On July 2nd, we spoke with Chris Varelas, Founding Partner of Riverwood Capital to get a sense of his current deals and perspective on Brazil’s economy. Chris has kindly participated as speaker in BayBrazil’s events and before launching Riverwood, he was the Global Head of Technology, Media & Telecom Investment Banking at Citigroup Global Markets.
BayBrazil: Riverwood Capital made a large investment in Brazil last year. Tell us about that deal.
Chris: We have in fact made multiple investments in Brazil since our fund’s inception including our largest, a 63 million US dollar investment to acquire Alog, the largest stand alone data center business in Brazil. We acquired the company with the management team and Equinix, the largest data center company in the world. This investment highlights better than any other the unique attributes of Riverwood. We were able to identify a unique asset and partner with one of our strategic relationships to structure a deal that maximizes upside returns while minimizing downside exposure for our LPs. Equinix provides a unique pipeline of global accounts looking to satisfy their data center needs in the region. Along with regional organic growth our revenue and profitability targets are robust and have a high degree of certainty of being achieved. This investment went a long way to building our franchise in the region. We now seem to be the private equity firm of choice for growing middle market firms in the region.
BayBrazil: What is your expectation for the growth of cloud-based IT sector in Brazil?
Chris: The cloud based IT sector will undoubtedly grow with the organic demand of the region. This is a trend that will march forward regardless of macroeconomic forces. Only questions are how fast and what stages of evolution will be skipped given the knowledge gained and evolutionary advances of more mature market geographies. Brazil represents a great opportunity for investors to apply sector knowledge to a dynamic region with the protection of knowing growth will come from both systemic and marginal demand.
BayBrazil: A few Silicon Valley firms are allocating funds to invest in Brazil. Will this trend continue despite the country’s economic slowdown?
Chris: The Brazilian markets seem to have divided into two with government, utilities and natural resources making up the slower growth lower yielding half and the growth sectors of technology and health care making up the other. The first has and will continue to experience a slowdown in growth and therefore investor interest while the second should continue to see robust growth. This trend is most apparent in the number of IPO filings and the price performance post public offering. Tech and health care stocks well outperform the traditional market verticals which have dominated the Brazilian markets over the past decade. We expect to see continued interest by outside investors on all fronts with a likely sector reallocation to growth.