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Sao Paulo — Vinci Partners held negotiations with the American asset management company Compass for nearly two years until reaching a deal last week. The merger will lead the Brazilian management company to become a “dominant player in Latin America’s” specialized asset management space, and one with with global reach, said Vinci Partners CEO Alessandro Horta in an interview with Bloomberg Línea.
“With over US$50 billion in combined assets, we have transitioned from having a dimension that was more Brazilian to a regional scope, and also global relevance,” stated the executive. According to Horta, during negotiations with Compass and other companies, it became evident that players with such complementary business and areas of operation were few and far between.
The new combined company will have over US$150 million in revenue - “which is relevant for a services company” - and more than 600 employees in nine countries. Vinci’s CEO stated that a global consultancy will handle the identification of synergies and the integration process in the coming months. For now, the plan is to maintain the Compass brand in the markets where it already operates.
“The significance of this deal lies in the dimensions we believe we can gain from it. Vinci was previously a diversified company, focusing on alternatives and having a presence in Brazil ... meaning Brazilian capital invested in the country, in addition to the global-to-local and local-to-global,” said Horta.
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With these three areas of focus, Vinci alone has reached about US$14 billion in assets under management, equivalent to R$70 billion. “But we felt the need to have a larger distribution base, and expansion throughout Latin America was an obvious choice for us since the time of the IPO [Nasdaq, in January 2021].”
Additionally, according to Horta, institutional investors and high-net-worth individuals currently lack alternatives in Latin America. “We have infrastructure, real estate, private credit strategies for Brazil, which is an important part of the region, but it doesn’t cover everything. We perceived this need,” said Vinci’s CEO.
Vinci Partners is one of the most traditional and largest independent asset management companies in Brazil. It was founded in 2009 by Horta and Gilberto Sayão - chairman of the company - both former UBS Pactual executives.
Integration with Compass
Compass, founded in 1995 in New York and present in nine countries, has a prominent presence in global-to-local investment, which will grant Vinci access to the global-to-regional vertical. “We will be able to offer international investors access to the Latin American region as a whole, in addition to, of course, products that make sense within each country,” said Horta.
The American asset management company operates with three main business verticals: Asset Management, Wealth Management, and Third-Party Distribution, with over 300 professionals and offices in Brazil, Argentina, Chile, Colombia, Mexico, Peru, and Uruguay, as well as the United States and the United Kingdom.
The new combined institution will surpass Pátria Investimentos, which had approximately US$32 billion in assets under management by the end of 2023.
Vinci will also strengthen its local-to-global approach, given Compass’s presence in markets such as Mexico, Chile, and Colombia, where the foreign allocation of institutional investors is widespread.
“There are several levers to touch upon, which will be identified and suggested by the consultancy, in product, operations, and distribution areas,” said Horta.
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Potential for revenue growth and new M&As
According to Horta, there is little overlap between Vinci and Compass, and most of the synergies should come from the revenue front, not by means of reducing costs. “We see a lot of potential for immediate revenue gains, in areas where we have the capacity, but they don’t allocate [resources] because they don’t have a track record.”
One such case is in regional funds, where he sees “a huge opportunity.”
Vinci’s CEO said that the business thesis for the investor of the Nasdaq-traded stock remains unchanged, but they now have access to a company with an expanded, regional presence, which is rare for Brazilian asset management companies, but common when considering firms focused on alternative assets in Asia or Europe, for example - the American market, given its size, is a separate case.
With the incorporation of Compass, new “transformational” transactions are on hold in the short term, but “we remain quite active in operations in specific verticals, such as real estate, private equity, infrastructure, and private credit.”
“We are in virtually all verticals, but now we have a larger scale. We have stopped looking only at Brazil and can enter verticals in other Latin American countries. The pipeline is extensive, but these are operations with more focus, where we can bring not only AuM [assets under management] but also teams that are complementary to ours,” said Vinci Partners’ CEO.
Partnership reinforcement
Horta also said that the deal addresses three points considered fundamental in the segment they operate in, with reinforcement in capital, ideas - knowledge for strategy - and talent.
“During conversations with Compass, we noticed a very strong cultural fit with Vinci, a company also founded by partners, with ethics and a convergent strategic vision.”
As a reflection of this identification, more than twenty Compass partners will join Vinci’s partnership, including founders Manuel Balbontín and Jaime de la Barra, bringing the total to more than sixty. They will have access to the same lockup and vesting rules as the current partners of the Brazilian management company.
Compass partners will have today the equivalent of about 18% of Vinci’s capital, through the issuance of new shares, in addition to a smaller portion of payment in cash from the Brazilian management company’s cash. There will be an earn-out tied to the achievement of goals until 2028, which can reach 7.5% of the capital.
Balbontín, current chairman of Compass’s board, and De la Barra, vice-chairman, will join Vinci’s board.
With the issuance of new shares, the company naturally increases its market cap, which is currently close to US$610 million. “They [the partners] believe strongly in the new company and preferred to receive most of the payment in shares rather than in cash.”
In the final terms of the transaction, Vinci, although having a smaller volume of AuM than Compass, became the company to be incorporated because it has a higher margin in the operation with the management of its own assets, resulting in higher profits, as explained by the executive.
Horta said that the goal is to integrate the two companies as much as possible, respecting the regulatory structures of each market, “so that we can explore the best practices for all people and all strategies.”
The more than 600 professionals are expected to receive stock options as a means of aligning interests.
