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Copyright © 2006 by Monitor Company Group, L.P.

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COMPANY CONFIDENTIAL

2 0 0 7AMSTERDAM

BEIJING

CAMBRIDGE

CHICAGO

EMERYVILLE

FRANKFURT

HONG KONG

JOHANNESBURG

LONDON

LOS ANGELES

MADRID

MANILA

MILAN

MOSCOW

MUMBAI

MUNICH

NEW YORK

PALO ALTO

PARIS

SAN FRANCISCO

SÃO PAULO

SEOUL

SHANGHAI

SINGAPORE

STOCKHOLM

TOKYO

TORONTO

ZURICH

Private Equity & Venture Capital Analysis of Brazilian Industry

São Paulo – June, 2007

Confidential

Copyright © 2006 Monitor Company Group, L.P. — Confidential — SAOEQT-CAP-Final_Presentation-05-10-06-PF 2

Agenda

Project’s Approach

Industry Situation

Introduction

Confidential


Agenda

Introduction

Project’s Approach

Industry Situation

Confidential


IntroductionObjectives

Provide an overview of the Private Equity & Venture Capital activity in Brazil

Validate identified challenges to the development of the PE/VC industry

Confidential


Agenda

Project Approach

Introduction

Industry Situation

Confidential


Project’s ApproachProcess

ImplementationSet Recommendations to ABVCAP

Diagnosis of Brazilian PE/VC Industry

Four distinct activities were performed during the two phases of the project

Success stories of Invested CompaniesSuccess stories of Success stories of

Invested CompaniesInvested Companies

Country AssessmentCountry AssessmentCountry Assessment

Institutional ProgramsInstitutional ProgramsInstitutional Programs

Analysis of Brazilian PE/VC Industry

Analysis of Brazilian Analysis of Brazilian PE/VC IndustryPE/VC Industry

Assessment of the Brazilian Private Equity and Venture Capital industry using Monitor’s specific framework Interviews with fund managers, investors, managers of invested companies and managers of other relevant stakeholders of the industry to identify problems, positive points and future expectations

Assessment of the Private Equity and Venture Capital industry in other countries using the Monitor’s specific framework – Identify similarities and differences among the countries

Interviews with fund managers and managers of invested companies that had a strong growth due to private equity/ venture capital investmentsAnalysis of the strategy and impacts of PE/VC funds over invested companies

1

2

3

4

Analyses of specific programs to promote the industry implemented by governments, PE/VC associations and/ or other PE / VC related organizations– Assess the results and learnings of each program

Confidential


Project’s ApproachAnalysis of Brazilian PE/VC Industry

Enabling Environment

Existence ofattractive

conditions for investments in

companies

Availability ofseveral forms

of viabledivestments

Status of country’s macroeconomics

Quality of legaland institutional

frameworks

Structure and independence of capital markets

Concepts of existing corporative

governance

Presence of talented and

capable professionals

InvestmentOpportunities

ExitOptions

Macroeconomics

Institutional &Regulatory Landscape

Capital MarketsCorporate

Governance Standards

Human Capital

To analyse Brazilian Private Equity and Venture Capital sector, key elements that compose the environment were studied

Confidential


Project’s ApproachAnalysis of Industry SituationA series of interviews conducted with different stakeholders of the PE/VC industry was instrumental to better understand the sector existing gaps, weaknesses and strengths

_________•_________•_________•_________•_________•_________•_________•_________•_________

IndustryPositioning

IndustryPositioning

Challenges/ OpportunitiesChallenges/

Opportunities

Financing / Public

Support

Financing / Public

Support

Regulatory EnvironmentRegulatory

Environment

Success Stories

Success Stories

InterviewGuide

Interviewees List Assessed Topics

CompanyName

Álvaro Gonçalves

Luiz E. Figueiredo

Alexandre Saigh

David E. Thomas

Marcus Regueira

Sidney Chameh

Clovis Meurer

Pedro Paulo Campos

Eduardo M. Santana

Luiz Antonio Alves

Geoffrey Cleaver

Stratus

Rio Bravo

Patria Banco de Negócios

Intel Capital

FIR Capital

DGF

CRP

Angra Partners

AIG Capital

Advent International

ABN Amro / Real

Fund Managers Invested Company Investor Market Agent

TotvsJosé R. Luiz

VitopelPlínio Musseti

CompanyName

Thiago A. Oliveira

Richard F. Lark

Odelio A. Filho

Caio Auriemo

Lupatech

Gol

DASA

DASA

CompanyName

Paulo Henrique Santos

Manuel Cordeiro

Ricardo Malavazi

José R. Magalhães

Antonio Benevides

Carlos H. Mussolini

Votorantim Novos Negócios

Valia

Petros

Previ

Previ

Itau

FINEPPatrícia Freitas

CompanyName

Flávia M. Fernandes

Claudio Furtado

Antonio G. Carvalho

Wang Jiang Horng

Pedro Zunca

Marcelo Cabrera

CVM

CEPE-FGV

CEPE-FGV

BOVESPA

BNDESPar

BNDESPar

Confidential


Analysis of the PE/VC Industry

Analysis of the PE/VC Analysis of the PE/VC IndustryIndustry

Selection of Relevant Countries for PE/VC Sector

Selection of Relevant Selection of Relevant Countries for PE/VC SectorCountries for PE/VC Sector

