Navigating Challenges: Ultra-low profile investment bank boutique BH26’s approach to foreign investments in Brazil.

Nestled at the end of Avenida Paulista, the renowned thoroughfare in São Paulo that has over a million people passing through each day, lies the sophisticated and discreet office of BH26. This Investment Bank Boutique was established thirteen years ago by the visionary entrepreneur Isaac S. Sutton.

Would you tell us about your background?

Prior to founding BH26, I was Mr. Joseph Safra´s (the richest Brazilian according to Forbes) Head of Proprietary Investments. I was responsible for $2.5 billion invested in several companies. My primary tasks  were to analyze investment opportunities, define the best debt-equity structure, negotiate governance models, monitor investments in a “nose in, fingers out strategy” and sell at the moment it reached its appreciation potential.  

This vast professional experience was the foundation for BH26 where we seek to conduct our transactions with an ownership view and with absolute discretion. 

Could you expand on that?

We live in a world where companies become hostages of social media and the consequent search for followers forces the company’s C-Level to dedicate a disproportionate amount of time to these activities. We are not on any social medias and we are not looking for followers. I would even say we are “below profile.” Our main objective, and it is where we spend time and energy, is to create shareholder value for our clients who are, for example, Brazilian companies that belong to families on the Forbes list, or large foreign companies. 

Th Brazilian market has great potential, but foreign companies have difficulty entering. Why is that?

There are several barriers to entry into the Brazilian market: high import duties; excessive bureaucracy; the continental size of the country with very different regions; the language and the culture itself are some of the difficulties.

Unlike banks that only offer an M&A alternative to those seeking to enter the Brazilian market, we understand that this is just one alternative among many. First, we do a market research and a deep analysis to decide the best approach in terms of “time to market,” that may include commercial agreements with Brazilian companies, product licensing, joint ventures, among other alternatives. Another important point is from the moment that a foreign company establishes itself in Brazil, we seek competitive funding sources in local currency for its in-country operation.

What kind of problems do foreign companies most often face when investing in Brazil?

Brazil experiences frequent and rapid economic fluctuations, coupled with a continuously evolving legislative and regulatory framework. These factors often have a significant impact on businesses operating within the country. When investors lack a local team, it becomes challenging to discern whether performance is influenced by external factors or by decisions made by the local management.

We have experience managing high-complexity situations, such as shared control, activism, family councils, abuse of control power, among others and we bring a financial analysis bias in advising the role of Fiscal Councils and Board of Directors, with outside legal support, when necessary. With this experience, I would say that today our company is involved in some of the main cases of corporate reorganization or disputes of foreign companies in Brazil. 

Natural resources has been one of BH26’s main areas of activity, could you tell us about your experience?

Agriculture and forestry are very important sectors in the Brazilian GDP. In this sense, since the beginning of our company, this sector has been a special focus. We have learned that in a country the size of Brazil, capillarity and relationships are essential to be successful in these areas. In addition to that, it is crucial to understand operations of a wide range of producers, each with its own peculiarities and different ways of acting. We have carried out several transactions in the sector, advising among the largest global funds in this asset class and also important Brazilian players. 

How do you see the Amazonia? It seems to be attracting the attention of governments, multilateral organizations and financial investors seeking at the same time preservation and return on investment opportunities. Is this a contradictory stance? 

Amazonia is not only the lung of the world, but it is also the greatest diverse biome and possesses the richest biodiversity on the planet. Preservation goes side by side with addressing the needs of poor communities, since the improper exploitation of the forest by local communities is one of the drivers of deforestation. 

There are several well planned initiatives that incorporate this holistic view. An example of sustainable development is PPA, multisectoral collective action initiative that aims to develop and identify innovative and tangible solutions for the conservation of biodiversity, forests and natural resources in the Brazilian Amazon. As a board member, I have been following innovative projects of companies such as Natura, Ambev, among others. 

BH26 has originated several opportunities for investment in the Amazon that favor the preservation and conservation of the biodiversity, together with attractive financial return. Recently we advised the first deal of the Biden government in the Amazon, a loan from the DFC to a medium size Brazilian bank to provide financing for small and medium-sized enterprises in the region, but all the details of this transaction I will leave to the next ‘One Day for the Amazon’. 

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