Deal Trends in Latin America

February 2015

TABLE OF CONTENTS

What’s New? S&P Capital IQ introduced private company financials for Brazil to its comprehensive database of standardized and comparable financial data for public and private companies. Send us an e-mail to learn more about this exciting initiative.

Deal Trends in Latin America      

Deal Volume & Values By Country……..…………..……………………...…4-5 Top 10 Deals………………………………………........................................6 Deal Volume & Values By Sector…………….............................................7-9 Cross Border Deal Analysis…………………..............................................10-11 Key Metrics On Select Countries……………………………..….……….…..12 Brazil Spotlight: Brazil Public vs. Privately-Owned Company Analysis...14-18  Corporate Profitability and Efficiency Ratios………..…………….…15  Corporate Solvency and Liquidity Ratios……..………………..........16  Corporate Credit Risk Probability Of Default………….……….........17  Financials Deep Dive……….……………………………………….....18

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EDITORS’ NOTE Deal Trends in Latin America is a publication brought to you by S&P Capital IQ™ that explores the regional deal environment and provides high-level statistical benchmarks. Data analyzed in this issue covers the period from January 1st, 2013 through December 31st, 2014.

KEY HIGHLIGHTS: • Brazil, Chile, and Mexico continue to enhance strong activity in the region • Chile deal value significantly increased by 166%, due to 2 large utilities deals • Oil and Gas Exploration contributed to the energy sector decreasing in 2014. Its deal value contracted 73% from the previous year • Most frequent foreign investors were Canada, U.S. & U.K. • Business risk in general is elevated compared to financial risk in Brazil for both public and private companies

CONTRIBUTORS:

Brandon Newland Market Development Private Equity S&P Capital IQ

Cynthia Rojas Sejas Vice President Market Development S&P Capital IQ

Jay Bhankharia, CFA Senior Manager Investment Management S&P Capital IQ

*Publication Coverage: In this publication we explore the following countries: Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador Mexico, Panama, Peru, and Uruguay. Data pulled for this report is as of January 8th 2015. For more information on our methodologies, please e-mail [email protected].

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2014 DEAL ACTIVITY IN LATIN AMERICA: COUNTRY SNAPSHOT DEAL ACTIVITY REMAINS STRONG • •

Brazil, Chile, and Mexico continue to enhance strong activity in the region 45% of the deal value is represented by Brazil, followed 24% from Chile, and 17% from Mexico

DEAL VOLUME BY COUNTRY (Jan 1, 2014– Dec 31, 2014) 32

118

19

TOTAL DEAL VALUE BY COUNTRY (Jan 1, 2014–Dec 31, 2014) $11,567 $273 $2,672

173

$2,103 273 $23,365

38

$61,702 $118

44 749

94

$102

$2,140

$33,565

341

Argentina

Brazil

Chile

Colombia

Costa Rica

Argentina

Brazil

Chile

Colombia

Costa Rica

Ecuador

Mexico

Panama

Peru

Uruguay

Ecuador

Mexico

Panama

Peru

Uruguay

*includes closed and announced transactions with both disclosed and undisclosed values. Source: S&P Capital IQ.

**includes closed and announced transactions with disclosed values. Values in $USDmm, historical rate. Source: S&P Capital IQ.

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DEAL ACTIVITY IN LATIN AMERICA: Y-o-Y TRENDS BY COUNTRY COUNTRY HIGHLIGHTS

DEAL VOLUME AND TOTAL VALUE BY COUNTRY (Jan 1, 2013– Dec 31, 2014) $70,000

• Brazil deal volume decreased 11% while deal value increased 32%

900 852 800

$60,000

749

$50,000 600 $40,000

500

$30,000

400 341

118 35 38 Ecuador

Costa Rica

Colombia

Chile

Brazil

Argentina

2013 Sum of Total Deal Value

2014 Sum of Total Deal Value

19

25

12

2013 Deal Volume

Peru

44 $-

100

83

32

• Argentina deal volume increased 38% during 2014

18 0 Uruguay

97

94

Panama

125

200

Mexico

$10,000

• 6 of the 10 countries’ deal value increased during 2014

251

215

173

• Chile deal value significantly increased by 166%, due to 2 large utilities deals

300

273

$20,000

DEAL VOLUME

DEAL VALUE ($USD mm)

700

2014 Deal Volume

Source: S&P Capital IQ.

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M&A ACTIVITY IN LATIN AMERICA: TOP DEALS

Announced Closed Date Date July 31, 2014 Oct 23, 2014

Target/Issuer 100% of Endesa Latinoamérica, S.A. and 20.3% of Enersis, S.A.