Project’s ApproachCountry AssessmentMost relevant countries in the PE/VC sector were selected and grouped according their similarities and stage of development

Identification of common patterns

Identification of common Identification of common patternspatternsCountries ComparisonCountries ComparisonCountries Comparison

Confidential


Project’s ApproachInstitutional ProgramsSeven different institutional programs were analyzed, in order to identify which strategies obtained better results and the reasons for that

Institutional Programs

Institutional Programs

PrivateProgramsPrivate

Programs

Governmental Programs

Governmental Programs

SuccessSuccess

FailuresFailures

SuccessesSuccesses

FailureFailure

LearningsLearningsLearnings7

3

4

1

2

3

1Programs developed to foster the PE/VC industry and/or related parties

Official programs developed by governments

Programs developed by private institutions related to PE/VC sector

Confidential


Project’s ApproachSuccess StoriesSome success stories were selected to illustrate the impact that Private Equity/ Venture Capital investments can make in invested companies

Analyzed Cases: DASA; GOL; LUPATECH

Identify successful common practices

Understand the value creation logic

Analyze the contribution of the PE/VC Investments

Identify successful common practices

Understand the value creation logic

Analyze the contribution of the PE/VC Investments

Confidential


Agenda

Industry Situation

Introduction

Project Approach

Confidential


Industry SituationBrief History of Private Equity / Venture Capital in Brazil

* Includes only fund managers that existed in 2004Source: Private Equity and Venture Capital in Brazil – 1st Census – FGV / GVcepe; ABVCAP; Monitor Analysis

Since 1995: more than US$ 4,8 bn invested in over 450 deals2006: Over 300 companies in the portfolio, US$ 5,8 billion in committed capital

Since 1995: more than US$ 4,8 bn invested in over 450 deals2006: Over 300 companies in the portfolio, US$ 5,8 billion in committed capital

1999 Future

Leap from 8 (1994) to 45 (2000) VC/ PE fund managers*– Real Plan– Privatizations– Dot-coms

Led by local investment banks, followed by international I-banks

First investments by:– Global VC/PE funds– BNDES (1996)

Brazil = key market for international investors– Investment peak

Economic slowdown– Global factors:

Internet bubble burstArgentina default

– Local factors:Devaluation (1999)Energy crisis (2001)Elections (2002)

Almost no sizeable PE investments nor exits

International LPs divested too early

Improvements in legislation and corporate governance standards

More stable Economy– Falling interest rates– Falling country risk

Full impact of previous institutional changes– Corporate governance– Legal improvements

Renewed interest in VC/PE– By local investors– By entrepreneurs

Several successful IPOs

New vintage of funds with local pension funds investments

2004Mid 90’s

In 2004 a new stage in the Brazilian VC/PE sector started reflecting, among other factors, a more stable economy and several institutional changes

Confidential


Industry SituationThe Brazilian Private Equity & Venture Capital Industry

US$million

Private Equity Investment as a % of GDP (2004) Private Equity Investment in Brazil

456379

281 261 256 253

1999 2000 2001 2002 2003 2004

1) Includes 2 mezzanine investmentsNote: Includes data from 57of a total of 65 fund managers with local offices in BrazilSource: Private Equity and Venture Capital in Brazil – 1st Census – FGV / GVcepe; Monitor Analysis

1.11

0.64 0.570.37

0.14 0.13 0.10 0.04 0.02

UK Canada SouthAfrica

SouthKorea

Argentina India China Brazil Mexico

Software& IT

Telecom Retailers

Manufac-turing

Biotech

Others

Transp. /Logistics

35%

16%11%

6% 6% 4%

22%

Private Equity Portfolio by Sector (2004)Number of Invested Companies according to

the Stage of Development (2004)

636

7298

42

5 3 1

ManagementBuyout

Seed Capital

Start-up

Expansion1

Later Stage

AcquisitionFinance

BridgeFinance

Turnaround

Private Equity and Venture Capital are established industries in Brazil, with investments in diverse sectors – and with strong potential for growth

Private Equity and Venture Capital are established industries in Brazil, with investments in diverse sectors – and with strong potential for growth

Brazil has achieved a level of US$ 250 million private equity investment diversified in terms of sectors and companies’ stage of development

Confidential


Industry SituationThe Private Equity & Venture Capital Market



ExitOptions

Macroeconomics

Institutional &RegulatoryLandscape


GovernanceStandards

HumanCapital

The industry situation was analyzed considering the enabling environment, investment opportunities and exit options

Confidential


Industry SituationEnabling Environment



ExitOptions

Macroeconomics



GovernanceStandards

HumanCapital

The enabling environment is composed by macroeconomics, capital markets, corporate governance standards institutional and regulatory landscape and human capital issues

Confidential


Enabling Environment Key Messages (1/3)

Although falling, interest rates are still high, limiting investment opportunities

MacroeconomicsMacroeconomicsMacroeconomics

High interest rates hamper LBOs and limit access to debt marketsGrowing but still limited funds for PE / VC in Brazil

