By Megan Davies and Guillermo Parra-Bernal
NEW YORK/SAO PAULO (Reuters) - U.S. private equitygiant Blackstone Group plans to pay $200 million for a40 percent stake in Brazilian asset management firm PatriaInvestimentos, as it seeks to expand in one of the world'sfastest-growing economies.
Blackstone will pay for the deal through a mixture of cashand stock, a source familiar with the matter told ReutersWednesday. In what seems to be a big bet on Brazil'sdeal-making potential, the acquisition is being made byBlackstone itself, rather than through one of its privateequity funds.
Large U.S. and European buyout firms have been increasinglylooking further afield for investment opportunities, seekingfaster growing places to put their money than the mature U.S.and Western European economies.
"Patria has relations of the highest caliber and Blackstonehas the international footprint, so the deal makes perfectsense," said Duncan Littlejohn, who helps manage about $1.6billion at private equity firm Paul Capital Partners in SaoPaulo.
Patria, which has 16 partners led by veteran bankersAlexandre Saigh and Otavio Matarazzo Neto and about 130employees, will hold the remaining 60 percent stake in thecompany, according to the source, who declined to be cited byname because terms of the deal have yet to be made public.
Combining global knowledge and deep pockets could helpPatria increase its fund-raising ability in Brazil, whilelending Blackstone the necessary tools to penetrate a marketwhere mergers and acquisitions are set to hit a record thisyear. Deal-making in Brazil does not rely much on leverage, butmore on sound management skills and high-powered connections.
Brazil's economy is set to expand this year at its fastestpace in more than two decades, and opportunities for privateequity firms linger across most sectors in the economy ashousehold income climbs and corporate leverage remains low.
Brazil makes up for half of Latin America's gross domesticproduct and 45 percent of private equity investments in theregion, according to Emerging Markets Private EquityAssociation data.
Private equity and venture capital funds are expected toraise up to $15 billion from investors by mid-2011, accordingto Sao Paulo-based ABVCAP, the trade group representing localbuyout firms. A great deal of that has already been raised thisyear, said one industry executive who requested anonymity.
With the help of Blackstone "Patria will be able to writelarge checks and secure deals over $100 million or more, but tome the real challenge for them is that, at this point, thereare relatively few deals left to do," Littlejohn said.
Patria, based in Sao Paulo, declined to confirm theinformation.
HIGH RETURNS, LITTLE COMPETITION
The Blackstone-Patria deal comes as private equity firmshave stepped up fund-raising and takeover activity in recentmonths despite the upcoming presidential election on Oct. 3.
A handful of deals, including Carlyle Group's $1.2billion acquisition of health services provider Qualicorp, tookplace in the middle of the campaign, signaling comfort with thepolitical outlook. The Washington, D.C.-based fund paid $250million for a majority stake in tour operator CVC in January, asource told Reuters at the time.
Shares of Blackstone jumped 3.8 percent Wednesday to$12.44, the fourth straight day of gains. The shares have shedabout 7 percent this year.
Blackstone Chairman Stephen Schwarzman is driving thecompany's push into merger advisory and marketing of hedge andcredit fund products to weather a decline in leveraged buyoutactivity over the last couple of years.
Brazil offers global funds like Blackstone lesscompetition, high returns and developed capital markets thatmake it easier for buyout firms to unload their stakes in stockofferings. Share offerings are likely to rise to a record thisyear because of oil giant Petrobras' massive $70billion stock sale last week.
Blackstone and Patria have had an agreement since 2004 tooperate in Brazilian deals, but so far no transactions havebeen done where the two firms invested jointly. (Additional reporting by Aluisio Alves and Elzio Barreto inSao Paulo; Editing by Derek Caney and Gunna Dickson)