Notícias
12/23/2007
Ethanol fever increases mergers and acquisitions
Since 2004, there have been 45 such transactions in the industry, with 23 of them taking place just this year
Renée Pereira
A good thermometer for measuring the effervescence of the sugar-alcohol sector is the jump in the number of mergers and acquisitions in the last few years. Since 2004, there have been 45 transactions, with 23 of them taking place in this year alone (up to October). Growth in relation to 2006 was at 155%, according to the KPMG consulting company. The biggest stand-out has been foreign investors, who are responsible for 16 transactions. During the entire year of 2006, they had made only 5 transactions.
The trend is that this movement will intensify in the coming years, since one of the industry's chief characteristics is that it is extremely spread out among family businesses. “The horizon is quite good. Today alcohol is finding a favorable environment for growth in the world, because it is an alternative fuel to petroleum, whose price is quite high,” says IBM Business Consulting partner, Martiniano Lopes.
In addition to the rise in fossil fuel prices, ethanol can also be used as a weapon in fighting global warming. In this regard, says Lopes, Brazil is very well-positioned. “We are still the most cost-competitive country for alcohol production. That is why the funds are investing heavily in plants and new projects."
The President of Infinity Bio-Energy, Sergio Thompson-Flores, seconds the specialist’s opinion. According to him, sugarcane alcohol is unbeatable, especially because of its efficient use of land. “Using sugarcane, we produce 7.2 thousand liters of alcohol per hectare, while corn produces 3 thousand liters, and beats, 4.5 thousand liters. This explains part of our appetite to invest in the Brazilian industry,” points out the executive, who represents important foreign funds.
He says that for a time, it was hard to buy plants because of the favorable expectations for ethanol. “At first green fuels were fashionable. But then only the more responsible ones remained.”
One example of this is that the expectation for investments fell by half this year, from US$ 30 billion to US$ 17 billion, according to IBM Business Consulting. Of this total, US$ 14 billion represent the new plants in construction or projects that are ready to go in the country. The other US$ 3 billion will be used for expansion of existing plants.
The lower investment volume is a reflection of the unfavorable sugar prices of 2007, which also influenced the price of alcohol. So that they do not lose money, many producers decided to change their production mix: decreased sugar production and increased alcohol production.
The change provoked a flood of product supply on the market that sharply dropped harvest prices. “This served to give the market a shock of realism," says Thompson-Flores, for whom the possibilities of investments have significantly improved. “The industry’s potential remains extremely favorable. Production will be 15% higher, but consumption will be up by 23%,” says Comanche Vice President in Brazil, João Pesciotto.
CONSOLIDATION
For Adecoagro partner Marcelo Vieira, the industry is expected to go through a long period of consolidation in the next 5 to 10 years. “In this rocky environment, you either grow or you’re swallowed up,” says Vieira, the ex-partner of Monte Alegre, a plant purchased by Adecoagro. Today the sugar-alcohol sector is made up of 350 plants that belong to 80 different groups.
A good thermometer for measuring the effervescence of the sugar-alcohol sector is the jump in the number of mergers and acquisitions in the last few years. Since 2004, there have been 45 transactions, with 23 of them taking place in this year alone (up to October). Growth in relation to 2006 was at 155%, according to the KPMG consulting company. The biggest stand-out has been foreign investors, who are responsible for 16 transactions. During the entire year of 2006, they had made only 5 transactions.
The trend is that this movement will intensify in the coming years, since one of the industry's chief characteristics is that it is extremely spread out among family businesses. “The horizon is quite good. Today alcohol is finding a favorable environment for growth in the world, because it is an alternative fuel to petroleum, whose price is quite high,” says IBM Business Consulting partner, Martiniano Lopes.
In addition to the rise in fossil fuel prices, ethanol can also be used as a weapon in fighting global warming. In this regard, says Lopes, Brazil is very well-positioned. “We are still the most cost-competitive country for alcohol production. That is why the funds are investing heavily in plants and new projects."
The President of Infinity Bio-Energy, Sergio Thompson-Flores, seconds the specialist’s opinion. According to him, sugarcane alcohol is unbeatable, especially because of its efficient use of land. “Using sugarcane, we produce 7.2 thousand liters of alcohol per hectare, while corn produces 3 thousand liters, and beats, 4.5 thousand liters. This explains part of our appetite to invest in the Brazilian industry,” points out the executive, who represents important foreign funds.
He says that for a time, it was hard to buy plants because of the favorable expectations for ethanol. “At first green fuels were fashionable. But then only the more responsible ones remained.”
One example of this is that the expectation for investments fell by half this year, from US$ 30 billion to US$ 17 billion, according to IBM Business Consulting. Of this total, US$ 14 billion represent the new plants in construction or projects that are ready to go in the country. The other US$ 3 billion will be used for expansion of existing plants.
The lower investment volume is a reflection of the unfavorable sugar prices of 2007, which also influenced the price of alcohol. So that they do not lose money, many producers decided to change their production mix: decreased sugar production and increased alcohol production.
The change provoked a flood of product supply on the market that sharply dropped harvest prices. “This served to give the market a shock of realism," says Thompson-Flores, for whom the possibilities of investments have significantly improved. “The industry’s potential remains extremely favorable. Production will be 15% higher, but consumption will be up by 23%,” says Comanche Vice President in Brazil, João Pesciotto.
CONSOLIDATION
For Adecoagro partner Marcelo Vieira, the industry is expected to go through a long period of consolidation in the next 5 to 10 years. “In this rocky environment, you either grow or you’re swallowed up,” says Vieira, the ex-partner of Monte Alegre, a plant purchased by Adecoagro. Today the sugar-alcohol sector is made up of 350 plants that belong to 80 different groups.