– Low exposure/knowledge of local investors to PE / VC model – restricted to some pension funds

– Pension funds demand active participation on PE/VC funds’ investment Board due to:

Higher disclosure standards of SPCLegal problems with PE/VC funds in the recent past

– Difficulties in attracting foreign investors:o Lack of track recordo Some previous bad experiences

(problems in the relationship between investors and funds)

o Influence from several years of unstablemacroeconomics environment

o Pension funds active participation in investment Boards inhibits foreign investors

Capital Markets (PE and VC)

Capital Markets Capital Markets (PE and VC)(PE and VC)

Note: 1) As of March/2007Source: BOVESPA, Monitor Analysis

Challenges AheadMarket Characteristics

Positive Points

Stable economy de-linked from politicsFalling interest rates and country-riskInvestment grade expected in 2007/08Social inclusion of low-income families

Bovespa1) 117 years old, US$ 795 billion market capBrazilian Futures exchange among world’s top 5Pension funds allocating more capital to PE/VC investmentsRepresentation of PE/VC industry by ABVCAPRecent IPOs have attracted the interest of new entrepreneurs

Confidential

Copyright © 2006 Monitor Company Group, L.P. — Confidential — SAOEQT-CAP-Final_Presentation-05-10-06-PF 18Source: Monitor Analysis

Most venture capital funds do not have the necessary size and structure to maintain a profitable position

– Venture Capital funds need to evaluate new mechanisms for administrative taxes

High dependence on development agencies, e.g. FINEP, BNDES

International investors are not particularly interested in VC in Brazil

– Mature markets are more reliable and present returns similar to new markets like Brazil

– Brazilian VC is not known internationally, and lacks reliable data on track record to attract attention

– Brazil does not have clusters renowned internationally

Capital Market

( specifically to Venture Capital)

Capital Market Capital Market

( specifically to ( specifically to Venture Capital)Venture Capital)


Positive Points

Institutional support of FINEP for companies and VC funds related to technology sector mainly

– Development of Inovar program– Financial support of Inter-

American Development Bank (IDB)

Strong and reliable support of BNDES to Venture Capital industry through:

– Direct investments in companies

– Investments in Venture Capital funds

– Institutional support for new players and ventures

Presence of SEBRAE, a private non-profit organization focused in fostering the competitiveness of SMEs


Confidential


Institutional & Regulatory Landscape

Institutional & Institutional & Regulatory Regulatory LandscapeLandscape

Complex and slow legal system (bureaucracy)– Bureaucracy makes it hard to setup and shut

down companiesRegulation in some sectors – not fully developed – may increase risksHigh informalityCreation of the role of the limited partner in the existent legal structureLack of clear rules for intellectual property transfer

Human CapitalHuman CapitalHuman CapitalBrazilian labor law: sluggish and high costlyUniversities have concerns about sharing/losing professionals to private companiesEntrepreneurs do not have business / management knowledgeVenture Capital companies have difficulties in attracting talented people due to the low salaries paid in the sectorSource: BOVESPA, Monitor Analysis


Positive Points

Still pervasive culture of mixing personal and company fundsNeed to stimulate higher corporate governancestandards by non-public companiesMost public companies (86%) still haven’t adopted restrictive CG levels

Corporate Governance Standards

Corporate Corporate Governance Governance StandardsStandards


World-class CG standards are increasingly being applied in Brazil– Market pushed the standards,

demands and best practices– Transparency and protection for

minority shareholders– In 1Q / 2007, 9 out of 15 IPOs

adopted most restrictive levels of CG

Experienced and skilled fund managersWide availability of qualified managers and other personnel for invested companies

Autonomous / independent entitiesdevelop and control regulatory landscapeMore reliable environment with new legislation– Reduced legal and credit risk– Increased investor protection– “Bankruptcy Law” made investments

saferPractice of ArbitrationTax exemptions for foreign investors

Confidential


Enabling EnvironmentMacroeconomics



ExitOptions

Macroeconomics



GovernanceStandards

HumanCapital

BackupBackup

Confidential


Note: *Emerging Markets Bond Index (EMBI+)Source: Central Bank of Brazil; IBGE; Clippings; JP Morgan; Monitor Analysis

0%

5%

10%

15%

20%

25%

30%

35%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E0

200

400

600

800

1.000

1.200

1.400

1.600 Real Interest Rate & Country-risk*

Market Estimates

Real interest rate –left-hand scale

% /

year

Bas

is p

oint

s

1999 devaluation

2002 presidential

election

Enabling EnvironmentMacroeconomics: Stability

Country Risk (EMBI Brazil spread of Treasury bonds) – right-hand scale

Brazil is expected to reach investment grade in 2007 – 2008Brazil is expected to reach investment grade in 2007 – 2008

Brazilian economy has been improving its figures, providing a more stable and attractive environment for investments

BackupBackup

Confidential

Copyright © 2006 Monitor Company Group, L.P. — Confidential — SAOEQT-CAP-Final_Presentation-05-10-06-PF 22Source: IBGE; IPEA; Monitor Analysis

Social inclusion improved a lot during past years, this has allowed an increase in consumption, providing good opportunities for Brazilian companies

