PREPARATIONS FOR SIGNING A BUSINESS MERGER or acquisition tend to take many hours – almost always without a break or time to rest, or even to have a meal. When the contract is finally signed, there is little energy left over for anything other than the traditional handshake and toast with champagne. In the wee hours of August 30, 2010, an office building on Brigadeiro Faria Lima Avenue, São Paulo’s new financial center, was the stage for a different outcome. For an exhausting and uninterrupted 14 hours, a group of nearly 20 executives, attorneys and advisers negotiated the merger of the holding of MD1 diagnosis companies, owned by Edson de Godoy Bueno, with Dasa, the largest chain of laboratories in Latin America. After signing the term of understanding making him the laboratory's major individual shareholder, Bueno stood up and said: “I want to give you a kiss on the heart!" The statement was directed to the executive, Luís Terepins, chairman of Dasa’s Board of Directors. To everyone’s great surprise, Bueno did not just say it: he approached Terepins and literally gave him a kiss on his chest.
Those who know Edson Bueno from other negotiations know the kiss is his very particular - and at times disconcerting - way of expressing his satisfaction with results. A kiss on the forehead is his most common manifestation. A kiss at chest level, according to those best versed in this language, represents maximum satisfaction. He had much to celebrate in the case of his negotiations with Dasa. Owner of the country’s largest healthcare operator, Amil, Bueno had bought the laboratory controlled by Sérgio Franco, of Rio, creating MD1 just a decade ago. With earnings of 400 million reais per year, MD1 is one-third the size of Dasa. Nevertheless, in exchange he offered the leader what it would be unable to achieve on its own – control of the Rio market, the second largest in the country, with nearly a 30% share. After final arrangements, Bueno got 26.3% of Dasa, which has 73.7% of its papers traded freely in the market. More than just a privileged position in this segment, the move made him the largest consolidator of healthcare services in Brazil (see chart below). Altogether, all of the companies in which he invests – Amil, Dasa and the Total Care hospital chain – earned nearly 10.5 billion reais in 2010. From January to September of last year, Amil and Dasa profited 300 million reais together. In order to get this size, Bueno made 15 acquisitions over the past three years, disbursing 2.1 billion reais – two times the investments made by Bradesco Saúde, the second largest healthcare provider in the country, over the same period. His biggest move was the purchase of Mabel in December 2009 for 1.2 billion reais. Conservatively speaking, Edson Bueno’s personal fortune is now around 6 billion reais. "If anyone in the healthcare sector preferred having Bueno as a competitor rather than a partner, I would question that decision,” says Pedro Cerize, manager of the Sko-pos fund, which owns 9% of Dasa’s shares.
Last decade, the private health care sector grew at an unprecedented rate in Brazil, becoming an increasingly more attractive business in the eyes of investors. From 2000 to 2010, healthcare operators gained 14 million new users, growing 50% over the period. That is the direct result of the expansion in formal employment – nearly 80% of health plans in the Brazilian market are contracted by companies. In a country with a vexatious public healthcare system, access to private care has become an object of desire by part of society, one of the advantages that make "signed working papers" one of the main dreams of the Brazilian population. Over coming years, the increase in life expectancy should also expand the consumer base for these services. It is expected that by 2050 the Brazilian population will have 64 million inhabitants over the age of 60, more than threefold the current 19 million. And the older we get, the greater our demands in this area. This growth in the healthcare market has generated an unprecedented wave of mergers and acquisitions – in 2010, sector company purchases moved 4.1 billion dollars, fourfold more than the average for the previous five years (see chart). The potential of the healthcare sector has recently attracted financial investors as well, such as André Esteves’ BTG Bank, which bought a share in Rede D'Or, the second largest chain of private hospitals in the country (the acquisition price was not released).
HIGH COSTS
The market is simultaneously attractive and unique. With increasingly more sophisticated procedures and equipment that demand high investments in research, health costs have been rising around the world. Different from many other sectors, such as computers and automobiles, technological advances and increases in scale do not translate into lower costs and prices. Quite the contrary. In the United States, for example, health expenses exceeded 2.3 trillion dollars in 2008 – more than three times the sum invested in 1990. In Brazil, a similar phenomenon is taking place. According to the National Health Agency (ANS), hospital admission costs in the country have risen 20% between 2007 and 2009 – reaching an average of 3 800 reais per patient. "Nearly 75% of healthcare operator revenue corresponds to expenses with hospitals, laboratories, doctors and clinics," says Carlos Alberto Suslik, professor of Insper’s MBA in Health Management in São Paulo. In this context, the integration of healthcare, laboratory and hospital businesses – the strategy adopted by Bueno – promises cost reduction advantages. Specialists estimate that operators can reduce surgery prices by up to 50% having them done in their own hospitals with their own medical teams. "Few operators in the world have been able to create an integrated healthcare system at the speed Amil did," Regina Herzlinger, professor at Harvard University, and one of the greatest healthcare specialists in the world, told EXAME. She is preparing a case study on Bueno's business. “This strategy makes him one of the biggest healthcare entrepreneurs in the world.” Kaiser of the USA is one of those rare examples. It is a non-profit organization created in California in the 1930s with revenues of nearly 10 billion dollars.
