Brazil ethanol draws more greenfield investments

26 March 2007 20:12  [Source: ICIS news]

HOUSTON (ICIS news)--New investments have outpaced the number of merger/acquisitions in Brazil’s ethanol sector due mainly to slow decision-making by family-owned groups, consulting firm KPMG said on Monday.

More than 80% of Brazilian ethanol mills are in the hands of family groups, KPMG said.

While there were only nine merger/acquisitions in the Brazilian ethanol sector last year, the number of greenfield projects was estimated at 77 in the centre-south alone, the firm said.

The centre-south region accounts for 85% of Brazil’s sugarcane production.

KPMG said merger/acquisitions in Brazil’s biofuels sector in 2006 accounted for only 2% of a total of 473 mergers in the country.

Investors considering a merger usually get discouraged by lengthy negotiations involving different family members holding stakes in the same ethanol mill, according to KPMG analyst Andre Castello Branco.

A significant difference in price expectations for the plant also tends to slow down the process, he said, adding that the value of a sugarcane mill can sometimes range from $50/tonne to $100/tonne of capacity.

In addition, many sellers wish to retain control of the business while a majority of buyers wants to have full control of the operation, the consultant said.

While declining to make a projection, Castello Branco said the number of merger/acquisitions in Brazil’s ethanol sector was expected to increase due to surging interest in biofuels as an alternative source of energy.

By: William Lemos
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