Enabling EnvironmentMacroeconomics: Income and Consumption

Monthly Housing Income Accordingto the Number of Minimum Wages (%)

13.1 13.6 14.5 13.3 14.8

19.3 20.1 20.5 21.6 22.5

14.7 15.3 15.9 15.4 15.9

18.1 17.9 18.2 19.1 18.2

16.5 16.0 14.8 15.2 14.88.1 7.6 7.2 6.9 6.34.5 4.3 3.03.33.6 2.72.93.33.23.8

1.72.22.01.92.1

0

10

20

30

40

50

60

70

80

90

100

2001 2002 2003 2004 2005

Less than 1 Between 1 - 2 Between 2 - 3 Between 3 - 5 Between 5 - 10 Between 10 - 20 More than 20 No income Not declared

Ownership of Electronic Apparels (millions units)

1319

31

60

9189

0

25

50

75

100

2001 2005

Computer Mobile phone Television

BackupBackup

Confidential


Enabling EnvironmentCapital Markets



ExitOptions

Macroeconomics



GovernanceStandards

HumanCapital

BackupBackup

Confidential


Note: 1) As of March 2007; 2) As of December 2006Source: Social Security Ministry; CVM; Interviews with Private Equity Players / Stakeholders; BOVESPA; Monitor Analysis

Due to the size and importance of the Brazilianeconomy, the country built very solid and sophisticated capital markets

Due to the size and importance of the Brazilianeconomy, the country built very solid and sophisticated capital markets

Points to be ImprovedPoints to be ImprovedPoints to be Improved

Limited access to debt markets– Bank spreads still high– Sovereign crowds out private– Small presence of corporate bonds– LBOs are not viable

Concentration on Government debt– Debt markets are mostly focused on

Government debt

Restricted stock exchange– Low number of listed companies

compared with the total number of companies in the economy

Limited access to debt markets– Bank spreads still high– Sovereign crowds out private– Small presence of corporate bonds– LBOs are not viable

Concentration on Government debt– Debt markets are mostly focused on

Government debt

Restricted stock exchange– Low number of listed companies

compared with the total number of companies in the economy

Enabling EnvironmentCapital Markets

Positive PointsPositive PointsPositive Points

Traditional stock exchange1 (117 years old)– 405 listed companies – Market cap: US$ 795 billion– Fully electronic trade environment

Futures exchange is 5th largest worldwide(BM&F)Free flow of multinational funds– Brazil has never restricted equity capital

flows (regulatory laws over 60 years)First-class financial system– Brazil was one of the first countries to

automate its financial systemDeveloped asset management2

– Managed assets: US$ 423 billion– Number of funds: 6,261– Number of Quotaholders: 10,3 million

Traditional stock exchange1 (117 years old)– 405 listed companies – Market cap: US$ 795 billion– Fully electronic trade environment

Futures exchange is 5th largest worldwide(BM&F)Free flow of multinational funds– Brazil has never restricted equity capital

flows (regulatory laws over 60 years)First-class financial system– Brazil was one of the first countries to

automate its financial systemDeveloped asset management2

– Managed assets: US$ 423 billion– Number of funds: 6,261– Number of Quotaholders: 10,3 million

BackupBackup

Confidential


Emerging CoEmerging Co--Investors: Pension FundsInvestors: Pension Funds

Note: 1) As of Oct/2006; 2) As of 2005Source: Social Security Ministry; CVM; Interviews with Private Equity Players / Stakeholders; BOVESPA; Monitor Analysis

If all pension funds allocate half of their legal permission in PE/VC industry, investments would amount over 2% of the national GDP2

If all pension funds allocate half of their legal permission in PE/VC industry, investments would amount over 2% of the national GDP2

Why they will invest moreWhy they will invest moreWhy they will invest more

Pension funds are the largest institutional investors in BrazilBy law, pension funds are able to compromise up to 20% of total assets in the PE/VC investment group (“Renda Variável – Infra-estrutura” that includes FIEE, FIP and Debentures SPE)Due to falling interest rates, pension funds tend to allocate a larger amount of capital in PE/VC

Pension funds are the largest institutional investors in BrazilBy law, pension funds are able to compromise up to 20% of total assets in the PE/VC investment group (“Renda Variável – Infra-estrutura” that includes FIEE, FIP and Debentures SPE)Due to falling interest rates, pension funds tend to allocate a larger amount of capital in PE/VC

37,1 44,5 54,776,8

90,516,820,7

26,4

37,2

46,7

4,03,7

4,0

4,8

4,64,0

3,7

2,9

2,62,6

2000 2001 2002 2003 2004 2005 2006

Fixed Income Equities Real Estate Others

Total Assets (US$ billion)

70,7 66,2 60,571,5

87,9

122,5

145,7Pension Fund Assetsrepresent 16% of

Brazilian GDP (2005)

Pension Fund Assetsrepresent 16% of

Brazilian GDP (2005)

Enabling EnvironmentPension Funds

Why they will not invest moreWhy they will not invest moreWhy they will not invest more

Lack of PE/VC culture Recent track record– Small returns– Problems in relationship with PE/VC fund

managers (currently, some pension funds consider Board participation as mandatory)

