By Equipe de Redação
Posted in September 16, 2022
CFO Thiago Silva tells in an exclusive interview about his “bold” growth plan and listing on the NYSE; revenues grew 440% since its debut on the stock market.
The only service company to improve environmental practices on the Brazilian stock exchange, Ambipar arrived during the 2020 IPO season as a clear alternative to the upward agenda of sustainable investments. But in addition to all the “ESG footprint”, in these two years, Ambipar proved to be a growth thesis.
No company listed on B3 has made more acquisitions than Ambipar since then. There have been 42 M&A deals since the IPO, with an average of more than one every three weeks.
Operations in the mergers and acquisitions (M&A) market had a significant effect on Ambipar’s net revenue, which jumped to R$853.4 million in the last quarter against R$157 million in the same period in 2020, still before its debut on the stock market.
Environment, one of the company’s two main lines of business, focused on waste management and recovery, increased its revenue by 590% in these two years. The billing of Response, for services for environmental emergencies, such as dam failures and fires, grew 300%.
“I even joke that within the Ambipar group we have three areas: Response, Environment and M&A“, said Thiago Silva, CFO of Ambipar, in an interview with EXAME. “It is an outstanding board that looks day and night for acquisition opportunities and is linked to the company’s C-level.”
Having an investment committee made up of the company’s top executives and the chairman of the board, Tércio Borlenghi Junior, is what drives the acquisitions agenda, according to Silva.
“When there is a deal breaker, we put it on the discussion table. The time between selection and decision making is short. From the beginning of the audit, if the company is relatively organized, the process is very fast”, said the CFO. “It depends on the acquisition. There was a case that, between the first contact and the closing, it took 3 months and a case that it took 2 years.
In addition to geographic expansion, Ambipar’s acquisitions aim to complement the offer of services in order to present itself as a “complete solution” to cure the environmental pain of its customers. From the beginning of production to the disposal and reintegration of waste into production processes.
The selection of the best opportunities, said Thiago Silva, mainly involves the analysis of potential cross-selling. “It’s an ecosystem that feeds back. Once inside, the acquired company starts to win and generate service contracts for Ambipar.”
Even incorporated, companies tend to maintain a certain independence, with the maintenance of former partners in leadership positions or even with a remaining share of the stake.
The strategy, according to market analysts, is justified given the fragmentation of Ambipar’s sectors and the relationships already established between clients and the executives who were already running the business.
“When Ambipar buys the company, it is basically buying the client portfolio”, evaluated Richard Camargo, Empiricus analyst responsible for Ambipar coverage.
Thiago Silva explained that purchases are usually made 50% in cash at the closing of the operation and the rest divided into two annual installments, with part of the value being added by a bonus linked to goals. Ambipar, however, prefers to keep the values involved in the operations confidential.
“We try our best not to compromise the M&A strategy. When I announce the purchase of a post-consumer company, for example, I am already negotiating with five others in the sector. If I reveal any kind of information, I will create value reference for others.”, he stated.
The strategy of not disclosing the acquisition amounts at the time of the announcement is protected by the Brazilian Corporate Law, which protects the right to secrecy for investments considered to be non-relevant. To be relevant, under the terms of the law, the acquired company as a whole would need to have a book value of at least 15% of the net asset value of the acquiring company – or the book value of one of the subsidiaries would be greater than 10% of Ambipar’s net equity, which ended the second quarter at R$ 1.2 billion.
Ambipar’s biggest acquisition in the year was that of FOX, closed in February for R$90 million, according to the second quarter’s financial statement. The sum of seven acquisitions carried out in the first half and disclosed in the balance sheet was R$ 270 million, considering the current exchange rate of R$ 4 for each Canadian dollar. The currency was used in the purchase of First Response for $CAD 16.625 million by the subsidiary Holding Canada.
Outlined since before the IPO, Ambipar’s strategy aligned two themes in vogue at the time of the 2020 IPO, growth and ESG, and was received with open arms by the market, with an explosive search for shares.
The offer was priced at the top of the indicative range, at R$24.75 per share, and the shares rose 27% in the first two trading days. At the peak of August 2021, the shares were worth around R$70. Ambipar was so brilliant that an IPO request by the Environment division was even filed with the CVM. But it never got off the ground. The rotation of the flow of investors to consolidated companies, in the face of increasingly higher interest rates in Brazil and signs of the beginning of the tightening cycle in the United States, played a decisive role in the company’s plans.
Unable to take its main division in terms of revenue to the stock market, the choice was to continue its growth agenda through debt. The issuance of R$ 750 million in debentures carried out at the beginning of the year gave extra breath and Ambipar bought ten more companies. “It’s an acquisition machine”, commented Ilan Arbetman, an analyst at Ativa Investimentos, with a buy recommendation for the shares.
