n°106 (score: 34)
‒ Russia: n°127 (score: 28)
‒ Ukraine, Iran: n°144 (score: 25)
‒ Venezuela: n°160 (score: 20)
‒ Afghanistan, North Korea, Somalia: n°175 (score:8)
• The « Corruption Perceptions Index » each year measures the
perceived level of corruption of 177 countries. 69% of the
World’s countries score less than 50 (0=totally corrupt, 100
totally « clean »)
• Corruption is estimated based on the perception of country
analysts, members of the business community and members
of the public in each country

An efficient and well organized Brazilian company can generate
very high margins, protected by high entry barriers
Opportunity: very high margins
Being on the right side of the entry barriers…
…provides opportunities for high margins
•The cost structures of importers on one hand
and local producers on the other are very
different, greatly favoring local producers
Selling
price
Margin
Margin
Costs
Importer Local
producer
Taxes
Margin
Costs
(Source: CommSec, Quartz qz.com, NeoFocus

Brazilian authorities actively support investment projects in their
country at federal, state and municipal levels
Opportunity: very significant incentives
Example: APEX Brasil - Agência Brasileira de Promoção de Exportações e Investimentos
Source: ApexBrasil (Agência Brasileira de Promoção de Exportações e
Investimentos, Brazilian Trade and Investment Promotion Agency)

The winning entry strategy in Brazil: transform an existing Brazilian
company by providing locally rare or expensive resources
Advantage of the acquisition /
partnership strategy
Innovative
products,
technology
Individual and
collective
competencies
Financial
resources
•A local entity makes it possible to avoid
import barriers
• No discrimination of foreign shareholders
• « Be Brazilian » - just like everyone else
•Efficiency
• Leverage existing strengths of the target (e.g.
market share, distribution network, suppliers,
partners, skills,…)
• Faster than organic growth
• Improves chances of success
•Consistent with the necessary
modernization of the Brazilian economy
•Will be well received by Brazilian companies
•Will be encouraged by Brazilian authorities
•Difficult to replicate by local companies
• Brazilian companies often have little experience
abroad

French companies are in a particularly good position to seize these
opportunities due to their excellent relationships – past and present
Brazil is a « priority action country » for France
•4 heads of state meetings in 2008 and 2009
•Bilateral strategic partnership signed 12/2008
•Economic and trade cooperation
•Defense cooperation (€6 bn)
•Other partnerships in space, nuclear power, renewable
energies, science & education
•Dilma Rousseff visited France in 2012, François Hollande Brazil in
2013
•Launch of the Brazil-France Economic Forum (permanent,
public institutions + private companies, meeting in Paris on
20/05/2014)
Source: Ouest France, AFP

Agenda Page
1. Why Brazil? 5
5. Side benefits 48
6. Appendix 53

Brazil’s fast, recent development has generated a
“shortage economy”
The target of your
dreams does not exist
Consider a
transformation process
•Development challenges related to
Brazil’s economy
‒ Fewer companies
‒ Less developed
•Rocky history of Brazil’s economy
‒ Fewer companies
‒ Very resilient
•Recent success of Brazil’s
economy
‒ The ideal target has already
been acquired or is being
courted by virtually everybody
•Imagine a business model
•Adapt this business model to the
specificities of the Brazilian
environment
•Identify assets and skills that must
be found in Brazil and those that
can be brought in at a later stage
•Envisage several acquisitions
•The integration plan is
fundamental to the success of the
acquisition or partnership

Identifying a suitable Brazilian company for an acquisition or
partnership is a long and complex process
Identifying a target is a
complex process
Practical solutions
exist, although they are
often tedious
•Size and complexity of Brazil
•Numerous criteria to consider:
− Business quality
− Company governance
− Compliance with rules &
regulations (accounts, fiscal,
labor…)
− Openness of shareholders to
enter into a discussion
•Few formal information sources,
often only in Portuguese
•Set realistic goals
•Use time to your advantage:
‒ Give yourself time!
‒ Examine several targets in
parallel
‒ Keep watch of “inaccessible”
targets
•Use local networks (trade
associations, personal networks)
•Validate information locally
obtained from informal sources
(interviews)

