Keywords: joint venture, oil, merger and acquisitions, Brazil,
Suppliers to the oil and gas industry in Brazil are expected to see substantially increased sales as a result of pre-salt discoveries that can potentially generate significant volumes of oil. In fact, Petrobras, Brazil's national oil company, intends to invest US$142 billion until 2016 in exploration and production to take advantage of this potential. With this expansion, however, come supply-chain challenges, and so the government has established a local content policy that aims to enhance the national industry.
Over the past few years, foreign companies have been entering into substantial joint venture investments in emerging market jurisdictions, including Brazil. The companies enter these joint ventures in order to grow the scale of their business and capture operational synergies (costs or revenues). The investments also allow the foreign companies to diversify their portfolios, establish broad strategic alliances and combine their assets or establish scale platforms in new markets. Meanwhile, the foreign investments bring new capital to existing domestic businesses, and reduce ownership and exposure in certain segments.
Types of Joint Ventures in Brazil
Different joint venture structures offer different levels of influence and ownership. These structures include (from less integration to more): franchise agreements, long-term purchase or supply agreements, distribution agreements, research and development partnerships and licensing agreements, as well as shared equity or nonequity relationships (e.g., joint ventures) and owned-equity relationships (e.g., merger and acquisitions).
Despite the risks of investing in emerging markets, there are certain key benefits to joint ventures with local Brazilian companies: foreign companies are able to enter into the Brazilian market, and local companies can increase local market competitiveness, particularly with regard to price, delivery schedule and quality requirements. Also, Brazil normally has no restrictions on distributing and sending profits, dividends and interest on capital investments abroad.
Joint ventures allow companies to preserve autonomy, share the investment risk and enhance competitiveness. Small companies can increase their market participation, their know-how and their technology, without making greater investments. However, as these joint ventures are complex transactions, they require a careful analysis of each...