Despite the company’s continued expansion, today, Ambipar shares (AMBP3) are closer to entry price than they were a year ago. Quoted at around R$ 26, the shares have depreciated by more than 60% in relation to the historic high. For Thiago Silva, CFO of the company, the market “is not understanding” the real growth of the company.
“The macro scenario explains much of the drop. Ambipar is still a small cap on the stock market and smaller companies have suffered more in valuation. But we continue with the expansion plan and we are aware of what has to be done. Soon the market will recognize that,” he said.
But the second-quarter result sparked a new wave of stock sales, with shares closing down 10.96% in reaction to the balance sheet. Concerns about financial expenses and a higher level of investment fueled market caution.
Ebitda (earnings before interest, depreciation and amortization) jumped to R$ 220.8 million in the second quarter, 127.2% above the same period last year. On the other hand, net income dropped 90% to R$4 million, eroded by the negative financial result of R$111.2 million compared to the negative result of R$8.8 million in the second quarter of 2021. Interest on debentures cost in the quarter, R$89.46 million and those on loans, R$35.3 million, representing 84% of total financial expenses.
Thiago Silva said that the financial result was a momentary effect of the high interest rate and that the company will not give up profit to grow. “The net profit is within the planning. The Central Bank has already signaled that the Selic has reached its peak. Now, the [yield] curve should go down.”
The net result, however, should not normalize in the next balance sheets, according to Frederico Nobre, analysis leader at Warren Investimentos. “Profit should remain low this year due to the high level of debt to finance the acquisitions agenda. We should see an improvement next year, starting in the second or third quarter,” he said.
Driven by the growth plan, Ambipar’s net debt reached 2.8 times annualized Ebitda in the second quarter. Ambipar’s capex, which involves investments from acquisitions to maintenance, grew 60% in the second quarter to R$ 161.3 million. Although there was greater caution in the market, the importance of the increase in investments was highlighted in a conference call with investors.
“We look at capex as an opportunity for growth. We make capex now, but in some cases, the results take place this year and, in others, the following year”, said Andriotti, CEO of Ambipar Environment, to investors.
For Ambipar, the time to make the acquisitions is now. “We cannot let M&A opportunities slip away. While the macro scenario is difficult, there are great opportunities. Not only public equity, but private equity is cheap”, added the CFO to Exame.
The latest acquisitions have focused on the international market, to which the company has increasingly turned. Ambipar has a history of 7 acquisitions in the United States and 6 in Canada. There are 48 Ambipar bases in North America, most of which are in the Response unit, which deals with environmental emergencies. The division ended the second quarter with 66% of its revenue coming from abroad.
Response’s international operations, especially in North America, are seen as the main avenue for expansion – which is already reflected in the numbers. Response’s revenue in the region doubled compared to the second quarter of 2021 to R$131 million, surpassing even Response’s revenue in Brazil, which stood at R$122 million.
To support Response’s growth in North America, Ambipar is about to carry out an operation that should take the division to the New York Stock Exchange (NYSE). The ticker chosen for the shares corresponds to the company’s ambitious plans: AMBI.
“It will be an extremely important operation, because it will unlock the value of Response and provide access to funding. The listing on the NYSE is expected to take place in mid-October. Response has a bold plan in North America. So, it makes perfect sense to be in the United States”, said Thiago Silva.
The transaction, disclosed to the market in July, involves a business combination with HPX, a special purpose company (SPAC) that raised US$220 million on the NYSE in 2021. Among the names behind SPAC are some renowned figures in the Brazilian market, such as Carlos Piani, former CEO of Equatorial, and Rodrigo Xavier, former CEO of Bank of America in Brazil.
Ambipar will remain in the control of Response, with 96.2% of the voting capital and 71.8% of the capital stock. A capitalization of US$ 168 million is already guaranteed and could reach US$ 415 million if there is no share redemption by HPX’s current shareholders. The listing also provides for the use of the golden share in the proportion of 10 to 1, opening the way for new issuances in the American market, without Ambipar losing control of Response.
“This creates a very strong opportunity for dilution to access financing. The 50% [shareholding] will no longer be a barrier to our controlling profile,” said the CFO.
All results from the Respose unit, said Thiago Silva, will continue to be consolidated by Ambipar. The expectation is that, with more cash in hand, the leverage level will drop by half – giving a new fat up to the “healthy” limit of 3 times Ebitda.
With the objective of growing – and consolidating – in the richest region in the world, stepping on the brakes is far from Ambipar’s plans. “[The listing] will help us put money into the box and continue to buy companies that generate value. We want to continue with accelerated growth and we believe that M&A is the best tool to achieve our plan faster.”
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