SO PAULO, Brazil – Brazilian software company Microsiga is planning a public offering that is a first for the company as well as the first listing on So Paulo’s newest stock exchange, Nova Mercado. UBS Warburg will lead the IPO.
Seventeen-year-old Microsiga is aiming to raise $50 million to $70 million, with between one-quarter and one-third of the capital to be sold in the first half of the year through the IPO. The company, which has operations in six Latin American countries and Puerto Rico, was contemplating a Nasdaq listing last spring when the market crashed. Microsiga has also been in negotiations about selling a participation to Intel Capital, which has several Latin American broadband and software companies in its portfolio. Buenos Aires-based Advent International currently has a 25% stake in the company.
Nova Mercado was put into place in order to stem the flow of Brazilian stocks to New York. Last year the traditional stock market exchange in Brazil, Bovespa, was especially hit hard as investors withdrew more than $1 billion in shares. One of their main complaints: little protection for minority shareholders. In Brazil, just 5% of the total market volume is traded by individual investors, compared with 60% in the U.S.
Nova Mercado, which is modeled after the German Neuer Markt, a specialized marketplace for high-tech stocks, promises stricter corporate governance rules in an effort to protect these same shareholders and also aims to bring down the cost of transactions. In order to accomplish these goals, minority shareholders must receive the same treatment as controlling shareholders under the new listing procedures. It is also necessary for all listed shares to have voting rights, and a minimum of one-quarter of the capital must be traded. (Enthusiasts of the new market note that venture capital investment grew by 84% in 1997 in Germany when the Neuer Markt was launched that year).
The hope is that if stocks listed on the Novo Mercado show higher valuations than those listed on Bovespa, other companies will then be pressured into changing their treatment of minority shareholders. Indeed, limited partners and others will be looking to Nova Mercado and this first listing to see whether investors give higher valuations to companies because they ascribe to the tougher rules this market demands.
Investor reaction is equally important to Microsiga, given the outlook on technology stocks right now. Officials at the company could not be reached for comment at press time.
Private equity investors cite the lack of liquidity in the domestic equity market as a major obstacle to investing generally, and the absence of well-developed capital markets has been called the main obstacle to new technology companies in Brazil, as most start-ups are too small to access the capital markets.
According to a report from Stanford University on venture capital investing in Brazil, small and medium-sized Brazilian companies – and even many large ones – tend to be privately held. At the same time, the largest companies may trade on the Bovespa exchange and also issue ADRs on the New York Stock Exchange, as well as trade on other foreign exchanges.
As a result, the stock market is very narrow and concentrated on a small number of companies, leaving only the stocks of the largest corporations with enough liquidity. Another complaint is the lack of transparency in the information disclosed by many companies, a problem throughout Latin America.