Primary Sector Headquarters (Target) Chile Utilities

Aug 5, 2014

Buyers/Investors Enel Energy Europe, S.r.l.

Buyer Country Italy

Implied Total Implied Enterprise Implied Transaction Enterprise Value/ Enterprise Implied Equity Value Value/EBITDA Revenues Value/ Value/LTM Net Percent ($USDmm,) (x) (x) EBIT (x) Income (x) Acquired 11,045.84 100

Global Village Telecom Brazil Competing (Holding) S.A. Bids Aug 28, 2014 Global Village Telecom Brazil (Holding) S.A.

Financials

Telefonica Brasil, S.A. (BOVESPA:VIVT4)

Brazil

9,812.38

-

-

-

-

100

Financials

TIM Participacoes S.A. (BOVESPA:TIMP3)

Brazil

9,222.05

9.9

4.1

-

-

100

February 24, 2014

Brazil

Industrials

Rumo Logística S.A.

Brazil

7,691.48

8.59

4.12

11.74

35.04

100

Brazil

Financials

Banco Santander, S.A. (CATS:SAN)

Spain

6,472.26

-

-

-

16.68

25

Peru

Materials

5,850.0

59.37

-

59.37

60.14

100

5,565.65

4.66

1.5

7.81

11.67

8

5,249.8

8.99

1.57

12.04

27.6

54

April 29, 2014

-

April 13, 2014

July 31, 2014

June 27, 2014

June 30, 2014

All America Latina Logistica S.A. (BOVESPA:ALLL3) Banco Santander (Brasil) S.A. (BOVESPA:SANB4) Xstrata Peru S.A.

America Movil S.A.B. de Mexico C.V. (BMV:AMX L)

October 12, November Compañía General de 2014 11, 2014 Electricidad S.A. (SNSE:CGE) May 16, 2014 September CFR Pharmaceuticals 26, 2014 S.A. (SNSE:CFR)

Chile

Chile

November 7, January 8, Grupo Iusacell, S.A. de Mexico 2014 2015 C.V.

CITIC Metal Company Limited; Elion Holdings Corporation Limited; MMG South America Co. Ltd Telecommuni Inmobiliaria Carso, S.A. cation de C.V.; Control Services Empresarial de Capitales, S.A. de C.V. Utilities Gas Natural SDG SA (CATS:GAS)

China; Hong Kong; Hong Kong

Healthcare

Luxembourg

2,659.34

27.57

4.28

33.65

42.59

73

United States

2,500.0

-

-

-

-

100

Abbott Investments Luxembourg S.à.r.l.

Telecommuni AT&T, Inc. (NYSE:T) cation Services

Mexico; Mexico

Spain

Table includes closed and announced M&A deals only. Percent sought is noted for each transaction, and transaction values are ($USDmm, historical rate.) Source: S&P Capital IQ.

DEAL HIGHLIGHTS: • Half of the top ten completed transactions profiled above were minority stake purchases • Five of the top ten Latin American M&A deals were cross-border transactions

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2014 DEAL ACTIVITY IN LATIN AMERICA: BY SECTOR SNAPSHOT SECTOR HIGHLIGHTS: •

The financials sector was the most active sector with 464 deals representing $64.3 Billion USD

•

The utilities sector deal volume was seventh highest but deal value was second highest representing $28 Billion USD

•

Additional deal value for the region came from the energy, industrials, and materials sectors 42.8 Billion USD

DEAL VOLUME BY SECTOR (Jan 1, 2014– Dec 31, 2014) 33

DEAL VALUE BY SECTOR (Jan 1, 2014– Dec 31, 2014)

115

$8,282 $28,113

366

232

$8,657 $12,571

182

$12,631

95

$16,645

323

$3,175 273

464

$64,355

$13,632 $5,464

83 Consumer Discretionary Energy Healthcare Information Technology Telecommunication Services

Consumer Staples Financials Industrials Materials Utilities

*includes closed and announced transactions with both disclosed and undisclosed values. Source: S&P Capital IQ.

Consumer Discretionary Energy Healthcare Information Technology Telecommunication Services

Consumer Staples Financials Industrials Materials Utilities

**includes closed and announced transactions with disclosed values. Values in $USDmm, historical rate. Source: S&P Capital IQ.