SPC demands higher disclosure standards for PE/VC than CVM

Lack of PE/VC culture Recent track record– Small returns– Problems in relationship with PE/VC fund

managers (currently, some pension funds consider Board participation as mandatory)

SPC demands higher disclosure standards for PE/VC than CVM

BackupBackup

1

Confidential


CompaniesCompaniesCompanies

Finep promotes semi-annual venture forumsFinep provides coaching to support SMEs so they can present themselves, and their business plan, to potential investors at the venture forums

Finep promotes semi-annual venture forumsFinep provides coaching to support SMEs so they can present themselves, and their business plan, to potential investors at the venture forums

FINEP is a key player in the Brazilian venture capital industry, acting both as investor in venture capital Funds and a coach for new innovative companies seeking capital and managerial support to grow

Source: FINEP, Monitor Analysis

Enabling EnvironmentFINEP

FINEP, the Brazilian Innovation Agency, is linked to the Ministry of Science and Technology (MCT). FINEP acts independently as well as in partnership with institutional and corporate actors to support the entire chain of technological innovation in Brazil

FINEP, the Brazilian Innovation Agency, is linked to the Ministry of Science and Technology (MCT). FINEP acts independently as well as in partnership with institutional and corporate actors to support the entire chain of technological innovation in Brazil

Finep can provide an institutional support to reduce the risk in venture capital, specially through the implementation of better corporate governance practices

Finep is the most capable agent to stimulate universities to adopt business foundations within their structure

Finep can provide an institutional support to reduce the risk in venture capital, specially through the implementation of better corporate governance practices

Finep is the most capable agent to stimulate universities to adopt business foundations within their structure

How can Finep contribute even more?

1

2

Inovar ProgramInovarInovar ProgramProgram

The first comprehensive program to support the venture capital industry, creating market-making mechanisms to bring together entrepreneurs, vc fund managers, angels, and institutional investors

The first comprehensive program to support the venture capital industry, creating market-making mechanisms to bring together entrepreneurs, vc fund managers, angels, and institutional investors

VC FundsVC FundsVC Funds

Finep leads a group of institutional investors which has an annual “beauty context” to select and analyze vc funds in which to investFinep acts also as an investor in the venture capital funds selected

Finep leads a group of institutional investors which has an annual “beauty context” to select and analyze vc funds in which to investFinep acts also as an investor in the venture capital funds selected

BackupBackup

Confidential


BNDES is one of the pioneer investors in venture capital and today is consider one of themost important investors in the PE/VC industry

Source: BNDES, Monitor Analysis

Enabling EnvironmentBNDES

O BNDES is an institution entailed to Ministry of Development, Industry andForeign Commerce and aims to support private and public investments thatcontribute to the development of the country

O BNDES is an institution entailed to Ministry of Development, Industry andForeign Commerce and aims to support private and public investments thatcontribute to the development of the country

PE/VC InvestmentsPE/VC PE/VC InvestmentsInvestments

In 2005, was launched a program to invest in private equity and venturecapital funds

R$260 million will beinvested in 9 funds (2 PE funds and 7 VC funds)

R$173 millioncompromised in 5 fundsso far

Investments in a total of21 funds

In 2005, was launched a program to invest in private equity and venturecapital funds

R$260 million will beinvested in 9 funds (2 PE funds and 7 VC funds)

R$173 millioncompromised in 5 fundsso far

Investments in a total of21 funds

30%R$ 18 millionStratus Investimentos Stratus VC III (VC)

25%R$ 15 millionCRPCRP VI Venture(VC)

25%R$ 20 millionDGF Gestão de Fundos

Fundo de Participação e

Consolidação (VC)

20%R$ 60 millionGovernança e Gestão Investimentos

FIP - Governança e Gestão (PE)

15%R$ 60 millionGP InvestmentsFIP - Logística Brasil (PE)

BNDES Participation

BNDES Investment

ManagerFUND

BNDES has a strategic position in the PE/VC industry, emphasizing thedevelopment of venture capital in general and investments in PE in priority sectors

BNDES has a strategic position in the PE/VC industry, emphasizing thedevelopment of venture capital in general and investments in PE in priority sectors

BackupBackup

Confidential


Enabling EnvironmentCorporate Governance Standards



ExitOptions

Macroeconomics



GovernanceStandards

HumanCapital

BackupBackup

Confidential

Copyright © 2006 Monitor Company Group, L.P. — Confidential — SAOEQT-CAP-Final_Presentation-05-10-06-PF 29Source: BOVESPA; CVM; Brazilian Institute for Corporate Governance (IBGC)

Enabling EnvironmentCorporate Governance Agents

Market participants have been directly involved in the development of corporate governance standards

Market participants have been directly involved in the development of corporate governance standards

Stock Exchange

Stock Exchange

Brazilian Securities & Exchange

Commission

Brazilian Securities & Exchange

Commission

Brazilian Institute for Corporate

Governance

Brazilian Institute for Corporate

Governance

Established in 1995 by demand from the marketDevelops and recommends Corporate Governance programsImplements qualification programs to train managers and shareholdersMore than 2,000 executives were trained until Nov/2006