Bueno is part of a new breed of Brazilian entrepreneurs, capable of combining a history of entrepreneurship with opportunities brought by the new capital market. Born in Guarantã, a small city near Bauru, in the state of São Paulo, he lost his father at the age of 5. His mother, Leontina, was a housewife, and his step-father a truck driver. He worked a bit as a shoeshine boy as a child. He repeated the old fourth grade (today's fifth grade of elementary school) four times. This "loser" phase came to an end when Bueno was 14 – in a TV series like episode, which gives his biography a touch of carefully cultivated mystique. Bueno was playing in a warehouse on bags of cotton when he fell and fainted. When he awoke in the arms of the only doctor in town, he made a decision that would change his life. “From that moment on I began to study so I could get into medicine,” he says. At the age of 28, he graduated from the Praia Vermelha College of Medicine in Rio de Janeiro (which was later incorporated by the UFRJ). The beginning of his trajectory as an entrepreneur also had an unusual start. Recently graduated, Bueno was working at a small clinic in Duque de Caxias, one of the poorest regions of the Baixada Fluminense. In 1971, the clinic was unable to pay the doctors’ salaries and it offered Bueno control of operations. He did not pay a single cent, but he assumed all the debt. Without money, Bueno lived at the hospital during the first years. He took two measures to attract clientele: a VW van to transport mothers and their newborn children to their homes and free distribution of soft drinks and a baloney sandwich for patients and their companions. He gradually pulled the clinic out of the red.
In 1978, now with four clinics, Bueno decided to follow Milton Soldani Afonso’s steps, who had founded the Golden Cross healthcare plan operator seven years earlier, also in Rio de Janeiro. "The idea emerged when I saw Golden Cross’ balance sheet in the newspaper,” he says. “They were making much more than us by selling healthcare plans.” In order to structure what would become Amil's embryo, he called in Dr. Jorge Rocha, a longtime acquaintance from the clinic in Duque de Caxias. It was Rocha’s idea to create an easy to remember phone number – 231-1000 - which was exhaustively repeated in company advertising campaigns in the 1980s. “We invested 40% of our revenue in advertising,” he says. He took over as Amil president in 1987. Rocha also idealized the helicopter and aircraft rescue service, created around that same period. “I got the idea from a Swiss ski slope,” says the executive.
TRAINING
With a team comprised basically of doctors, whose only experience had been on-duty service at hospitals, Bueno developed an obsession for seeking managerial knowledge from the beginning. He took four courses in administration, three at Harvard. Also in the 1980s, Bueno began a ritual that repeats itself twice a year until today – the distribution of administration books for subsequent group discussion. The most recent to be handed out to executives in November was How the Mighty Fall, by Jim Collins. This meeting has a detail that tends to cause tension among the nearly 400 participants - seven of them are drawn on the spot to take the stage and speak about a chapter of the book. Bueno took the proposal of sharing knowledge so seriously that in the 1980s he decided to include the title ‘Training Manager’ on his business card. He only had one other version printed, introducing himself as the president of Amilpar at the IPO held in October 2007, after his advisers insisted foreign investors would never understand the metaphor. “It wasn’t easy to convince him,” says Dr. Gilberto Costa, CFO at Amil-par and responsible for the stock market debut. Today, Bueno carries both cards – and he tends to hand out the most recent only at roadshow presentations in Europe and the United States. The closeness he felt to the theory of gurus like Peter Drucker and Michael Porter evolved into a relationship with them. Bueno tells about when he was one of 300 guests to the father of modern administration theory Peter Drucker’s 90th birthday in 1999. Porter, a Harvard specialist who recently began to focus on the healthcare market, has already stayed at Bueno’s beach house in Búzios — an ocean-front mansion with four tennis courts (two covered), cinema room, masseuse and a team take snacks to guests on the beach. “If you want to be a sardine, cavort with sardines. If you want to be a shark, cavort with sharks,” says Bueno.