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DEAL ACTIVITY IN LATIN AMERICA: INDUSTRY TRENDS Y-o-Y SECTOR HIGHLIGHTS

DEAL VOLUME AND VALUE BY SECTOR (JAN 1, 2013 – DEC 31, 2014) $70,000

• 66% increase in deal value in the financials sector in 2014

500 464

450

$60,000

400

366 395

$40,000

323

350 300

273

326

268 $30,000

144 $10,000

232

99

200

95

115 75

150 100

83 33 24

$-

2013 Sum of Total Deal Value

250

232

182 $20,000

291

DEAL VOLUME

DEAL VALUE

$50,000

97

2013 Deal Volume

• Increase in deal value across 7 of the 10 sectors including: healthcare, industrials, IT, materials, & telecom

50 0

2014 Sum of Total Deal Value

• Deal value in the utilities sector increased 340% in 2014, mainly driven by Chilean deals

• Decrease in deal value across 3 of 10 sectors: consumer discretionary, consumer staples, and energy sectors

2014 Deal Volume

Source: S&P Capital IQ.

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DEAL ACTIVITY IN LATIN AMERICA: Y-o-Y BY LARGEST SUBSECTOR SUBSECTOR HIGHLIGHTS DEAL VOLUME AND VALUE BY SUBSECTOR (JAN 1, 2013 - DEC 31, 2014) $14,000

200

166

$10,000 $8,000

120

97

100

82 66

58 79

$4,000

45

160 140

131

$2,000

180

74 51

50 46

60

70

59

80 60

48

54

40

40

$0

20 0

DEAL VOLUME

DEAL VALUE ($USD mm)

189

163

$12,000

$6,000

• Diversified Metals and Mining contributed to an overall increase in the Materials sector. It grew 78% in 2014

• Oil and Gas Exploration contributed to the energy sector decreasing in 2014. Its deal value contracted 73% from the previous year Consumer Discretionary Consumer Staples Energy Financials Information Technology Materials

2013 Sum of Total Deal Value

2014 Sum of Total Deal Value

2013 Deal Volume

2014 Deal Volume

Utilities

Source: S&P Capital IQ.

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2014 DEAL ACTIVITY IN LATIN AMERICA: CROSS BORDER DEALS REGIONAL ACTIVITY HIGHLIGHTS (DEALS ACROSS LATIN AMERICA) • Overall the region is investing in targets across Brazil, Chile, Colombia, and Peru • In 2014, deal activity was highlighted by Peruvian buyers into Chilean targets & Brazilian buyers into Argentinian targets

CURRENT YEAR:

LATIN AMERICA BUYERS INTO LATIN AMERICA TARGETS (Jan 1, 2014 – Dec 31, 2014)

Deal Volume Key:

BUYER COUNTRIES Argentina Argentina TARGET COUNTRY

Brazil

Brazil

Chile

Colombia

Costa Rica

Ecuador

Mexico

Panama

Peru

Uruguay

=0 = 1 to 5 deals

Chile Colombia Costa Rica

Ecuador Mexico

= 6 to 25 deals

= 26 to 50 deals = 51 to 100 deals

Panama Peru

=101 to 200 deals

Uruguay

= 201 to 300 deals = 300+ deals

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DEAL ACTIVITY IN LATIN AMERICA: CROSS BORDER DEALS WHO’S BUYING INTO LATIN AMERICA AND IN WHICH SECTORS?

TOP TWO FOREIGN INVESTORS INTO LATIN AMERICA TARGETS (Jan 1, 2014 – Dec 31, 2014) Materials – 9 Industrials – 8

Financials – 4 Industrials – 3

Materials – 13 Financials – 2

Energy – 3 Materials – 3

Materials – 6 Energy – 4 Financials – 2 Energy – 1

•

Most frequent foreign investors were Canada, U.S. & U.K.

•

There was a trend in Materials deals with Canadian buyers across the region

•

There was also a trend in IT deals with U.S. buyers across Brazil and Argentina

•

Growing deal volume of financials from the U.S. into Chile

Information Technology – 19 Consumer Discretionary – 16

z

Consumer Discretionary – 5 Industrials– 4

Mexico Colombia Peru Brazil Chile Argentina

Financials – 21 Materials – 2

Consumer Discretionary - 3 Utilities – 2

Canada Information Technology – 5 Consumer Discretionary – 3

z

Materials – 2 Consumer Discretionary – 1

Spain United States United Kingdom

Source: S&P Capital IQ. Numbers represent deal volume in that sector.