Introduced a set of corporate governance requirements for public companies and Private Equity / Venture Capital funds– Shareholder rights– Disclosure

3 levels of world-class corporate governance standards (1, 2 and ‘Novo Mercado’)Stimuli to the use of arbitration chambers– In 2001, BOVESPA instituted the Market Arbitration Panel

Main Corporate Governance AgentsMain Corporate Governance AgentsMain Corporate Governance Agents

BackupBackup

Confidential

Copyright © 2006 Monitor Company Group, L.P. — Confidential — SAOEQT-CAP-Final_Presentation-05-10-06-PF 30Source: BOVESPA

Enabling EnvironmentCorporate Governance Levels

Companies Compliant with Bovespa’sCorporate Governance Standards

Companies Compliant with Companies Compliant with BovespaBovespa’’ssCorporate Governance StandardsCorporate Governance Standards

Total Companies

15 26 35 4765

94 104

01 02 03 04 05 06 Mar/07

IFRS or US GAAPIFRS or US GAAPMinimum required by CVM

Information sharing standards

Disclosure of Information

25%25%25%Minimum free float

NoYes*YesStocks without voting rights permitted?

Protection to Minority

Shareholders

Shareholding position of the Board and the Senior ManagementIdentity of any shareholder with more than 5% of total sharesIncome statement, balance sheet and cashflow of the company and the controlling companyAnnual public meeting for presenting results and perspectives



Other requirements

100%100%NoTag along for stocks with voting rights

Novo MercadoLevel 2Level 1Requirements

N/A80%NoTag along for stocks without voting rights

Requirements regarding the board of directors

Conflict solving via arbitration chamber

Management Requirements No

Optional

Minimum: 5 members and 2 year mandate

Minimum: 5 members and 2 year mandate

ObligatoryObligatory

Market Cap (% of Bovespa)

19% 23%35% 39% 48% 58% 59%

01 02 03 04 05 06 Mar/07

Since 2000, when the three levels of corporate governance were introduced, the adoption of higher levels has been increasing by companies

Since 2000, when the three levels of corporate governance were introduced, the adoption of higher levels has been increasing by companies

BackupBackup

Confidential


Enabling EnvironmentInstitutional & Regulatory Landscape



ExitOptions

Macroeconomics



GovernanceStandards

HumanCapital

BackupBackup

Confidential


Capital market regulators are structured in a configuration which guarantees them decision-making autonomy and close market proximity

Enabling EnvironmentInstitutional & Regulatory Landscape: Structure

Source: ANBID; Bacen; BEST 2006; CBLC; CVM

Ministry of Finance

BCBBrazilian

Central Bank

National Treasury

Receita Federal

IRS

CVM - Securities and Exchange Commission

CMNNational

Monetary Council

• Federal Public Debt management (domestic and external)

• Fiscal Policy management

• Tax regulations and procedures

• Tax collection surveillance

• Establishes general guidelines for monetary, credit and foreign exchange policies

• CMN executive body

• Regulates foreign exchange and payment system

• Regulates the securities market

• Responsible for registration of International Investors

• Local companies compliance agent

Specific Body Autonomous EntitiesRegulatory Board

• Stock Exchange

• Depository• Clearing

BOVESPA & CLBC

• Futures and Commodities Exchange

• Clearing

BM&F

• Investment Banks

• Asset Managers

• Custodians• Private Banks

ANBID

REGULATORS

SELF-REGULATORS

BackupBackup

Confidential


Foreign investors have tax exemptions* on:– Capital gains– Withholding– Local fund transfers

Tax IncentivesTax IncentivesTax Incentives

Despite of the recent reforms, Brazilian legal system is still slow and inefficient, new reforms must be put in place to improve the current situation

Despite of the recent reforms, Brazilian legal system is still slow and inefficient, new reforms must be put in place to improve the current situation

Legal system has faced important transformations in the recent years providing a safer and more attractive environment for investors

Enabling EnvironmentInstitutional & Regulatory Landscape: Legal System

Note: *Except countries considered “low-tax jurisdictions” by Brazilian Tax Authority – usually tax havensSource: ANBID; Bacen; BEST 2006; Brazilian Company for Custody and Liquidity (CBLC); CVM

Legislation for investors fully reviewed (1999 / 2000)– Reduced legal and credit risk for investors– New “Bankruptcy Law” making investments safer

Corporate Law defined minimum requirements regarding management and corporate governance for public-owned companies and their investors.