JORGE ROCHA, PRESIDENT OF AMIL: in the 1980s, he had the idea of creating the helicopter rescue service, unprecedented in Brazil
THE DIRECTOR, DICKSON TANGERINO (STANDING), AND PART OF HIS TEAM RESPONSIBLE FOR MERGERS AND ACQUISITIONS: 89 sector companies are being analyzed at this moment
From the outset, the entrepreneur decided he would not have partners to share decisions. A group of doctors once helped buy a few clinics, but the participations were undone in the 1980s. At present, his only partner is his former wife, Dulce, who owns 49% of JPLSPE, an equity participation company that controls Amilpar — but Bueno votes in her name. Among the executives, only 50 have received Amilpar shares, a total of 0.2%. One of the ways found by Bueno to maintain a legion of loyal employees for so long – the average time the 30 top executives at Amil have been with the company is 20 years – is to pay for some rewards out of his own pocket, from trips to Paris to homes in the country. “I spend a few million per year on that sort of thing,” he says. The fact he is the only partner has facilitated emergency decisions, such as the IPO. Bueno says he was reluctant to perceive the importance of going public. One warning was the advance of competitors, such as Medial, which had held its IPO in September 2006 and seven months later had bought the competitor Amesp. Bueno immediately asked Amilpar’s CFO Gilberto Costa to hold their IPO seven months later. “It was a mad house,” says Costa, who was able to raise 1.4 billion reais with the operation.
INTENSE PACE
It is not easy to keep up with the boss. At 66 (disguised by Botox in the face and dye to hide the gray hair), Bueno only sleeps 4 hours a night. He normally wakes up at 5 in the morning and starts working at 7. Weekends and holidays frequently become workdays. He takes advantage of such occasions to receive guests (often owners of businesses he is interested in buying) at his home in Búzios. “Edson gives enormous importance to interpersonal relations. I have often asked him whether he wanted to become the person’s friend or buy his company,” says Costa. Bueno tends not to depreciate the company he wants to buy in his approach. “That helps gain sympathy from the other side. No one wants to see their company destroyed by someone who sees no value in it," affirms an executive who has already been at one of the negotiations. One of the examples of the style's effectiveness was its acquisition of Medial. Two of the company’s major shareholders, doctors Geraldo da Rocha Mello and Samir José Kalil, lived in the same building as Bueno, in the Jardins, in São Paulo. (The building, with its apartments measuring 750 square meter and with an estimated value of around 7 million reais, became known as the "IPO building" — that is also where executives and shareholders of other companies that had held IPOs around the same time, such as Totvs, Gol and PanAmericano.) When running into his competitor at the building's fitness center, Bueno would woo him. “We spoke informally for several months,” he says. “When Geraldo gave me a sign he wanted to sell, I made the proposal on a Friday and on Monday we signed the deal."
Recent acquisitions have already changed some of the group’s traditional characteristics. One is its dependence on the Rio market. With the purchase of Dasa, the entrepreneur’s chain of laboratories ceased being a regional company (of the 122 service units, only eight were outside the state of Rio de Janeiro) and it became part of a conglomerate that operates in 12 states, plus the Federal District. Integration between both laboratories has already begun. According to the contract, Bueno can appoint two of the seven members of the Board of Directors. Two of Dasa’s eight main executives today came from MD1 — Márcia Marinho, of marketing, and Romeu Domingues, of image. Besides the savings in the laboratory business, estimated at 120 million reais, some analysts already point to other benefits from the transaction. For example, Dasa can assume operations of some of Amil’s hospital laboratories. Today, the participation of this sort of activity in Dasa’s earnings is only 9%. "Both companies should win with the business," says Iago Whately, analyst at Fator Bank. This perception helped Amil and Dasa shares to appreciate 8.2% and 21%, respectively, since the deal was announced six months ago.
Amil Call Center in São Paulo: with its acquisition of Medial a year ago,
it now has 5 million clients
Bueno intends to continue consolidating this market. “I joke and say I have an enzyme called ‘unsatisfatine’,” he says “I sign one big deal and soon after I'm looking for the next." For that reason, a team coordinated by administrator Dickson Tangerino, director of mergers and acquisitions at Amilpar, comprised of eight professionals, maintains an intense routine of visits and market prospecting. "We are analyzing nearly 89 sector companies,” says Tangerino, who has 600 million reais in the holding to finance any possible expansion. He says the Amil and Medial integration is occurring so quickly - almost every phase has already been concluded - it ensures the possibility of conducting another big acquisition soon. Nearly 150 million reais have been saved thus far in synergies between the two companies. The most drastic measure was cleaning up the non-profitable client base, where 200 000 were excluded from the Amil portfolio “They could fill two Maracanã stadiums,” says Bueno. “It was a drastic cut, but it had to be done in a single blow.” When building a company this size, not everything can be resolved with a kiss on the forehead. ■
TECHNOLOGY I e-commerce
THE STAR OF ONLINE RETAIL
Specialized in the online sale of sports goods, Brazilian retailer Netshoes is establishing itself as one of the country’s biggest virtual stores. | LUIZA DALMAZO
IN THE SPORTS WORLD, GREAT TEAMS tend to be sponsored by great brands – whether banks, government-owned companies, financial institutions or electro-electronics manufacturers. But this year, the uniforms of Cruzeiro’s soccer team and the women’s Vôlei Futuro volleyball team, which is disputing the Superliga, have the logo of an e-commerce store that specializes in sports goods, and is perhaps little known by their fans: Netshoes. But how can a niche company that only functions in an online environment sponsor teams like this?
