InsightAn Overview of Trends in Select Sectors and Markets May 2008

Brazil is leading the resurgence of renewed investor interest in private

equity in Latin America, drawing nearly 60% of the private equity capital

raised for Latin America PE funds in 2007.

Investment volumes are reaching unprecedented heights—at US$4.7 billion, 2007

volumes were roughly 10 times that of 2005, and double the peak of the 1990s

boom years. Brazilian GPs are also building a solid record of exits, contributing to

the explosion in IPO activity in 2006 and 2007. Brazil’s 2007 aggregate exit values

surpassed dollar volumes across the entire region from 2003 to 2005.

With one-third of the region’s population, and roughly half of its land mass, Bra-

zil’s prominence in the region’s private equity renaissance is not only a function

of the market’s size, but also a strong record of sustained growth and improved

economic stability.

Economic growth in Brazil exceeded expectations at 5.4% in 2007, and is ex-

pected to continue in 2008, with estimates ranging from 4.8% to over 5% . Infla-

tion rates are now below 4%, well within the 2.5-6.5% target band of the Bank

of Brazil. The Brazilian Central Bank’s target interest rate has been on a sustain-

able downward trend since the middle of 2005. Long anticipated, Brazil became

investment grade at the end of April 2008, when Standard & Poor’s upgraded

Brazil’s sovereign debt rating to BBB- from BB+.

Brazil’s reforms in recent years to attract and promote private equity and venture

capital have borne fruit—53 firms commenced private equity operations in Brazil

between 2001 and 2007, and 89 PE/VC firms currently manage 153 funds in Brazil.

• Population: 189 million (1.008% growth est. 2007)

• GDP: US$ 1,295 billion (est. 2007)1

• GDPpercapita: US$ 6,842 (est. 2007)1

• AverageGDPgrowth2001-06: 2.9%1

• GDPgrowth2007exp.: 4.8% 1

• PensionFundMarket: 403 funds, $165.9B in Private funds (16% of GDP) 2

• GDPWorldRank: 10th largest econo-my (in 2006)1

• Otherindicators:2nd largest cell phone market in the world, 42% of population under 20 years old.

1 IMF.2 ABVCAP.

CountrySnapshot

Emerging Markets Private Equity Association 1

0

2

4

6

8

10Chile

Mexico

Other

Regional

Brazil

2002-2007

200720062005200420032002

Chile

Mexico

Other

Regional

Brazil

PEFundsRaised2002-2007(USD Billions)

Source: EMPEA

BrazilBrazil

Emerging Markets Private Equity Association2

EMPEA Insight

SamplingofBrazil-DedicatedFundsintheMarketin2008

Darby Overseas and US$ 230 m mezzanine fund focused on infrastructure Stratus Investimentos

DGF Investimentos US$ 170 m Terra Viva Fund, renewable energy

Fama Investimentos US$ 150 m, mid-cap companies

GP Investments US$ 2 b buyout fund primarily focused on Brazil

Mercatto Venture Partners US$ 200 m renewable energy venture fund, and US$ 100 m VC fund focused on food & beverage

Patria Investimentos US$ 400 m Brazilian Private Equity Fund III, consumer sector focus

Stratus Investimentos US$ 300 m buyout fund and US$70 million technology fund

Fator Capital (Banco Fator) US$ 230 m, middle market companies, and US$600 million infrastructure fund

Kayros Venture Partners US$ 200 m, biofuels production

Invest Tech US$ 19 m vc fund

Recent Fundraising Activity

The funds universe in Brazil is in a period of dramatic

growth—both in the amount of capital being raised and

the diversity of funds tapping the market. At the buyouts

end of the spectrum, the largest Brazilian fund manager,

GP Investments, broke the US$1 billion ceiling in the fall

of 2007 with a fourth fund that closed at US$1.3 billion,

more than double the target. GP’s upcoming fifth fund is

targeting US$2 billion or more. In April, AIG Investments

closed on US$692 million for its Special Situations Fund

II—representing a three-fold increase over a US$215 mil-

lion predecessor fund. Brascan, the asset management

arm of Banco Brascan, aims to raise at least US$2 billion in

2008 across multiple funds focused on natural resources,

infrastructure and real estate.