Legal SystemLegal SystemLegal System

CVM created special funds for private equity and venture capital investments: FMIEE and FIP– Definition of participants’ rules, corporate governance

requirements and investment standards– Similarity with the Limited Partnerships in the US

PE/VC RegulationPE/VC RegulationPE/VC Regulation

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Confidential


An important and well structured surrounding system is already in place, providing a good support for the legal environment

An important and well structured surrounding system is already in place, providing a good support for the legal environment

Brazil was one of the first countries that automated its financial processes and services

Enabling EnvironmentInstitutional & Regulatory Landscape: Financial Processes

Note: 1) As of Apr/2007Source: ANBID; Bacen; BEST 2006; Brazilian Company for Custody and Liquidity (CBLC); CVM

Solid and safe financial infrastructure: around 2,500 institutions1

Electronic payments system –compliance with BIS

Brazil follows all 20 recommendationsof G30 regarding custody, settlement, payments system and data security

Accordance with Basel rules

Settlement and Payments Systems

Presence of many respected arbitration chambers, e.g.: – Amcham (American Chamber of

Commerce)– Eurochamber of Mediation and

ArbitrationIncrease use of arbitration chambersCorporate governance standards determine the use of arbitration chambersSpeed-up conflict resolutionsRisk reduction

Arbitration Chambers

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Enabling EnvironmentHuman Capital



ExitOptions

Macroeconomics



GovernanceStandards

HumanCapital

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36%

1%

48%

21%

25%18%

15%

19%13%

58%

8%

23%

4%12%

Fund ManagersExperience

Fund ManagersEducation

% of Funds byExperience of Most

Senior Manager

Financial Market /Auditor

CEO / Director

Consultant

Entrepreneur

Other

Post-Graduated

Master /MBA / LLM

PHD >20 years

>15 years

>10 years

>5 years

– PE fund manager

Basis: 233 managers in 65 firms

Non-Graduated

Graduated

Experienced Professionals for PE/VC ManagementExperienced Professionals for PE/VC ManagementExperienced Professionals for PE/VC Management Human CapitalHuman CapitalHuman Capital

Enabling EnvironmentHuman Capital – PE/VC funds

Experienced managers: After first PE/VC vintages, the managers acquired an important track-record

“…some managers acquired an important background by working abroad in PE/VC sector…”

Fund managers are well-paid, attracting new talents for the sector

Experienced managers: After first PE/VC vintages, the managers acquired an important track-record

“…some managers acquired an important background by working abroad in PE/VC sector…”

Fund managers are well-paid, attracting new talents for the sector

Source: ANBID; Science & Technology Ministry (MCT); IBGC; 1st Brazilian Census of Private Equity and Venture Capital – FGV; Monitor Analysis

Brazilian fund managers are very talented and skillful, many of them with prior international work experience in the Private Equity & Venture Capital Industry

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Enabling EnvironmentHuman Capital – Invested Companies

Note: 1) As of 2004; 2) As of 2005; 3) As of 2006; 4) 1US$ = R$2,438Source: MCT; MEC; IBGC; CNI; 1st Brazilian Census of Private Equity and Venture Capital – FGV; Clipping; Monitor Analysis

Brazil has a good number of capable managers that are running companies in Brazil, moreover a growing number of researches is formed each year

Knowledge AvailabilityKnowledge AvailabilityKnowledge Availability

270,000 researchers1

43,800 PHD students2

From 2001 to 2003 more than 28,000 companies implemented innovations in processes and/or products

Brazilian investments on innovation is around 1% of GDP3

In 2005, CNPq granted US$ 350 millions4 in scholarships and other investments

270,000 researchers1

43,800 PHD students2

From 2001 to 2003 more than 28,000 companies implemented innovations in processes and/or products

Brazilian investments on innovation is around 1% of GDP3

In 2005, CNPq granted US$ 350 millions4 in scholarships and other investments

Human Capitalin Invested Companies

Human CapitalHuman Capitalin Invested Companiesin Invested Companies

“… great availability of talented and qualified managers to run businesses”

Brazilian Institute of Corporate Governance has already trained over 2,000 executives

“…Brazilian youth have technical and business formation in the best universities of the world. They are prepared to compete in the global economy”– Urs Wüthrich, IIC Partners

president

“… great availability of talented and qualified managers to run businesses”

Brazilian Institute of Corporate Governance has already trained over 2,000 executives

“…Brazilian youth have technical and business formation in the best universities of the world. They are prepared to compete in the global economy”– Urs Wüthrich, IIC Partners

president

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Industry SituationInvestment Opportunities and Exit Options



ExitOptions

Macroeconomics



GovernanceStandards

HumanCapital

Availability of interesting investment options and possibility to exit successfully are the essence of the PE/VC market

Confidential


Investment OpportunitiesDiversity of the Economy

Note: 1) CAGR of Regional GDP in Constant R$; 2) Constant 2004 US$Source: Science & Technology Ministry; Merrill Lynch; IBGE; Global Entrepreneurship Monitor; IDG; City Ministry; Monitor Analysis

Emerging SectorsEmerging SectorsEmerging SectorsRegional GDP GrowthRegional GDP GrowthRegional GDP Growth

0

2

4

6

8

10

12

14

16

0,1 1 10 100 1000

GDPCAGR1

2001 –2004(%)

GDP (US$ billion2) – logarithmic scale

Infra-Structure– Investment gap: US$ 25 – 30 billion

Real Estate– Housing deficit: 7.9 MM houses– Demand will increase with population ageing

IT– “IT investments will increase 15% in Brazil in

2007, reaching US$ 18.6 billion(...)higher growth when compared to China” – IDG

Biotech– Full domain over gene-sequencing

technology

Agribusiness– Leading technology for ‘green’ / biomass

fuels– Ethanol demand could reach 26 billion liters

until 2010 (63% increase over current demand)