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KEY METRICS ON SELECT COUNTRIES

Argentina

Brazil

Chile

Colombia

Costa Rica

Ecuador

Mexico

Panama

Peru

Uruguay

S&P SOVEREIGN RATING

SD

BBB-

AA-

BBB

BB

B+

BBB+

BBB

BBB+

BBB-

GDP (in USD)

109,086.57

987,973.23

135,888.40

181,206.65

27,763.26

20,691.38

912,098.09

11,651.35

107,647.29

36,619.04

GDP YOY % CHANGE (QUARTERLY)**

-0.02

-0.24

0.84

4.19

3.58

2.74

2.15

0.27

1.75

4.40

NET FDI (FOREIGN DIRECT INVESTMENTS in USD $mm)

7,009.12

59,335.84

1,090.72

-6,589

1,949.64

--

6,090.56

--

7,372.50

2,801.30

COUNTRY

*Source: S&P Capital IQ. Latest available quarterly data **YOY change in local currency

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Brazil Spotlight

BRAZIL PUBLIC VS PRIVATELY-OWNED COMPANY ANALYSIS Highlights • Healthcare, Industrials, and IT are 3 sectors where Return On Assets (ROA) levels are better for public companies but Asset Turnover multiples are higher for private companies • Business risk in general is elevated compared to financial risk in the region for both public and private companies • Privately owned banks get more income from loans than publicly traded banks which have a more diversified revenue stream Brazil Private Companies Count w/financials*

Public Companies Count

Consumer Discretionary 368

Telecommunication Services 21

Consumer Discretionary 77

Utilities 45

Utilities 222

Telecommunicatio n Services 10

Materials 241 Consumer Staples 247

Information Technology 117

Materials 40

Energy 41

Consumer Staples 26

Information Technology 10

Industrials 655

Energy 11

Industrials 56

Financials 804 Healthcare 120

Financials 55

Healthcare 11

Average ($MM)

Cons. Discr.

Cons. Staples

Energy

Financials

Healthcare

Industrials

IT

Materials

Telecom.

Utilities

Grand Total

Public - Total Rev

823.0

5314.4

17163.2

2235.4

578.6

774.5

528.5

3756.2

5125.6

2036.2

2474.4

Private - Total Rev

256.1

311.7

294.6

169.2

176.8

188.0

83.9

210.7

1574.2

128.3

210.0

Public - Total Assets

1165.6

5272.6

33917.7

34843.7

651.3

1412.2

958.2

7372.4

12569.0

4748.3

9480.2

Private - Total Assets

229.2

460.8

682.8

1297.6

161.7

308.4

63.5

467.1

3059.6

331.0

617.0

Source: S&P Capital IQ. 2,836 Private companies vs. 341 public companies (current companies with financials. Universe is all financial companies headquartered in Brazil. The data for private companies is sourced from most recent financial filings

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BRAZIL PUBLIC VS. PRIVATE: CORPORATE PROFITABILITY AND EFFICIENCY MEDIAN RATIOS HIGHLIGHTS

Return on Assets

Percentage (%)

8

•

Private companies have better Return on Assets (ROA) levels in 4 of the 9 sectors

•

The widest difference in ROA is between energy companies. Public and private energy firms had a ROA of -3.0% and 2.4% respectively

•

Private companies have larger Asset Turnover multiples in 6 of the 9 sectors

•

The largest difference in multiples is in the healthcare sector. Public and private healthcare companies have Asset Turnover multiples of .87x and 1.4x respectively

•

Healthcare, Industrials, and IT are 3 sectors where ROA levels are better for public companies but Asset Turnover multiples are higher for private companies. Private companies in these sectors may be using assets efficiently to drive revenue but are not as good at managing costs

6 4 2 0 -2 -4 Cons. Discr.

Cons. Staples

Energy

Healthcare Industrials

Public Companies

IT

Materials

Telecom.

Utilities

Grand Total

Private Companies

Asset Turnover 1.6

1.4 Multiple (x)

1.2 1 0.8 0.6 0.4 0.2

0 Cons. Discr.

Cons. Staples

Energy

Healthcare Industrials

Public Companies

IT

Materials

Telecom.

Utilities

Grand Total

Private Companies

Universe is all non-financial companies headquartered in Brazil. The data for private companies is sourced from most recent financial filings Source: S&P Capital IQ.

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BRAZIL PUBLIC VS. PRIVATE: CORPORATE SOLVENCY AND LIQUIDITY MEDIAN RATIOS HIGHLIGHTS

Total Debt/Capital

Percentage (%)

60

•

Private companies have higher Debt to Capital ratios in 4 of the 9 sectors

•

The widest divergence in debt/capital is in the industrials sector. Public and private industrials have debt/capital levels of 56% and 36% respectively. Public industrials have the highest debt/capital levels of all types of companies

•

Public companies have more short term liquidity in 8 of the 9 sectors as measured by the current ratio

•

The only sector where liquidity is better in the private sector is Industrials. This could be due to the heavy debt burden they have relative to their private counterparts

50 40 30 20 10 0 Cons. Discr.