Within the middle market, established players with prede-

cessor funds under $100 million are now targeting between

US$150 million and US $300 million—among them CRP

Participacoes and Fama Investimentos. The middle market

is also benefiting from an influx of new regional funds,

including DLJ South American Partners, a joint venture with

Credit Suisse Alternative Investments that closed a US$300

million Latin America fund in April. UK-based Actis’ Latin

America Fund III, with a target of US$250 million, is also

expected to invest primarily in middle market buyouts

in Brazil. Advent International’s 2007 US$1.3 billion Latin

America Private Equity Fund IV will also invest heavily in Brazil.

Players focused on Brazil’s venture capital segment also

continue to grow. Silicon Valley investor Draper Fisher Ju-

rvetson (DFJ) established a partnership VC firm Fir Capital

in 2007 to raise the US$100 million DFJ FIR Brazil II Fund

(subsequently evolving to include DFJ’s acquisition of a

12.5% stake in Fir). Other venture investors in the market in

2008 include Mercatto Venture Partners, raising a US$100

million food and beverage fund and a US$200 million clean

energy fund, and Stratus Investimentos, whose GC II Fund,

with a goal of US$70 million, will channel expansion capital

to technology companies.

Furthering a collaboration begun in 2002 to introduce mezza-

nine finance to the region, Stratus Investimentos and Darby

Overseas Investments are raising a $230 million mezzanine

fund targeting the infrastructure sector in Brazil. The fund

is expected to close in the first half of 2008. This will mark

Darby’s first mezzanine fund dedicated solely to Brazil.

Fund managers in the region are also beginning to raise

capital through sales of stakes in their management com-

panies. GP Investments led the way in May 2006 by be-

coming the first listed PE firm in Latin America. Fir Capital

is now in the process of raising as much as US$250–300

million through private placement of shares in the manage-

ment company, in addition to the 12.5% stake held by DFJ.

Gavea Investimentos received a capital injection from Har-

continue on page 3

Source: EMPEA

Emerging Markets Private Equity Association 3

May 2008

vard Management Company’s purchase of a 12.5% stake

late in 2007. Gavea will use part of the proceeds towards

a new fund being raised in 2008.

All told, funds focused on Brazil have raised more than

US$1 billion year-to-date in April 2008. Additionally, at least

10 funds are raising upwards of US$4.6 billion this year,

translating to a potential doubling in capital focused on Bra-

zilian opportunities in 2008 relative to the US$2.5 billion

raised in 2007.

EMPEA’s research confirms that investor interest in Brazil and

Latin America has returned. In its 2008 Survey of LP Inter-

est in Emering Markets PE, EMPEA found that LP investment

in Brazil continues to grow steadily, rising from 5% of LPs

actively investing in 2007 to 16% in 2008. Forty-eight percent

of LPs surveyed in 2008 plan to invest in Brazil within the next

three to five years, triple the 16% currently investing.

No Interest

Observing

Investing

20132008

No Interest

Observing

Investing

20132008

10%

36%

54%

6%

63%

31%

21%

16%

63%

11%

48%

41%

LPsCurrentvs.ExpectedFutureInvestmentStrategies2008 vs. 2013

Lat-Amex-Brazil Brazil

Reports of InterestPriceWaterhouse Coopers report on Brazil’s PE Market in 2007 www.empea.net/research/3rdparty/Brazil_PrivateEquity_PWC_2007.pdf

Emerging Markets Private Equity Association PowerPoint presentation on PE in Brazil, April 2008www.empea.net/research/3rdparty/EMPEA_BrazilPEandIPOMarket_April 2008.pdf

Brazilian Private Equity and Venture Capital Association (ABVCAP): www.abvcap.com.br

Centro de Estudos em Private Equity, FGV GVcepe: www.cepe.fgvsp.br

PriceWaterhouse Coopers study on VC/PE environment in Brazil, April 2008http://www.abvcap.com.br/UpLoad/Arquivo/BR_PE_FY07_brochure.pdf

Monitor Group Study on the Brazilian PE & VC Industry for ABVCAP, June 2007http://www.abvcap.com.br/UpLoad/Arquivo/StudyBrazilianPEVC.pdf

EMPEAInsightEditorial Director: Jen Choi choij@empea.net

Production Manager: Cristiane Nascimento nascimento@empea.net

Design: Paras Productions, Inc.