Local presence and partners are a must
Brazilian specificities are
numerous and often invisible
•Brazil’s history and “melting pot” of populations resulted
in Brazil’s very own culture
•Brazilians are patriots and they are extremely proud of
their nation
•Nothing moves without direct, personal, frequent, often
informal contacts
•The “group”, the “community” are all-important in Brazil:
it is paramount to integrate into Brazilian society in
order to succeed

Agenda Page
1. Why Brazil? 5
5. Side benefits 48
6. Appendix 53

Conducting a transaction in Brazil requires entering and integrating
into the Brazilian business environment
How to succeed in an
acquisition or
partnership?
Be supported by
experienced local
professionals
•In Brazil, everything is possible…
•…the Brazilian way!
•Brazilian companies are mainly
family-owned and little
accustomed to international
business practices
•For the past few years they have
often been courted by buyers /
partners from all over the World
•Establishing trust is a pre-requisite to
entering fruitful discussions
•Motivations and objectives of your
Brazilian interlocutors differ from your
own:
•They may prove difficult to
understand without local assistance
•They may prove difficult to explain
to your shareholders, board, other
decision-makers
•Local professional assistance will be
key in tackling these hurdles

A structured process enables you to keep in control of project
steering, improves chances of success and diminishes risks
Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
External due
diligence
Initial
contacts
Acquisition
business
Due
diligence Negotiation
Signature Integration
Crucial
Lawyer: Only written
words remain
Brazilian culture
plan
Must include sensitivity analyses to model the
possible volatility of economic parameters
Fundamental « Compliance » is often not a key quality of
Brazilian businesses
Identification Business
model
French buyer often has the advantage of the vision of the future business
model, but it needs local adaptation
Establish trust first, aim for cooperation
Show advantages for the two parties
Deciphering the target’s environment provides very important keys and cues
Make use of time: allow ample time, scrutinize multiple targets in parallel, keep watch of “inaccessible” targets

The main hurdles associated with realization of an acquisition or
partnership can be avoided through careful preparation
Main problems in the due
diligence of Brazilian targets
Main causes of failure when
investing in Brazil
•Significant fiscal, environment or social risks
•A degree of informality in operations
(unregistered operations, several books of
accounts)
•Significant undocumented transactions by
partners / shareholders
• Insufficient internal controls, which cause
financial documents to be irrelevant
•Debatable accounting practices, requiring
significant adjustments of EBITDA and net
assets
•Unforeseen fiscal and social problems
•Excessive legal and administrative red tape
• Information at hand proves unreliable
•Market volatility
• Insufficient due diligence prior to
investment
•Underestimating time required to complete
transaction
•Overestimating synergies or production
gains
• Insufficient quality of acquired target’s
management
Source: pwc do Brasil, « Doing deals in Brazil », 2011

Agenda Page
1. Why Brazil? 5
5. Side benefits 48
6. Appendix 53

Brazil’s and Europe’s macro-economics are complementary and
propitious to fruitful partnerships
Maps to same scale
Brazil
•Developing economy
•Young population
•Strongly needs
investments
•Workforce shortage,
particularly skilled
workforce
•Innovation and technology
shortage
•…
Europe
•Mature economy
•Growing share of senior
citizens
•Slow growth, requiring little
investment
•High unemployment,
including within highly
skilled workforce
•Dense innovation and
technology network (R&D,
investors, incentives…)
•…

