CAPITALISM HAS ARRIVED FOR THEMCAPITALISM HAS ARRIVED FOR THEM
BOARD OF DIRECTORS, EXECUTIVES RECRUITED IN THE MARKET, INJECTION OF INVESTOR RESOURCES. AN INCREASINGLY LARGER GROUP OF MID-SIZED BRAZILIAN COMPANIES IS “GROWING UP”
LUCAS AMORIM
MINAS ENTREPRENEUR, MARCELO DIAS, OWNER OF THE SANTA BÁRBARA CONSTRUCTION COMPANY, RADICALLY CHANGED HIS ROUTINE at the beginning of April. After more than two decades at the helm of the company founded in the 1960s by his father, Geraldo Dias, Marcelo has gotten used to a strict 12 hour a day work shift. But on Friday, April 1st, he simply did not show up at his office in Belo Horizonte – and his presence there has become increasingly more occasional ever since. The reason behind this progressive absence of Marcelo is the need to give more room to newly arrived president of Santa Bárbara, Minas executive Francisco Leonardo da Costa, former CFO of the Brazilian subsidiary of the OHL highway concessionaire. At 56, Marcelo has assumed the position of Chairman of the Board of Directors. This is his second attempt at such a transition. The first occurred in 2003 and the experience lasted only two years. “I felt like the dog that fell off the moving van," he says. “I continued going to the office every day and I would interfere in the most important decisions.” This time Marcelo knows he cannot commit the same mistakes.
Over the past five years, the construction company grew fivefold, reaching earnings of 750 million reais in 2010. We reached a point where we could no longer postpone the decision. We need someone who transmits confidence to the investors and prepares us for an IPO or for welcoming partners,” says Marcelo. His sister Vitória, another shareholder, will also leave the business support directorate by the end of the year to occupy a seat on the Board, which since 2010, has two market professionals, including Augusto Cruz, former president of Pão de Açúcar.
An exclusive study by the Höft consulting firm, conducted at EXAME’s request, involving 160 companies with revenues between 200 million and 1 billion reais, reveals a segment of the Brazilian business environment that is growing faster than the rest of the economy. On average, the companies that participated in the survey grew 12% per year between 2006 and 2010 over this same period, when GDP grew on average 4.4%. It is also a world that is rapidly trying to modernize itself. Half of the group’s companies have professional executives, Boards of Directors and planned succession programs (see box below). “An unprecedented wave of professionalization is underway at Brazilian companies that size,” says Wagner Teixeira, partner at Höft.
The main driving force for this change is the conjunction of two factors – companies with accelerated growth and an abundance of cash in the market in search of good business opportunities. Today, there are nearly 18 billion reais available in the hands of private equity funds to buy shares or majority control of Brazilian companies. The Rio fund manager, Gávea, calculates there are at least 3 000 companies spread about the country in the sights of investors. In order to attract this new money and dream about an IPO, it is fundamental to increase company efficiency," says Carlos Eduardo Ribeiro Dias, partner at the recruiting company for mid-sized companies, Asap.
This process has been made easier thanks to the emergence of a new generation of entrepreneurs and heirs. After normally attending good business schools and experience in other markets, representatives of the second and third generations at the helm of family companies tend to be more receptive to restructuring and want to reproduce the lessons they learned on the outside at their own companies. “They are people with a more modern vision of business,” says Luiz Galeazzi, partner at the consulting firm, Galeazzi. They have already realized that either they professionalize or get eaten alive. At the retail chain from Goiás, Novo Mundo, the person in charge of the change process is Carlos Luciano Martins Ribeiro, son of the founder, Luziano Martins Ribeiro, who in 1956, left his job as a sales clerk to found one of the first furniture and stove stores in Goiânia. Luziano’s academic background was equivalent to an elementary education. His son, Carlos Luciano, lived in the United States as a teen and graduated in law. In 2009, as director of operations at Novo Mundo, Carlos suggested the creation of a Board of Directors and a trainee program that began to attract 100 youths per year. The next year, he officially replaced his father, who assumed as Chairman of the Board. "Business was getting more complex and my father’s experience was no longer sufficient for dealing with investors and a possible IPO,” says Carlos, 45. His goal for 2011 is to open 25 stores in the country, for a total of 140 units, and to increase earnings to more than 1 billion reais, a growth of 25% compared to 2010.
For many of these emerging companies, transformation begins with the arrival of the first market professionals. That is what happened at Tenace, of Bahia, specialized in the assembly and maintenance of oil factories and platforms. Over the past five years, revenues grew fivefold, reaching 400 million reais in 2010, and the number of employees has grown to 2 650. Over this period, nearly 70 professionals were hired, from companies like Petrobras, Votorantim and Braskem. Rapid growth and the arrival of outsiders have led the engineer, Carlos Diógenes, founder and president of Tenace, to reinvent himself as an executive. Ever since he founded Tenace 25 years ago, he has been crossing the country visiting refineries, natural gas pipelines and ocean platforms. Today, Diógenes focuses on getting to know potential investors. “A partner will bring resources and knowledge for expansion,” he says.
ACCELERATED CHANGE
In emerging companies that have already found partners like the ones Diógenes is looking for, these modernization processes are even more accelerated. Different from the entrepreneur, the investor imposes a time limit on the business. Everything – acquisition, change, growth and sales – must occur within this period. That has been the script at the Minas geological mapping company, Georadar, founded by geologist Celso Magalhães in 2003.
After being in operation for five years, Georadar was surprised by the cancellation of a contract with Petrobras, its biggest client. In October 2009, in order to recover its cash position, Magalhães sold half the company to the AG Angra fund for 62 million reais. One year later, the Portuguese group Rio Forte, owner of Banco Espírito Santo, paid more than 100 million reais to divide Georadar into three equal parts. In 18 months, the Board of Directors was created, a financial director hired and a company specialized in deep sea exploration bought. The new partners helped the company double earnings to 240 million reais in 2010. The company intends to go public by 2013. The founder would never have had the time or the money to think of such actions on his own, says Bruno Sena, partner at AG Angra.
It is very difficult to find the right time to modernize management. The Höft survey indicates that 42% of the companies are reluctant to change business models that were once successful. Many entrepreneurs realize they need help when there is no other way out. Eighty percent of the sales of the trailer manufacturer from Rio Grande do Sul, Guerra, founded in the 1970s, and ranked second in its market, were tied to grain transportation. Harvest oscillations were always a major problem. In 2008, Guerra was sold to the French fund, Axxon. Dependence on grain has fallen 50% ever since, and the profit margin has grown 60%. It is impossible to say all the stories of emerging companies will have similar endings. That will probably not be the case. But the modernization process, the search for more and better management and governance seems to be a one-way street for those that decide to be big one day. ■