Aboutus

EMPEA Insight offers readers an overview of the data and drivers behind investment trends in emerging markets private equity. Each EMPEA Insight profiles funds, deals, and exits in individual countries, regions, and in burgeon-ing sectors like real estate and infrastructure, and a list of

firms active in that particular sector and/or market.

For more information about EMPEA membership, please contact Carlos Perry, Chief Operating Officer, at perryc@empea.net.

AdvertisingOpportunities

Each issue of EMPEA Insight features a single exclusive back page advertisement. Issues-specific placements are on a first come, first serve basis. Upcoming issues include China,Central & Eastern Europe and Russia/CIS, Middle East, India, Latin America, Southeast Asia, Africa, Real Estate. For more information about advertising op-portunities and rates, please contact Cristiane Nascimento at nascimento@empea.net.

Source: EMPEA’s Survey of Limited Partners Interest in Emerging Markets Private Equity, May 2008.

Emerging Markets Private Equity Association4

EMPEA Insight

Investing TrendsTotal private equity investments in Brazil reached US$4.8

billion in 2007, up from only US$ 474 million in 2005.

Fuel production and energy drew the majority of invest-

ment in 2007, nearly 40% of total value. The attractiveness

of sugarcane-based ethanol production projects is being

driven by strong demand in Brazil, where 87% of all new

light vehicle sales are flex-fuel cars, and by the continuing

rise of global fuel prices. Interest in biofuels production, the

need to feed Brazil’s growing population and Brazil’s grow-

ing role as China’s breadbasket make agribusiness another

sector ripe for deals. In April, GP Investments acquired

dairy and food manufacturing company Laticinos Morrihos

(Leitbom) for US$237 million, and in February, Argentine

agricultural producer Grupo Los Grobo agreed to sell a mi-

nority stake to Brazilian Investment fund Investimento em

Participacoes PCP for US$100 million.

Investments continue to be concentrated in the growth/ex-

pansion segment, however buyouts are becoming increas-

ingly common. As the number of buyout deals increases in

Brazil, so does the use of leveraged finance—by some es-

timates, leverage used in Brazil buyouts is currently roughly

2-3X EBITDA. GP Investments’ US$1 billion acquisition of

the Latin American energy assets of Pride International in late

2007, the largest leveraged buyout to date in Latin America,

included US$600 million in debt finance.

Fragmentation within related sectors in Brazil makes bolt-

on and roll-up acquisition strategies increasingly attractive.

SamplingofRecentInvestmentsOctober2007–April2008

DLJ South American Partners Fispal, trade show promotion company, and EBEC educational company (Nov. 2007)

Stratus Investimentos Brazil Timber, amount not disclosed. First investment from Cleantech- Biotech Fund (VCIII) (Mar. 2008)

Rio Bravo Investimentos Fleet One Gestao de Frotas, trucking and transportation company, 24% stake (Apr. 2008)

GP Investments Laticinos Morrihos (Leitbom), dairy manufacturer, US$ 237 m (Apr. 2008)

Global Environment Fund NEOgás do Brasil Gas Natural Comprimido S.A., compressed natural gas distributor, amount not disclosed (Apr. 2008)

Gavea Investimentos, Weston Venture to form new Brazilian discount airline, est. US$ 150 m (in process as of Presidio, Companhia Bozano, Apr. 2008) George Soros, David Neeleman (Jet Blue founder)

Intel Capital Infoserver, mobile and online security software provider (Dec. 2007)

Tarpon Investment Group Arezzo Industria e Comercia S.A., footwear producer and retailer, US$ 44 m for 25% stake (Nov. 2007)

Advent International Viena restaurant chain, 100% (Oct. 2007)

0

1000

2000

3000

4000

5000

200720062005200420032002200120001999

4748

1342

474120321261281379456

PE/VCInvestments1999-2007(USDmillions)Value (USD millions)

Source: EMPEA

continue on page 5

Source:Venture Equity – Latin America

Emerging Markets Private Equity Association 5

May 2008

According to a study conducted by PriceWaterhouse Coo-

pers in February 2008, of the 110 transactions involving

private equity firms that were completed in 2007, 57 were

made through private equity portfolio companies. Fund

managers exploiting the benefits of consolidation plays

include Advent International, which has been investing in

airport-based retail throughout the region, such as Brazilian

0

5

10

15

20

25

2007200620052004

16

21

12

9

NumberofPE-backedPublicOfferings

Net Revenues 2006 Investment Time to exit Estimated IRRs Company (USD million) (USD million) (years) in US$

