Panel - The Private Equity Industry in Latin America

Brazilian Private Equity Focus

March 2008

Agenda
Brazil Macroeconomic Overview Private Equity in Brazil Improvement of Brazilian Capital Markets Private Equity/Venture Capital Players Bios

Brazil Macroeconomic Overview

Brazil Macroeconomic Overview: in a nutshell

Consolidated democracy and free press Transparent and sound fiscal position After decades of high inflation, expectations are well-anchored and the Central Bank enjoys considerable credibility Much more integrated into the world economy: trade has grown 161% over the last five years FDI reached US$ 34 billion in 2007 Diversified economy with leading global companies Macroeconomic stability and openness has had positive impacts on productivity and poverty alleviation

Brazil Macroeconomic Overview: healthy macroeconomic scenario

Falling real interest rates
11%

International reserves
180 US Bi $ 200

10%

160 140

9%

120 100

8%

80 60

7%

40 20

6% 2005 2006 2007 2004 2005 2006 2007

Improved country risk

1,500 1,300 1,100 900 700 500 300 100 2003

(EMBI+)

BRL/USD Real Exchange Rate

2.75 2.60 2.45 2.30 2.15 2.00 1.85 1.70
R$/ US$

2004

2005

2006

2007

2008

2005

2006

2007

2008 4

Brazil Macroeconomic Overview: healthy macroeconomic scenario

GDP growth 4Q moving average
6% 5% 4% 3% 2% 1% 0% 2000

Inflation YOY (%)

18 16 14 12 10 8 6 4 2 0 2008

2001

2002

2003

2004

2005

2006

2007

2000

2001

2002

2003

2004

2005

2006

2007

Labor Productivity (accumulated 12 months)

7% 6%

Trade flow and FDI (accumulated 12 months)

300 40 35 250 30 25 20 150 15 10
Trade Flow FDI

5% 4% 3% 2% 1% 0% 2002

200

100
2003 2004 2005 2006 2007

5
50

50 2000 2001 2002 2003 2004 2005 2006

2007 2008

Private Equity in Brazil

Summary of historical Events per cycle

1994
Before Real plan
Difficult environment for doing business Economic recession High inflation Growing social tension Defaults in the 80s Impeachment No legal environment High uncertainty

1999
First Cycle
Real Plan

2004
Second Cycle
Economy slowdown

Third Cycle
More stable economy

CVM Norm regulating Mutual Investment Funds in Emerging Companies (FMIEE) Privatizations Internet bubble Economic slowdown International crisis 1999: Real devaluation 2001: Brazil Energy crisis 2002: Lulas election Lack of capital market High interest rates

2000: BOVESPA Listing Segments for Brazilian Companies with better practices of Corporate Governance 2003: CVM instruction 391 regulating Investment Fund in Participation (FIP) 2004: New Bankruptcy Law 2005: Recognition by Brazilian Supreme Court (STJ) of international arbitrage increased use of Arbitrage Chambers

High liquidity period Stronger institutions Better legal environment Brazilian economic conditions improved Brazilian Capital Market experienced unprecedented development Foreign investments flew to Capital Market PE Exits through IPO Impressive increase in PE fund raising

Private Equity in Brazil: Committed Capital

18 16 14 12
US billion $
12.7 16.7

10 8 6 4 2 0
3.7 5.0 5.0 5.6 4.7 4.8 5.6

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: GVcepe Published in O Salto do Capital Produtivo Valor Financeiro Especial setembro 2007 8

Private Equity in Brazil: Investments

Private Equity investments growing as a % of GDP in Brazil: 2004: 0.04% 2006: 0.38% 2007: 0.93% (estimated)
UK in 2004 rate was 1.11%

Private Equity events per cycle

1994
Before Real plan
Brasilpar (1981) and CRP (late 1981) were pioneers in Brazil BNDESPAR creates in 1988 the Capitalization Program of Technology Companies (CONTEC) targeting small and middle technology companies Partner of Banco Garantia acquired Brahma (1989) and Lojas Americanas (1983)

1999
First Cycle
Real Plan

2004
Second Cycle
Economy slowdown

Third Cycle
More stable economy

International funds Advent (1997) Darby Overseas: (1995) Merrill Lynch Global Private Equity: (1997) Hicks Muse TPG ING-Barings (1996) Brazilian funds Patria (1994) GP Pactual Electra Leap from 8 funds in 1994 to 45 in 2000

It took very long for the first funds to divest in Brazil Many had mediocre returns because of Real devaluation IPO was not a possible exit It was very hard to raise money for Brazilian PE funds Many international funds left Brazil International funds who took an opportunistic approach and diversified in Latin America countries were better off

Brazilian Private Equity Industry is now more than 10 years old; Expertise was created; Professionals in PE/VC 2004: 498 professionals 2007: 984 professionals
(375 Managers and 627 related activities)

Specialization of related service providers: consulting, auditing and tax, lawyers. ABVCAP organizes seminars, congresses, meeting, actively participated in the regulation of PE/VC industry

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Private Equity in Brazil: PE-backed IPOs evolution

PE-backed IPOs 14
6.9

8 7 6 5 4 US$ bi
11

12 10 8 6 4 2 0
0.7 1

# transactions

Volume

5.9

2.8

3 2 1
3 11 12

2004

2005

2006

2007

Improvement of Brazilian Capital Markets

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IPOs: Number and Total Volume