« France-Brésil: bâtir un avenir économique en commun »
par Jean-Charles Naouri – Les Echos, 16 mai 2014
Le 20 mai se tiendra à Paris le Forum économique France-Brésil ouvert par Mauro Borges, ministre du Développement, de l'Industrie et du Commerce du Brésil,
et Laurent Fabius, ministre des Affaires étrangères, du Développement international et du Tourisme. Alors même que le partenariat franco-brésilien connaît une
phase de développement important, il constitue une chance de renforcer durablement les échanges entre les entrepreneurs des deux pays.
Le dynamisme et l'esprit de conquête des entrepreneurs brésiliens pourraient s'exprimer pleinement sur le marché français qui présente toutes les
caractéristiques d'une porte d'accès privilégiée au marché européen, premier du monde avec 500 millions de consommateurs, près de 18.000 milliards de dollars
de PIB courant et une économie qui renoue avec la croissance.
L'attractivité de la France pour les investissements étrangers repose sur un ensemble de facteurs qualitatifs mis en avant par les classements internationaux: des
ingénieurs hautement qualifiés et parmi les plus innovants du monde, d'excellentes infrastructures de transport, la sécurité juridique des contrats, un accès au
crédit facilité avec des taux d'intérêt particulièrement bas, le crédit impôt-recherche qui place la France en tête des dispositifs d'incitation fiscale à la R&D dans les
pays de l'OCDE, enfin des coûts d'implantation et d'exploitation avantageux pour les entreprises étrangères.
Grâce aux jeunes issus de l'immigration, la France compte la seconde communauté lusophone d'Europe. Elément non négligeable d'attractivité, elle se situe au
2e rang mondial s'agissant de la qualité de vie selon le classement mondial International living.
Afin de prendre toute la place qui leur revient dans la chaîne mondiale de la valeur ajoutée, les entrepreneurs brésiliens trouveront en France les partenaires pour
concevoir et mettre en oeuvre les technologies du futur, qu'il s'agisse, entre autres, de l'avion électrique, des infrastructures intelligentes, des énergies durables,
de la mobilité urbaine et interurbaine ou des immenses potentialités de la chimie du végétal.
Pays continent, 7e économie mondiale, le Brésil exerce une attraction considérable attestée par la forte présence des entreprises étrangères. Les Français sont
les 5e investisseurs étrangers avec 600 entreprises présentes employant plus de 600.000 salariés. L'économie brésilienne a bénéficié ces dernières années d'une
croissance soutenue, en dépit des aléas survenus depuis 2008: le PIB a progressé en moyenne de 3,7 % en réel et 11 % en nominal par an au cours des 10
dernières années.
Au contraire des précédents cycles, cette croissance n'a pas généré de déséquilibres grâce à une gouvernance économique avisée et à l'action de la banque
centrale: l'hyperinflation a été jugulée ; les finances publiques sont maîtrisées ; le chômage est contenu (5 % à fin mars 2014) ; le secteur bancaire est sain et les
réserves en devises représentent plus de 12 mois d'importations de biens et de services. Le mouvement actuel de prévention envers les émergents doit donc
être, s'agissant du Brésil, largement relativisé.
A ces fondamentaux robustes s'ajoutent d'autres facteurs favorables: des ressources naturelles abondantes, un faible coût de l'énergie, une industrie de qualité,
une agriculture compétitive et une démographie dynamique. São Paulo est une place financière active dotée d'outils flexibles de financement des entreprises.
Enfin, les dirigeants brésiliens ont manifesté leur volonté de continuer les réformes sociales ambitieuses qui ont permis la croissance rapide des classes
moyennes et d'accélérer les réformes structurelles.
Le Forum économique France-Brésil a été conçu par les deux gouvernements comme un espace de dialogue durable. Il revient aux chefs d'entreprise de nos
deux pays de l'investir et de l'utiliser comme une plate-forme favorisant une croissance rapide et volontariste de nos coopérations.
Jean-Charles Naouri est représentant spécial du ministre des Affaires étrangères pour les relations économiques avec le Brésil, PDG du Groupe
Casino et Président de Grupo Pão de Açúcar.
Source: Les Echos - http://www.lesechos.fr/economie-france/conjoncture/0203490661540-france-bresil-batir-un-avenir-economique-en-commun-671239.php

A successful acquisition or partnership in Brazil may also endow
the buyer with new, typically Brazilian qualities
A few Brazilian qualities
•Optimistic
« Deus é brasileiro »
•Entrepreneurial spirit
« Tchau, e boas vendas ! »
•Voluntary
« Tudo é possível », « Jogo de cintura », « Jeitinho »
•Creative
« Na pratica, a teoria é outra »
•Cooperative
« Uma mão lava outra »
•Cordial
« Agua no feijão que chegou mais um »
« Mais vale amigo na praça que dinheiro na caixa »
« Beyond Brazilian oil’s potential, the
most positive aspect of our
acquisitions in Brazil is the impact
Brazilian culture has had on our
entire group »
Thierry Pilenko, CEO, Technip
Source: Popular Brazilian sayings, Technip

42, avenue Montaigne
75008 Paris
France
Tél: +33 (0) 1 42 27 13 00
www.neofocus.fr
Thank you
Contact:
Jérôme Kelber
jerome.kelber@neofocus.fr

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