Cons. Staples

Energy

Healthcare Industrials

Public Companies

IT

Materials

Telecom.

Utilities

Grand Total

Private Companies

Current Ratio 2.5

Multiple (x)

2 1.5 1 0.5

0 Cons. Discr.

Cons. Staples

Energy

Healthcare Industrials

Public Companies

IT

Materials

Telecom.

Utilities

Grand Total

Private Companies

Universe is all non-financial companies headquartered in Brazil. The data for private companies is sourced from most recent financial filings Source: S&P Capital IQ.

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BRAZIL PUBLIC VS. PRIVATE: CORPORATE CREDIT RISK PROBABILITY OF DEFAULT HIGHLIGHTS

PD Fundamental Risk (Median) 7.0%

•

S&P Capital IQ’s proprietary probability of default (PD) model, ‘PD Model Fundamentals’, provides an innovative approach to assessing potential default that separates credit risk into two components—financial risk and business risk. The PDs are applicable for any public or private company and provide a short- to midterm view of credit risk. They are based purely on fundamental data— financial ratios and macro factors – and are updated when new financials are released or there is some change in the macro factors

•

Overall Brazilian private companies have more credit risk than their public counterparts

•

Business risk in general is elevated compared to financial risk in the region

•

Financial risk is closer between public and private companies than business risk

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Cons. Discr.

Cons. Staples

Energy

Healthcare Industrials

Public Companies

IT

Telecom.

Utilities

Grand Total

Private Companies

PD Financial Risk (Median) 2.0%

Materials

PD Business Risk (Median) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

1.5% 1.0% 0.5% 0.0%

Public Companies

Private Companies

Public Companies

Private Companies

Universe is all non-financial companies headquartered in Brazil. The data for private companies is sourced from most recent financial filings Source: S&P Capital IQ.

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BRAZIL PUBLIC VS. PRIVATELY-OWNED: FINANCIALS DEEP DIVE MEDIAN RATIOS

120 100 80 60 40 20 0 Net Loans/Total Deposits Public Banks

HIGHLIGHTS

Banks

Percentage (%)

Percentage (%)

Banks

Net Interest Income/Total Revenue

35 30 25 20 15 10 5 0 Allowance for Credit Losses/Total Loans

Private Banks

Public Banks

EBT Margin

Public banks lend out more relative to deposits than their private counterparts

•

Private banks get more income from loans than public banks which have a more diversified revenue stream

•

Public banks have a higher tolerance for credit losses and much better margins than private banks

•

Return on Assets within the financials space is mixed as some industries including capital markets, consumer finance, and real estate development used assets more efficiently in the private space

Private Banks

Financials: Return on Assets Percentage (%)

•

6 4 2 0 Banks

Capital Markets

Consumer Finance Diversified Financial Services

Public ROA Company Count

Banks

Capital Markets

Consumer Finance

Insurance

Real Estate Development

Private Diversified Financial Services Insurance

Real Estate Development

Public

24

6

2

3

4

13

Private

53

96

29

303

98

164

Universe is all financial companies headquartered in Brazil. The data for private companies is sourced from most recent financial filings Source: S&P Capital IQ.

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BEHIND THE DATA The information in this publication was aggregated using data from S&P Capital IQ. Request a trial of the powerful S&P Capital IQ platform and access the data behind the insights. S&P Capital IQ introduced private company financials for Brazil to its comprehensive database of standardized and comparable financial data for public and private companies. With the addition of timely, transparent, and comparable financial data for up to 9,000 Brazilian private companies, combined with our powerful analytics and predictive models, S&P Capital IQ gives you the power to assess risk and uncover opportunities that others may not even see—in Brazil and across the globe. 100% Coverage of Brazilian Public Companies

Financials on 9,000 of the Largest Brazilian Privately-Owned Companies

Access Data on Over

CONTACT US Andean Region Barbara Johnson 212-438-5693 [email protected]

Brazil Pedro Arlant +55 11 3818 0935 [email protected] Mexico Juan Carlos Perez Macias +5255-5081-4510 [email protected]

1,000,000 Public & Private Transactions

All Regions [email protected]

To learn more, click here.

Sign up to receive Deal Trends in Latin America directly to your inbox. ADDITIONAL CONTRIBUTORS Richard Peterson Sam Blackman Dhwani Vahia

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