IPO's: Number and Total Volume
(include Follow-os)
US bi $

80 70 60 50 40 30 20
3 14
# of IPOs and Follow-ons Volume

23

25 20 15 10

5 22 2005 42 2006 70 2007

13

10 0 15 2004 0

M&A Activity evolution

Evolution of M&A activity 800 700
# transactions Volume

70
57.7 54

60 50 US$ bi
14

600 500

40 400 30 300
17.5 23.1 17.1 15 14.9

200 100 0 340 2001

20 10

227 2002

230 2003

299 2004

365 2005

473 2006

677 0 2007

Bovespa traded volume evolution

700

600

500

US billion $

400

First Cycle
300

Second Cycle

Third Cycle

200

100

1995 1996

1997 1998 1999 2000 2001

2002 2003 2004 2005 2006

2007
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Improving Corporate Governance

Improving Corporate Governance
450 400 350 300 250 200 150 100
IBCG IBOV

From Jan/ 03 through Jan/ 07, Brazils Corporate Governance Index has gained 268% significantly outperforming the 187% appreciation of the Bovespa over the same period

368

287

50 0
2003 2004 2005 2006 2007
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Private Equity/Venture Capital Players

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Private Equity/Venture Capital Funds Investing in Brazil

Leading Local Private Equity players, focused in Brazil: Gvea GP Pactual Patria Tarpon DLJ South American Partners Dynamo

International Private Equity funds, focused in Latin America/Brazil: Advent AIG Capital Group Carlyle Darby

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Private Equity/Venture Capital Funds Investing in Brazil

Platforms for consolidation opportunities: Patria: healthcare and diagnosis centers (DASA), Educational (Anhanguera Educacional) Monte Cristalina: Consumer Brands GP: Shopping Centers - BR Malls more than 20 acquisitions in 2007 Pactual: Fashion Brands Opportunistic and minority stakes: Gvea AIG Eton Park Opportunistic and control stakes: Advent GP Gvea Infrastructure Focus ABN-Amro InfraBrasil AG-Angra Partners Banif Bioenergy and Agribusiness focus Brenco Riverstone/Carlyle
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Local Institutional Investing in Brazil

Brazilian pension funds are investing more in Private Equity/Venture Capital due to falling interest rates. BNDES: Previ: Petros: Funcef: Invested R$ 300 million focusing infrastructure, logistics and venture capital (high-tech) (Contribution ranges between 11% and 20% of funds committed capital) Fixed income (62,4%), stocks (31,1%), PE/VC (3,6%) and real state (2,9%) 10 PE funds, five of them in infrastructure and the rest in other traditional industries 7 VC funds focusing innovation Total: R$1.2 billions (R$900 millions in infrastructure) 3.6% of Petros net worth Stock (27%), /real state (7%), PE investor since 2004 R$946 millions in 9 PE funds (21% of funds committed capital) and R$130 millions in six VC funds. 4% of Funcefs net worth

Investing in 8 PE funds focusing mainly infrastructure, biotechnology, IT and new materials (R$ 670 mm) Venture Capital: Investing in 15 funds - R$ 280 million. Seed capital: Criatec (BNDES is the only contributor) focusing innovation Plans to invest R$ 80 mm in 50 companies over the next during the next 4 years

Previ (Banco do Brasil), Petros (Petrobras), Funcef (Caixa Economica Federal) and BNDES invested R$3.5 billion in private 20 equity. This represents only 2% of the R$180 billion net worth of these funds. They are allowed to invest up to 20% of their assets under management.

Local Institutional Investing in Brazil (cont.)

Finep (agency from Science and Technology Ministry) : Intention to invest R$ 1 billion in VC in the next 10 years. 500 companies in the portfolio This is 10 times the realized investments until now. 11 VC funds, summing up to 30 companies in the portfolio. Programa Inovar: Incubation of VC and PE funds with SEBRAE, BOVESPA IDB and pension funds partnership Venture Forum: Helps entrepreneurs with business plan. 31 companies received R$160 millions Inovar Sementes (FINEP is the only investor)> Companies till R$2,4 millions sales Average fund size: R$14,4 million

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Bios:
Christopher Meyn: Joined Gvea Investimentos in January 2006. Chris is the Partner responsible for the day-today management of Gavea's Illiquid Strategies. From 2003 through 2005, he served as a consultant to alternative investment managers, where he advised on illiquid investments, international business development and strategic relationships. From 1997 through 2002, Christopher served as Managing Director and Investment Committee member for Latinvest Asset Management and its US-based parent, Globalvest Management Company, one of the largest independent US-based asset managers with a focus on value investing in Latin American equities. At Globalvest, Christopher was responsible for the firms private equity and venture capital initiatives in Latin America. Previously, Christopher worked as a VP for Dick Clark International Cable Ventures (1995-97) specializing in acquisition and development of telecom licenses in Latin America, as the VP-Finance for The Marks Group, Inc. (1993-95) a US-based telecommunications holding company, and as an investment banker in mergers & acquisitions for Dean Witter Reynolds, Inc. (1990-93). Christopher holds a B.A. in Economics with Honors from Stanford University. Piero P. Minardi: Joined Gvea Investimentos in July 2006 becoming a Partner in December 2006 and is dedicated to the Illiquid Strategies Group. Piero has extensive private market experience in Brazil, having held senior positions in management consulting, corporate finance, strategic mergers & acquisitions and private equity. Before joining Gvea, Piero was a Principal with Darby Overseas Investments (2001-2006) with primary private equity investment responsibility for Brazil and South America. Prior to Darby, he held Principal positions with Baring Private Equity Partners and AIG Capital Partners (1999-01) and served as Director of M&A at Grupo Bunge, covering Brazil, Argentina, Venezuela and the US (1996-99). Piero has also served as an Investment Banker at Banco Pactual (1995-96) and as a Senior Associate with McKinsey & Co. (1990-93). He started his career with Andersen Consulting (now Accenture) in So Paulo (1984-89). Piero holds a B.S. in Mining Engineering from the Polytechnical School of the University of So Paulo (Poli-USP) and an MBA from INSEAD (France).

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