Investment Banking in Brazil
This one is the interview that I could never quite lock down – until now.
We’ve managed to cover almost every emerging and frontier market, but my attempts at featuring Brazil kept falling through.
But when I sent out an announcement asking for interviews last year, I received over 200 responses, with quite a few from readers in Brazil.
The stories varied, but I’ve focused on one of the most unusual ones here – from a reader who broke into the industry from a non-finance background and then moved into corporate development:
Origin Stories: Engineering to Import/Export Business to Investment Banking
Q: You have quite a story. Can you walk us through the basics?
A: Sure. I studied engineering at university and started an import/export business after graduating. I didn’t know anything about M&A or investment banking at the time.
The bureaucracy in Brazil is difficult to deal with, and an economic downturn made it tough to run my business, so I decided to pursue a Master’s degree at a business school in South Brazil.
I became interested in M&A there, and I began applying to all the banks I could find in both São Paulo and Rio de Janeiro.
I had no experience in financial analysis and no internships, so I received only one response from the dozens of emails I sent out.
It was from a regional boutique bank in Rio that had around 20 people and focused on middle-market deals (For companies with ~R$ 30 million to ~R$ 500 million in revenue).
I made it through interviews there, won an offer, stayed for a few years, and then attempted to move into private equity, but found that it was incredibly difficult coming from a boutique.
So, I moved to a larger bank instead (similar to an “elite boutique,” but with a LatAm focus).
I stayed there for a few years, worked on larger and more complex deals, and then decided to move to the U.S. and take a corporate development role at a finance company there.
Q: Thanks for sharing all that. Your story is quite unusual, but how do students usually get into investment banking in Brazil?
A: It’s not that much different from the U.S.; banks want students who have completed prior finance internships, have good grades, and have attended the best universities.
They also want people who have networked a lot, done their research, and understand the trade-offs of working in IB, such as the fact that you won’t have much of a social life.
It’s common for engineers to pursue careers in finance, but they have a tough challenge proving their people skills and knowledge of finance.
One difference is that in Brazil, and Latin America in general, you have to pick your major right when you apply to university, and then stick with it for 4-5 years.
Many students from schools such as Insper and Fundação Getúlio Vargas (FGV) study business management and aim for IB roles.
Those two are more focused on careers in IB/PE, but other strong schools include the University of São Paulo (USP), Fundação Dom Cabral (FDC), and, in Rio, Pontifical Catholic University (PUC), Ibmec, Universidade Federal do Rio Grande do Sul (UFRGS), and COPPEAD at the MBA level.
Students at some of those schools can complete internships starting in their first years, but Insper students can complete internships only in their final years.
Finally, you absolutely must know Portuguese to work here.
If you’re from another country, it might be possible to study here, learn the language, and win an offer, but banks heavily favor local candidates.
Q: Thanks for explaining that. You recruited at a wide variety of banks, so what should readers expect in the interview process?
A: I’ll start with the bulge brackets: They give candidates a test similar to the GMAT, and if you pass, you’ll interview with HR, then Analysts and Associates, and then the VPs, EDs, and MDs, who make the final decision.
There are no huge differences in interviews, but one point is that teams are very small.
At some bulge brackets, the entire team is less than 25 people, and they hire only 2-3 interns per semester. Most interns receive full-time offers, so there is not much recruiting for full-time Analysts.
Elite boutiques are even newer, but firms like Moelis and Rothschild do have a presence; historically, Rothschild has done well in the M&A league tables as well.
The process is similar there, but they normally don’t have local HR staff, and they’re more concerned with “fit” since the teams are even smaller.
Interviews at regional boutiques are less formal, and you might just go through a few rounds of interviews where you discuss your experience and why you want to do IB.
If you’re interviewing with a larger regional bank, and you have work experience, you could get a case study where you have to make a recommendation on the best buyer or seller in an M&A deal as well.
Deals, Deals, and More Deals: Comparing the Banks in Brazil
Q: Thanks for that run-down. You’ve mentioned a few different types of banks in the country, but how do they compare in terms of deals and industries?
A: The domestic banks, such as BTG Pactual, Itaú BBA, and Bradesco, tend to do more deals, but the international bulge-bracket banks tend to advise on larger deals.
Banks like BTG and Itaú have strong corporate banks and win a lot of deals because of that; firms like MS and GS don’t even have corporate banking arms here.
Many companies in Brazil are family-owned, and the owners are more familiar with the domestic banks, so that also gives those firms an advantage.
However, when the deal is bigger or more complex, the company will almost always hire one Brazilian bank and one international bank.
The bulge-bracket banks and domestic banks tend to focus on M&A deals, while the elite boutiques are stronger in Restructuring, which is happening a lot with the current economy.
There are no true “industry-specific boutiques,” but bankers at boutiques often have clients in a few sectors and bring the clients with them when they move over from bigger banks.
Almost the entire market is in São Paulo. There are 3-4 well-known boutiques in Rio, but the biggest banks operate in SP.
