Private equity involves investments made in privately held companies, meaning companies not listed on the stock exchange, with the goal of generating value through operational improvements, organic and inorganic growth, and subsequent divestment—either through an initial public offering (IPO) or sale to another strategic or financial buyer.
The investment cycle typically ranges from three to seven years, during which time the fund actively manages the investment, seeking to increase results and efficiency.
In Brazil, this market remains active, albeit more selective. According to a survey by Spectra for Capital Aberto, private equity funds had, as of July 2024, approximately R$23.64 billion in committed but unallocated capital (dry powder).
Although the volume of investments has decreased by approximately 441% compared to 2023, totaling around R$13.3 billion according to data from ABVCAP and TTR Data, the movement remains significant. In other words, there is available capital and an appetite for investment, especially for companies that demonstrate solid governance, growth potential, and an organized structure.
How a private equity firm works
The operation of a private equity fund begins with a clear strategy: defining sectors of interest, average investment value (ticket), profile of target companies, expected return, and exit horizon. Then, the fund manager raises capital from institutional investors, known as limited partners, which may include pension funds, family offices, and insurance companies.
After raising capital, the fund moves to the origination phase, in which it actively maps and seeks investment opportunities. When a company is selected, the acquisition and value creation process begins, which may involve capital injections, improved governance, professionalization of management, increased operational efficiency, and possible complementary acquisitions (add-ons).
The cycle ends with the exit of the investment, when the fund sells its stake or conducts an IPO, ideally obtaining attractive return multiples.
The script of a transaction
Transactions follow a relatively standardized script. It all begins with the origination phase, when opportunities reach the funds through investment banks, specialized consultants, networks of contacts, or sector evaluations. At this stage, the investor receives a teaser, an initial document that presents the business in summary form, without revealing the identity of the target company.
If interested, the fund signs a Non-Disclosure Agreement (NDA) to gain access to the Confidential Information Memorandum (CIM), which contains detailed information about the company.
With the material in hand, the investor conducts preliminary due diligence, evaluating the market, the competitive position, and potential risks (red flags). If the interest continues, the fund presents a non-binding Letter of Intent (LOI), with a valuation range, indicative timeline, and general terms of the proposal.
Subsequently, the final due diligence phase begins—encompassing financial, legal, tax, labor, and commercial aspects, among others—in addition to financing negotiations and the structuring of the transaction. Once the analyses are complete, the fund's investment committee deliberates on the Final Investment Memorandum (FIM), a document that consolidates the conclusions of the due diligence.
If approved, the fund submits a final binding offer (binding bid), with a definitive price. The process culminates in the signing of definitive contracts, such as the Share Purchase Agreement (SPA), along with disclosure schedules, guarantees, and closing.
Between the signing of the LOI and the binding offer, the average timeframe usually ranges from three to six months, or even longer, depending on the complexity of the transaction.
Following the acquisition, the fund remains an active investor for a period that typically ranges from three to five years. During this time, it monitors key performance indicators (KPIs), leverage levels, and covenant compliance, while executing the value creation plan and preparing the exit strategy.
Examples of transactions in Brazil
The Brazilian market is already registering significant transactions that illustrate different phases of this cycle. Vinci Partners, for example, acquired 67% of the Brazilian operation of Bloomin' Brands, which controls the Outback, Abbraccio and Aussie brands, in a transaction of approximately R$ 2.06 billion, signed in November 2024, with payment divided into two installments.
Advent International invested in Skala Cosméticos in February 2024, boosting its industrial expansion and growth. The following year, the company merged with Lola From Rio, also controlled by Advent, forming a group with annual revenue close to R$ 2 billion.
A classic example of private equity is Advent's own deal with Grupo BIG: after acquiring 80% from Walmart Brazil in 2018, the fund restructured the business and sold it to Carrefour Brazil in 2022, in a transaction valued at approximately R$ 7 billion.
In May 2024, Carlyle carried out a partial divestment in Rede D'Or through a block trade of approximately R$ 2.2 billion, reinforcing the cyclical nature of these operations.
These figures have concrete significance. The dry powder available in Brazil, although slightly lower than in 2023 (R$ 25.36 billion), reflects the investment capacity of funds awaiting opportunities with balanced prices and risks. At the same time, the R$ 13.3 billion invested in 2024 demonstrates selectivity and prudence regarding the cost of capital, but also indicates vitality in the consumer, health, infrastructure, and technology sectors.
Preparing for the sale of the company
For companies looking to attract a private equity fund, preparation is essential. A well-structured data room, with organized client and supplier contracts, labor, tax, corporate, intellectual property, and compliance documents, is an indispensable starting point.
It is also essential to have a robust financial model that transparently presents the main drivers of the business, the projected cash flow, the leverage structure, and different performance scenarios. Equally important is the formulation of a realistic growth thesis, combining organic expansion and potential complementary acquisitions.
Corporate alignment, in turn, must be well resolved; funds value clear governance structures, management retention mechanisms, and vesting models. Finally, the transaction structure must consider aspects such as asset deal versus share deal, earn-out mechanisms, equity rollover, representation and warranties insurance, and associated tax implications.
Factors for a successful sale
Private equity transactions reward preparation, clarity of objectives, and disciplined execution. From the seller's perspective, the value of a transaction is not determined solely by the exit multiple, but also by the quality of the information presented, the legal soundness of the contracts, adherence to compliance standards, and the consistency of the growth thesis. The alignment of incentives, with committed managers, balanced rollover, and well-structured earn-outs, also plays a decisive role.
For the investor, value creation depends on the coherence between the investment thesis and the asset cycle, combining operational efficiency, professionalism, and rigorous governance. A well-conducted due diligence process, which reduces informational asymmetries without compromising timing, is equally crucial.
Although each operation has its own particularities, the most successful transactions tend to follow the same playbook: qualified origination, thorough but objective due diligence, a credible financial model, a solid contractual structure that mitigates risks, and a plan that quickly transforms the thesis into execution.
In today's selective market, companies that present organized data, clear governance, and feasible growth plans are able to accelerate timelines, increase competition among buyers, and consequently maximize price and sales conditions.
Antonio Mazzucco is a specialist in corporate business law and a partner at Mazzucco&Mello Law Firm.
SOURCE: Market Monitor.