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Deal Maker of the Year Awards 2013
USA
WINNER - KEVIN MARTINS DA SILVA DEAL: BBVA sells AFP Horizonte to SURA and Scotiabank
NAME: Kevin Martins da Silva COMPANY: Three Ocean Partners LLC TEL: +1 212 259 0557 EMAIL: ksilva@threeoceanpartners.com WEBSITE: www.threeoceanpartners.com
Q Please summarise the transaction
Three Ocean Partners advised SURA Asset Management on the joint acquisition with Scotiabank of Peruvian pension fund manager BBVA Horizonte for US$516 million. This highly innovative and complex transaction was a landmark for the Latin American financial services industry,
where two strategic competitors acquired
and broke-up a third, rebalancing the competitive landscape of the industry while avoiding excessive market concentration. In doing so, the transaction was able to secure regulatory pre-approval. Upon the execution of the target’s break-up, which was completed within 180 days, SURA’s AFP Integra became the leader in the Peruvian pension industry with approximately 39% market share of affiliates and 41% market share of AUM. The transaction further consolidated SURA Asset Management’s position as the leading pension fund manager in Latin America (excluding Brazil).
As part of its commitment to social responsibility, Three Ocean Partners celebrated its role in the successful transaction by committing to donate part of its advisory fee received from SURA to its partner foundation, Happy Hearts Funds run by Petra Nemcova, toward the construction of a new school in areas impacted by natural disasters. This represents the third school project to which Three Ocean Partners has contributed since launching its unique partnership with Happy Hearts in June 2012, having opened one school in Haiti and one in Peru in 2012. For more details see the Social Responsibility page of our website (www.threeoceanpartners.com).
Q What was your role within the transaction
Three Ocean Partners LLC, a New York-based merchant bank, originated the transaction and served as exclusive financial advisor to SURA Asset Management. Kevin Martins da Silva, Partner, led the team. As the former CFO and Head of M&A for ING Latin America, which was sold to Sura in 2011, Kevin has a longstanding relationship with the senior executives of Sura Asset Management and intimate knowledge of the Latin American financial services industry. While at ING he led a number of deals in the region over the years, most notably the IPO of Sul America S.A. in 2007, the largest independent insurance company in Brazil where he served as CFO, the purchase
of Santander’s pension businesses in 2008, and the sale of ING’s pension businesses in 2011.
Three Ocean Partners also had a detailed knowledge of the recent Peruvian pension reform having advised both Sura and Grupo Wiese on a separate transaction in 2012, whereby Grupo Wiese swapped its minority position in AFP Integra in Peru for new shares in the Sura Asset Management regional holding company.
What were the challenges or difficulties presented and how were the challenges or difficulties overcome
Q
The main challenges to completing the deal were (1) timing, (2) regulatory approval and (3) the need for a partner to complete the deal (Profuturo, owned by Scotiabank).
The deal was done in a very short timeframe (two months from start to finish) given that we arrived several months after the auction process had begun.
The regulatory challenge was substantial as although there was no clear rule defining what level of market share is permissible under Peruvian law, the regulator made it clear that he did not favour a transaction whereby one of the incumbent players acquired 100% of AFP Horizonte’s portfolio. To mitigate the risk
associated with this
regulatory uncertainty, Integra sought a partner AFP to jointly acquire the target company and divide its portfolio
50:50. Furthermore, both acquirers sought and obtained regulatory pre-approval enabling them to sign and close the deal simultaneously.
Managing the complex dynamic of the three-party transaction quietly and within a very tight timeframe in a very small and competitive market was of paramount importance given the profound reshaping of the competitive landscape as a result of the deal – both acquirers leapfrogged the market leader to become the #1 and #2 players in the industry.
Q
What other types of clients or transactions have you been involved with
In the last 12 months Kevin and Three Ocean Partners advised Sura and ING on three additional completed transactions, as follows:
• Advised ING Group on the sale of US$187 million and US$244 million minority stakes in Brazilian insurer Sul America S.A., representing 8% and 11% stakes in the company, to the International Finance Corporation (IFC) and Swiss Re, (announced in May and November 2013)
respectively
• Advised Sura Asset Management and Grupo Wiese on the swap of Grupo Wiese’s 20% stakes in Peruvian AFP Integra pension fund manager and Fondos Sura wealth management company for a ~3% stake in Latin America holding company Sura Asset Management (announced on December 27, 2012)
Thoughts & Predictions for 2014 and Beyond A lot more cross border activity both in terms of M&A and capital flows!
The combined effect of the strengthening of the US economy, the slowing down of Brazil, most dramatically evidenced by the recent FX volatility and the bursting of the Eike Batista bubble, and the growth in the Pacific Alliance, particularly the favorable outlook for Mexico, has accelerated a paradigm shift. There is a lot more interest from Latin American corporates, including Brazilian, to pursue acquisitions in the US and in the Pacific Alliance countries, where they see more attractive valuations and good growth prospects.
Conversely, the rightsizing of valuation multiples and seller price expectations in Brazil should result in renewed interest in cross border deals and investments into Brazil, which while not as good as everybody thought, is not as bad as some may now fear.