Q: You also worked with smaller companies and then with slightly bigger companies.
What are the main differences?
A: One difference is that many of these companies in Brazil are not audited, so a big part of your job as an Analyst or Associate is finding and presenting historical financial information.
It’s tough to go public with less than R$ 300 million in revenue, so many of the middle-market companies you advise are private.
At regional boutiques, ~99% of deals are sell-side M&A transactions, so you’ll spend a lot of time preparing lists of potential buyers.
In one deal I worked on, the structure was quite complex since the company was owned 50/50 by two Partners, and one Partner was leaving.
The other Partner had to raise funds to do a “leveraged buyout” of the other one, and we set up several earn-outs for the deal.
Those structures are common since so many companies are owned by a few individuals rather than diverse groups of shareholders.
Q: Were there any differences in the teams or work styles?
A: At the regional boutique, I worked on a maximum of 5-6 deals at once, and two senior bankers and two Analysts were involved in each deal.
I don’t think that’s a great structure; it’s better for only 1-2 people to be deeply involved with each deal.
The larger bank operated more like a bulge bracket, and I sometimes worked on up to 8-9 deals at once.
I was more senior by then, so I had junior Analysts below me working on models and presentations. I spent more time sourcing deals, speaking with potential investors and acquirers, and working on term sheets and LOIs.
I worked around 55-60 hours per week at the regional boutique, and closer to 70 hours per week at the larger firm.
I assume that the hours at bulge brackets and elite boutiques are longer, though I’m not certain of that.
Exit Opportunities: The Promised Land of Private Equity?
Q: Thanks for that comparison.
You mentioned that it was very difficult to move into PE coming from a boutique firm. What do most bankers there do?
A: Private equity is probably the most common exit opportunity, but more so if you’re at a bulge bracket or elite boutique.
The hedge fund industry is not well-developed, and sometimes they pay less than banks, so bankers tend to stay in IB or move into PE.
Q: And what’s the process for getting into PE like?
A: Recruiters have far less power than in the U.S. You can just contact firms directly and send your CV when you hear about opportunities.
Recommendations always help, and they’ll almost always ask for them in the final stages of interviews, but you don’t necessarily need one to start interviewing.
Domestic PE funds sometimes hire candidates directly out of university, but they also pay less than international funds and have worse hours; international funds tend to recruit bankers with 2-3 years of experience.
Interviews are fairly standard, but case studies are sometimes more detailed because the recruiting process isn’t a 48-hour frenzied rush as it is in New York.
As a result, “speed tests” and paper LBO models are less common than 3-hour tests where you read through 10+ pages about a company, build a full model, and then defend your recommendation.
You’ll speak with everyone at the firm, present your case study, and then speak with the most senior Partners at the end.
Q: You mentioned the benefits of international funds over domestic ones, but how active are the international funds?
A: There are quite a few funds, but their track record has been mixed, especially with the downturn in the economy.
The most active international funds are Advent, Carlyle, General Atlantic, Warburg Pincus, and H.I.G.
Apax, KKR, and TPG also have local offices, but are not very active and did not perform well in their deals; some might even close their offices.
CVC has entered the market more recently, and Blackstone makes real estate investments and has a stake in Patria, one of the leading domestic funds.
The most active Brazilian funds are Patria, BTG Pactual, GP Investments, and Tarpon, but some of them have also had performance issues and might have trouble raising funds in the future.
Q: I see. And are there any differences in the industries and deal types?
A: The industries are diversified, but retail, healthcare, TMT, and consumer see quite a few deals.
The biggest difference is that classic LBOs are rare because interest rates are very high (~14% currently), and lenders prefer short-term loans.
Many deals use no leverage, and when they do use leverage, it’s a maximum of 3x Net Debt / EBITDA.
A survey from a few years ago even found that 44% of private equity deals used no leverage, 44% used up to 25% leverage, and only 12% of deals used between 25% and 50% leverage.
As in private equity elsewhere, you’ll spend more time researching industries and companies and less time rushing around making last-minute presentations.
Q: You decided to leave the IB/PE world and move into corporate development.
That doesn’t seem to be common in Brazil, so what motivated you to do that?
A: I am legally allowed to work in the U.S., and I had always wanted to live there, so I decided to quit my job, move to the U.S., and look for work when I arrived.
Originally, my bank was going to help me transfer, but they decided against it, so I made the move myself.
I won some interest from private equity funds, but once again, it was difficult to get in without bulge bracket or elite boutique experience.
I gained more traction for corporate development roles, and I got along very well with the VP of Corporate Development at the firm where I accepted my offer.
The company is in the financial services sector, with a focus on the Caribbean and Latin America, so it was also a great fit for my background.
The way I looked at it, corporate development careers are similar to private equity, but you don’t need such specific experience to get in.
The interview process was very casual (no case studies or modeling tests), and it felt like the right fit for me.
Q: Thanks for sharing that, and thanks for your time!
A: My pleasure.
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