Manager of Brazilian Billionaire Abilio Diniz’s Fortune Predicts Wave of ‘Down Rounds’

Flavia Almeida, president and partner at Peninsula Capital, says private equity owners are still reluctant to sell shares at a lower price.

Flavia Buarque de Almeida, chief executive officer and partner at Peninsula Participacoes Ltd.
By Cristiane Lucchesi
November 09, 2022 | 01:25 PM

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Bloomberg — Private companies in need of capital in Brazil will have to turn to “down rounds” to avoid going deeper into debt in an environment of high interest rates, according to the manager of one Brazilian billionaire’s fortune.

Flavia Almeida, chief executive officer and partner at Peninsula Capital, said many company founders are still reluctant to pursue such financing, in which shares are sold at a lower valuation than previous equity rounds.

Private equity funds don’t want to mark down their investments, and “entrepreneurs are facing a dilemma,” said Almeida, whose firm manages $4 billion in assets, including the family fortune of retailing giant Abilio Diniz. “But early stage companies can’t be highly leveraged in Latin America because money is more expensive here.”

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Almeida expects some “significant” down rounds in the next 12 to 18 months as some Brazilian companies run out of capital, and she’s planning to buy. The key to avoiding land mines will be to have extensive knowledge about local markets, she said.

Investors “have to be extremely careful now,” she said, and before buying stakes in companies they should consider how much cash the firm has and how long it’s going to last.

Tech company shares have been falling on public markets this year, with fintech Nu Holdings SA, know as Nubank, dropping to a market capitalization of about $23.5 billion from almost $55 billion in December. After a boom that pushed Latin American venture-capital investments to a record $14.1 billion in the last three quarters of 2021, they fell to $6.6 billion in this year’s first nine months, according to LAVCA, the association for private-equity investments in the region.

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“We’re are more liquid than usual” after selling a 3.8% stake in BRF SA, Brazil’s biggest exporter of chicken, for about 900 million reais ($175 million) in August, Almeida said. “We’re sitting a little bit on the money in that sense, and we are extremely busy looking for opportunities in private equity and real estate in Brazil now that interest rates went up and asset prices went down.”

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The firm is opening a fund to third-party investors to increase its stakes in what Almeida called innovation companies in the retail, education and well-being sectors. It’s also deciding whether to let outsiders jointly invest in real estate properties, which are now 100% owned by the Diniz family.

Peninsula started in 2005 as the Diniz’s single-family office, but now also manages money from other investors, including family offices and sovereign wealth funds. Its focus is private equity, but the firm also has a $2 billion global hedge fund called O3, which is 50% owned by its portfolio managers.

“We are very focused on retail, education and what we call well-being, which is not only health, but can also include wellness.”

Flavia Almeida, Peninsula CEO

Peninsula can buy minority or majority stakes in private or publicly traded companies, and can also make acquisitions with third-party investors. It holds stakes in French retailer Carrefour SA and its Brazilian unit. Another investment is Olist, a technology platform that helps small retailers expand into online sales.

“We are very focused on retail, education and what we call well-being, which is not only health, but can also include wellness,” Almeida said.

Diniz is the author of two best-selling autobiographies and is one of Brazil’s most controversial and well-known entrepreneurs. He has been at the center of major corporate battles in Brazil, including one with Casino Guichard Perrachon SA CEO Jean-Charles Naouri.

The fight ended in 2013 with Diniz losing control of Pao de Acucar, the giant supermarket chain founded by his father in 1948. The company is one of many brands controlled by GPA SA, Casino’s Brazilian unit. Naouri and Diniz are on good terms now and speculation has increased about what steps the Brazilian billionaire would take to help solve Casino’s debt problems and save the company his father built. Among the possibilities raised in local media is that Diniz would sell Carrefour to buy GPA or help Carrefour buy Casino.

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“We are Carrefour investors, we are committed, and if there is any opportunity in retail, Carrefour should look into that, and we, as board members, will do our work there,” Almeida said, declining to comment further.

As for real estate investments, most of Peninsula’s properties are stores or former stores linked to either Pao de Acucar or of Assai, another GPA brand.

“We are starting to develop that area more,” Almeida said, adding that, if Peninsula’s properties were to be included in a listed fund, it would be the third-biggest in Brazil.

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