Equatorial 393 11 2 481%

GOL 1746 26 1 242%

TOTVS 161 16 <1 199%

DASA 308 100 5 40%

Gafisa 305 78 9 36%

TAM 3374 77 8 26%

ALL 793 202 7 22%

Localiza 517 49 8 9%

Akwan n/a n/a 4 130%

Autotrac 122 2.5 7 32%

Microsiga n/a 7 6 12%

ExamplesofSuccessfulVC/PEExits,2006-2007

food and beverage retailers Grupo RA and La Mansion,

and duty-free retailer Brasif. GP Investments is building an

integrated human resources company through acquisitions

of Grupo Suma, Top Service, and People Domus. Equity

International and GP Investments are building a portfolio

of shopping center developments through their 2006 co-

investment in BR Malls.

Exit TrendsThe strengthening track record of Brazilian GPs is a critical

lever in the local industry’s recovery.

Trade sales (to strategic or financial sponsors) account for

the bulk of exits, roughly two-thirds of the exits in 2007.

Among trade sales, transactions with strategic sponsors

continue to be the predominant path to exit in Brazil. Re-

cent examples include Advent International’s exit from

bond provider J Malucelli Seguradora (JMS) in exchange

for a 10% equity stake in consumer credit bank Parana

Banco. Fund manager Pactual realized a US$12.5 million

investment in Qualytextil through a sale to US protective

apparel manufacturer Lakeland Industries. In November

2007, US-based Acon Investments realized its investment

IPO

sTr

ade-

Sal

e

Source: ABVCAP, Bovespa.

Source: ABVCAP, Bovespa.

Emerging Markets Private Equity Association6

EMPEA Insight

in Brazilian grocery chain GBarbosa through a sale to Chil-

ean supermarket company Cencosud at 31 times the initial

investment.

Rare during private equity’s early years in Brazil, IPOs have

become an attractive exit route. Of the 76 IPOs in Bovespa

from 2004 – 2007, 30% were PE/VC-backed companies.

Exits have slowed somewhat in the first quarter of 2008

in the wake of global market turbulence, but are expected

to recover. The last private equity-backed IPO on the Bove-

spa was GP Investment’s December 2007 exit from Tempo

Participacoes, which raised US$253 million.

0

50

100

150

200

NM: Most Advanced

N2: More Advanced

N1: Standard

2008*2007200620052004200320022001

NovoMercado’sGrowthinListings(asofFebruary2008)

Capital Markets SnapshotThe Sao Paulo Stock Exchange (Bovespa) experienced

rapid growth between 2005 and 2007, due in large part to

the introduction of corporate governance reforms through

the Novo Mercado. The Novo Mercado, initiated in 2004,

is a classification featuring voluntary corporate governance

guidelines that go beyond Brazil Securities Commission’s

(CVM) non-binding corporate governance provisions. The

156 companies listed on the Novo Mercado at the close of

2007 represented 57% of Bovespa’s total market capital-

ization, 66% of the trading value and 74% of the number of

trades in the cash market.

As of April 2008, Brazil’s Bovespa was ranked 10th in the

world in market capitalization, at US$1.4 trillion, and in

2007 ranked 5th in the world in capital raised through IPOs

at US$28.6 billion. Local indices Ibovespa and MSCI Bra-

zil outperformed regional peers between March 2007 and

March 2008, with Ibovespa ending up 44%, compared to

Hong Kong’s Hang Seng Index, up 25%, and the Mexican

Bolsa, up only 7% year over year. The MSCI Brazil index

increased 70% over the same period, while MSCI India and

Mexico rose 30% and 10%, respectively.

Despite improvements in economic stability and the depth

of its capital markets, Brazil did not emerge unscathed

from global market turmoil in the beginning of 2008. After

breakneck growth in the number of new listings in 2007, the

pace of IPOs cooled in the first quarter, with only 3 IPOs and

follow-ons through April 2008 versus 26 during the same

period in 2007. After a 3% drop in March 2008, the Bovespa

rallied 6% following the April 30 announcement that Brazil

had received an investment grade sovereign debt rating

(BB+) for the first time from Standard & Poor’s.

