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Brazil
Main Drivers for doing deals in Brazil
• Complex tax and employee related regulatory environment, with high taxes and
social charges on payroll, sales and income
• Multiple taxes with fast changing legislation affecting business plans and
increasing risks of contingencies
• Economic environment still considered volatile as compared to more stable
economies
• Fast-changing business conditions
• Lack of local financing coupled with high real interest rates
• Quality of historical financial information affected by fluctuations in exchange
rates and GAAP differences
• Complex transfer pricing and foreign capital registration rules
• Difficulties in reorganizing companies quickly, including high costs for
employee terminations
• Important cultural peculiarities, including a different perception of the due
diligence process
• Sometimes the “know-who” is more important than the know-how in the local
market
• Considerable bureaucratic rules and regulations for certain businesses and
industries
• High demand for investments in the distribution channels and infrastructure
• Semi-skilled and unskilled labor in certain developing areas
• Social extremes with unequal distribution of wealth - a significant portion of the
population not participating in the consumer market
Economic Environment
• After three years in a row of
stagnation, the Brazilian economy
grew roughly 5% in 2004.
• This recovery has been led primarily
by the extraordinary growth of
exports.
• It is estimated that the industrial
sector grew 6% in 2004, a record high
in the last 10 years.
Overview Of Brazil
• Population : 179 million
(2004)26 states and 1 federal
district
• GDP in 2004 estimated at
US$600 billion
• Language: Portuguese
• The largest economy in South
America and the 12th in the
world
• Primary economic sectors are:
agriculture, automobile, utilities,
transport, industry, mining and
energy.
• Main economic regions are: São
Paulo, Rio de Janeiro, Minas
Gerais and Paraná.
OVERVIEW OF BRAZIL(CONT.)
13%
5%
South East
7% South
Central West
57% North
18% North East
Principal Economic Indicators
Imports
Trade
balance
Internation
Reserves
Foreign
Principal Economic Indicators
Direct
Investment
Total ratio of
Foreign
Debt/Exports
2004
2003
2002
2001
Industrial Production and Raw Material
1.62 1.6
1.6
1.58
1.56
1.54
units
1.52 1.5 1.5
1.5
1.48
1.46
1.44
2001 2002 2003
years
Industrial Production and Raw Material
Trucks(Thousnads)
90
77
80 70
70 59
60
50
Units
40
30
20
10
0
2001 2002 2003
Years
Industrial Production and Raw Material
95
89.4
90 86.9
85
Units
80 77.3
75
70
2001 2002 2003
Years
Industrial Production and Raw Material
10.5
10
9.5
9 Units
8.5
7.5
2001 2002 2003
Years
Industrial Production and Raw Material
32
31
30
29
28 Units
27
26
25
24
2001 2002 2003
Years
Industrial Production and Raw Material
Iron(Melt)
33 32
32
31 30
30
29
Units
28 27
27
26
25
24
2001 2002 2003
Years
Industrial Production and Raw Material
230
225
225 222
220
215 Units
210
210
205
200
2001 2002 2003
Years
Some Facts on iron ore
• CVRD is the no. one producer of iron ore
in the world
• Rio Tinto is the no. 2
14000 12497
12000
10000
8000
4691 US Mllion $ FOB
6000 3870 3226 2694
4000
2000
0 s
a
y
na
nd
an
US
in
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nt
la
Ch
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th
Ar
G
Ne
Country
Main Imports by Country
Main Imports by Country
8000 7364
7000
US milion$ FOB
6000
5000
4000 3497 3216 US Million$ FOB
3000 2245 2347
2000
1000
0
US Argentina China Germany Nigeria
Country
Main Exports by Product
US Million $ FOB
5000
4500 4294
4000
3500 3075
3000
2279 2135 2124
2500 US Million $ FOB
2000
1500
1000
500
ls
s
0 ile
sa
ob
fts
al
po
an
er
om
a
be
is
in
cr
D
oy
ut
M
ir
&
A
A
S
il
Ir
er
O
ng
an
se
be
as
oy
P
S
Products
Profile of the M&A market in Brazil
• Buyers
• −Multinational and local firms
• −Private equity and buy-out funds
• −Government and private pension funds
• −Stressed debt conversions
• Targets
• −Private companies
• −Family owned
• −Privatization (1st and 2nd wave)
• −Carve-out of acquired non-core businesses
• −Non-core or distressed businesses of multinational companies
• Deal Size
• Number of transactions of over US$100 Million in value (ex-Privatization;
disclosed deals and announced amounts only). The year of 2004 was
characterized by a record number of large deals, showing investors confidence
in the country.
• 1996 -14 1997 –18 1998 -32
• 1999 -28 2000 -36 2001 -32
• 2002 –26 2003 –22 2004 -38
Main recurring reasons for unsuccessful deals
in Brazil