Goldman Sachs Sambas Into Brazilian Investment Banking

Goldman Sachs is looking to boost its workforce in Brazil in an effort to expand its footprint in the emerging markets. [1] The bank is targeting growth in high margin businesses such as convertible debt and the securitization of receivables in the booming investment banking sector in the Latin American nation.

Brazil – An Attractive Investment Destination

Brazil has posted impressive growth in agriculture, mining, manufacturing and service sectors to become one of the fastest growing economies in the world. ^[2] Investment banks are increasingly turning toward growing markets to increase their revenues, and Brazil has become one such important destination.

The Brazilian market is currently dominated by local banks such as Banco Itau BBA SA and Banco BTG Pactual SA that are using their strong local presence to maintain a stronghold on the market. ^[1] Other investment banks such as UBS are trying to gain market share by acquiring local firms to increase their penetration in the fixed income and securities markets.

Goldman Sachs is relatively a new-comer to the Brazilian market. It commenced full operations in the country only in 2009 and hence may face tough competition from established players. ^[1] The bank intends to overcome this handicap by targeting high margins segments and may look to leverage its relationships with private equity firms to shore up business. Goldman Sachs is the leading advisor to private equity players, and has been leading this space for over past five years with a 34% share of the total mergers and acquisitions deals involving PE firms. 

Bloomberg reports that total mergers & acquisitions (M&A) transactions in Brazil stands at approximately $53.5 billion in 2011. ^[1]. According to its data, Goldman Sachs is now among the top 10 M&A and equity sales advisors in the country ranking fourth in Q1 2011. Goldman Sachs’ M&A advisory contributes to 8% of our $164 price estimate for its stock – implying a 25% premium over the current market price. We estimate that the firm will increase its market share in global M&A advisory to 25% by the end of our forecast period.