Founded in February 2000 by entrepreneur Marcio Kumruian, Netshoes debuted in the market selling athletic footwear and shoes at brick and mortar stores. During that phase, it once had eight establishments in São Paulo. But the company’s direction would begin to change the following year when Kumruian and his team began to sell articles through Mercado Livre, an online platform for buying and selling products. "Different from other entrepreneurs, the Netshoes partners quickly noticed the Internet’s business potential,” says Stelleo Tolda, director of operations at MercadoLivre for Latin America. All of the operation’s efforts were gradually converted to the online environment. The brick and mortar stores were closed in 2007. From then to now, the company has grown at a quicker pace than market average, 40% per year.
Ten years after its first incursion in the Internet, Netshoes is ranked third in the most accessed e-commerce sites in the country, trailing only Americanas.com and Submarino, both B2W brands. Worth noting: Saraiva, Magazine Luiza, Walmart and Extra, among other Brazilian e-commerce giants, were left behind. Netshoes biggest leap occurred last year, when it moved up six positions in the ranking. "They are the only exclusively online and niche market firm among the biggest," says José Calazans, media analyst at Ibope/ NetRatings. Obviously, audience is not the most important factor for the success of a virtual store. The company does not release official numbers, but market estimates indicate Netshoes’ earnings of more than 400 million reais, compared to about 100 million reais in 2008. The market is expecting even greater growth in coming years, especially with the approaching 2014 World Cup and 2016 Olympics, which will be held in the country. Last November, the company received an undisclosed contribution from the American fund Tiger Global, which has investments in companies like LinkedIn and MercadoLivre.
B2W distribution center in Osasco: despite being a niche store, Netshoes is competing well with giants
Famous for his constant concern with personal safety, Kumruian, a 37 year old Armenian descendant from the city of São Paulo, gives the company a reserved and practical style. Only the highest level employees know the operation’s numbers. Outside that nucleus, few have access to the businessman. “He is demanding and does his homework well, but he has this profile of protecting information, which sometimes hampers the company and discourages the team,” says a former employee who prefers to remain anonymous. Kumruian goes to few events in Brazil, and he gives as many interviews to journalists as Steve Jobs (none, in case the reader does not know the fame of Apple’s global president). However, the good results stem from his capacity to foresee trends of the online world. Ten years ago, the fashion and accessories segment – which includes athletic footwear and goods – was not even among the top ten categories for Brazilian e-commerce. In 2007, the segment's share should reach 7% of total sales, estimated at 20 billion reais in Brazil.
Among other feats of digital pioneerism, Netshoes was one of the first Brazilian companies to adopt data personalization systems for recommending products. The site currently receives nearly 1 000 product evaluations per day, a full plate for improving indications for different client profiles - and consequently, for increasing sales. The company also innovated by giving special attention to the presentation and visualization of products on the site, a critical issue for online sales of personal use items such as clothes or footwear, generally more susceptible to returns of articles than other categories. "Details such as these helped them achieve an above average relation with the national e-commerce client,” says Pedro Waengertner, professor of e-commerce at ESPM.
For the most part, Netshoes moves are inspired by Amazon, the largest e-commerce site in the world, and Zap-pos, also of the USA, a shoe and clothing store bought by Jeff Bezos in 2009 for 850 million dollars. Just like Amazon "rents" its sales platform to other stores — one case is its deal with Toys 'R' Us to sell toys — Netshoes has become the online sales channel for soccer teams and other brands. Today, the company is responsible for 14 thematic virtual stores, including those for Flamengo and Palmeiras, as well as brands like Timberland and Havaianas and sporting goods for sites like Americanas.com and Globoesporte.com. Such similarities with Amazon led to rumors about a possible acquisition of the Brazilian company by Bezos’ firm. Regardless, Netshoes has already proven that its favorite sport is to profit on the web.■