Source: Bovespa. NM = Novo Mercado; N1 and N2 represent optional levels of corporate governance compliance. N1 is the least stringent.

Num

ber

Com

pani

es

Emerging Markets Private Equity Association 7

May 2008

PE Firms Investing in Brazil Most Recent Fund Sector Focus Website

Advent International Latin America Private Equity Generalist www.adventinternational.com Fund IV (2007, US$1.3b)

AIG Capital Partners AIG Brazil Special Situations Fund II Generalist www.aigprivateequity.com (2008, US$692m)

Angra Partners AG Angra Infrastructure Fund Infrastructure www.angrapartners.com.br (2006, US$397m)

Artesia Gestao de Recursos Artesia Exclusive II (2007, US$98 m) -- www.artesia.com.br

Axxon Group Natixis Mercosul Fund (2001, US$100m) -- www.axxongroup.com.br

Banco Pactual Fundo Brasil Energia (2004, US$255m) Energy www.ubs.com/1/p/ubslatinamerica.html

Banco Santander ASCET I-FIP (2007, US$31m) Generalist www.gruposantander.com BRASOIL FIP (2007, US$31m)

Capitania Gestores Ltd. Private Equity Brazil Multi-strategy I Generalist www.capitania.net (2007, US$ 260m)

Companhia Riograndense CRP VI Venture (2006, US$28m) Generalist www.crp.com.br de Participaçoes (CRP)

Darby Overseas Darby BBVA Latin America Private Equity Agribusiness/ www.darbyoverseas.com Investments Ltd Fund (2005, US$175m) Infrastructure

Decisão Gestão de Fundos FIPAC (2006, R$80m) Technology, www.dgf.com.br Investimentos (DGF) Pharma

Dynamo Administração Puma II (2004, US$208m) -- www.dynamo.com.br de Recursos Ltda.

FIR Capital Partners Fundo Tec II (2007, US$45m); DFJ FIR Technology, www.fircapital.com Brazil Fund II (2007, US$100m) life sciences

Gavea Investimentos Fund II (2007, US$840m) Generalist http://www.gaveainvest.com.br/

Governança,e Gestão Governança & Gestão -- www.gginvestimentos.com.br (GG Investimentos) Fund I (2006, US$140m)

GP Investments GP Capital Partners IV (2007, US$1.3b) Generalist www.gp.com.br

Infinity Infinity Bioenergy Fund I (2006, US$516m) Cleantech www.infinitybio.com.br

Intel Capital Intel Capital Brazil Technology Fund Technology www.intelportfolio.com (2006, US$50m)

Investidor Profissional Gilbraltar Fundo de Investimento em www.investidorprofissional.com.br Gestão de Recursos Ltda. Participacoes II (2007, US$78 m)

Jardim Botânico Partners JBVC I Fund (2007, US$57m) Generalist www.jbpartners.com.br (JB Partners)

Mellon Global Rio Agribusiness FIP (2007, US$13m) Agribusiness/ www.mgib.com.br Investments Brazil Polaris Fundo de Investimento em Generalist Participacoes (2007)

Mercatto Venture Partners MVP Tech Fund (2002, R$23m) Technology www.mercattorj.com.br

Orbe Investimentos Agrotech Venture Capital (2004, US$20m) www.orbeinvestimentos.com

Pátria Private Equity Fundo de Terceirização de Serviços Outsourcing www.patriainvestimentos.com.br para o Brasil – FIP (2006)

PTZ/Biomass PTZ/Biomass Technology Fund I Cleantech www.ptz.com.br Technology Group (2006, US$63m)

Rio Bravo RB Nordeste II (2006, US$46m) Generalist www.riobravo.com.br

Southern Cross Group Brazil Southern Cross Latin American Private Generalist www.southerncrossgroup.com Equity Fund III LP (2007, US$751m)

Stratus Investimentos Ltda. Stratus Venture Capital Fund III Cleantech www.stratusbr.com (2006, US$31m)

Temple Capital Partners Clean Energy Brazil (2006, US$197m) Cleantech www.templecapital.com

Vision Brasil Vision Agro Fundo de Investimento www.visionbrasil.com.br em Participações II (2007, US$ 78m)

Votorantim Ventures Votorantim New Business (US$300m) IT, Life Sciences www.vventures.com.br

Firms Investing in Brazil