GP Investments in record $1bn Latin America deal

The Brazilian private equity firm’s $1 billion acquisition of Pride International’s Latin American Land Drilling and E&P Services businesses is the firm’s first pan-Latin American investment. It is also the first time it has used leverage, and the firm’s – as well as the region’s – largest private equity deal to date.

GP Investments is buying Pride International’s Latin American Land Drilling and E&P Services businesses in a $1 billion (€726 million) cash transaction, the region’s largest known leveraged buyout to date.

The businesses being purchased operate across eight Latin American countries, and include 73 land drilling rigs, 135 workover rigs and two lake drilling barges, as well as services that correspond to oil and gas exploration and production. Their combined revenues in 2006 totaled $824 million, according to a statement.

The private equity firm’s fourth fund, which closed in July on $1.025 billion, will contribute up to $100 million of the deal’s $400 million equity component. The fund’s contribution may be syndicated with co-investors, who have already committed $150 million to the transaction.

The deal marks the first time GP Investments has used leverage: 60 percent of the total investment will be financed by a special purpose vehicle. The Brazilian firm’s co-chairman, co-chief executive and president, Antonio Bonchristiano, told PrivateEquityOnline.com that this is a harbinger of things to come.

Bonchristiano

“In spite of what’s happening in the world this week and last week,” in terms of the volatile credit markets, Bonchristiano says, “the reality is that bank financing is now available for acquisitions in Latin America, particularly in Brazil, and that was not the case before. That is exciting because it allows us to pursue bigger deals than we did before.”

The deal represents two other “firsts” for the 14-year-old firm: it is its first investment outside of Brazil, and its first investment in an oil and gas-related sector.

“It’s indirect exposure to [the oil and gas] industry, which is exciting, because it’s a high growth industry in Latin America as well as elsewhere in the world,” Bonchristiano says.

GP Investments sees the investment as a means to gain exposure to the oil and gas industry, but Bonchristiano notes: “I don’t necessarily see ourselves doing additional investments in this sector. I think the company will have the potential to employ additional capital into other companies and other regions throughout Latin America.”

It’s an excellent platform for organic growth as well as add-on acquisitions, he adds. “We see this as a company that has great long-term potential for us.”