Several sectors in Brazil present opportunities in the near future

DF

GO

MT

MSPB

SPMG

AMAP

AC BA

RR

TO

RJRS

PRPE

SCPA

ALPI

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Investment OpportunitiesGlobal Companies ExamplesExamples

Electric enginesFounded in 19615 plants and 28 subsidiaries worldwideRevenues: US$ 1.6 Bn

AirlineCreated in 20011st highest profitability in the worldRevenues: US$ 1.8 Bn

Automotive (bus)Created in 1949Plants in 6 countriesRevenues: US$ 0.8 Bn

CosmeticsCreated in 1969Revenues: US$ 1.3 Bn

AerospaceFounded in 1969Among world’s top 3 in commercial airplanesRevenues: US$ 3.8 Bn

PetrochemicalsConsolidation of 6 companies in 2002LATAM leaderRevenues: US$ 5,4 Bn

Brazilian track record in creating winning companies, successful global playersBrazilian track record in creating winning companies, successful global playersNote: Revenues = Net Revenues for 2005 @ US$ 1 = R$ 2.42Source: Weg; Marcopolo; Embraer; Gol; Natura; Braskem

Established Global CompaniesEstablished Global CompaniesEstablished Global Companies Emerging Global CompaniesEmerging Global CompaniesEmerging Global Companies

Brazil has a number of established and emerging global companies

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Investment OpportunitiesOther Factors

Elements Description

Source: ABVCAP; Sebrae; Global Entrepreneurship Monitor; CVM; Monitor Analysis; World Bank, Anprotec

Increasing trend for professional management among Brazilian corporations– 10 among the 50 top Brazilian corporations are / were family-owned– Family ownership still widespread: 73% of 5 million SMEs are family-

ownedFamily owned companies are not used to sharing the control

Professional Management in Family-Owned

Companies

Professional Professional Management in Management in FamilyFamily--Owned Owned

CompaniesCompanies

One of the 10 most entrepreneurial countries (GEM report) – over 15 million entrepreneursOver 300 incubators – more than 5,600 companiesOver 450,000 new companies established yearly

Entrepreneurial Culture

Entrepreneurial Entrepreneurial CultureCulture

Repressed demand for consumer goodsLBOsDistressed assets (e.g. Parmalat, Varig)Increased interest by entrepreneurs

Improved Enabling Environment

Unleashes Opportunities

Improved Enabling Improved Enabling Environment Environment

Unleashes Unleashes OpportunitiesOpportunities

Fragmented SectorsFragmented SectorsFragmented SectorsFragmented sectors are opportunities for consolidationSome sectors do not have a fully developed regulatory mark– Government regulatory agencies are politically manipulated

Brazilian entrepreneurial culture, enabling environmental changes and companies and sector development stages also unleash opportunities

Confidential


Investment Opportunities Challenges

Source: Monitor Analysis

ChallengesReach a high level of dissemination and understanding of Private Equity/ Venture Capital concepts among entrepreneurs and managers of potential invested companiesIncrease the management and business knowledge of entrepreneurs and managers of invested companies

Stimulate universities to develop viable businesses for their innovations and research findings– Change cultural behavior of producing scientific knowledge without

business application

Acquire controlling stake of family-owned companies due to the resistance of owners in giving up a part of the controlling stakeNegotiate deals since valuations done by investors and by owners of target companies tend to diverge a lot– Create a valuation guide to minimize differences

KnowledgeIncrease

KnowledgeKnowledgeIncreaseIncrease

It is necessary to increase knowledge about the PE/VC industry, stimulate business applications development and overcome some specific negotiations issues

Options Development

Options Options DevelopmentDevelopment

NegotiationsNegotiationsNegotiations

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Exit OptionsIncreasingly Liquid Exits

Most Common Exit Mechanisms(1999 – 2004)

52330

37

21540

198

45106

183 904

9 56

Quantity Amount (US$ MM)

IPO

Trade-sale

Secondary-sale

BuyBack

Write-off

9

12

21

2004 2005 2006

Number of PE-backed Public Offerings1

Note: 1) Considers primary and secondary offers separately, even when offered jointly – up to April 2006Source: CVM; PE and VC in Brazil – 1st Census – FGV / GVcepe; Monitor Analysis

BackupBackup

The Brazilian market offers a well-balanced range of exit options for PE/VC and is facing an increase in IPOs

Confidential


Exit OptionsIncreasingly Liquid Exits (1/2)

Falling interest rates, more developed capital markets and stronger corporate governance point towards the sustainability of IPOs as a viable option


Source: Bovespa; Monitor Analysis

3,5071,1472,360Partial 2006yes74074Novo MercadoCivil ConstructionAbyarano5090509Novo MercadoMiningMMX

no3210321NoneDiversified HoldingGP Investimentos

no1447569Novo MercadoManagement SoftwareDatasulyes20611987Novo MercadoIndustrial GoodsLupatechyes2650265Novo MercadoAgribusinessBrasilAgroyes15511045Novo MercadoBank ServicesCSU yes2182180Novo MercadoBank ServicesAbnoteyes245129116Level 2ElectricityEquatorialyes20952157Novo MercadoManagement SoftwareTOTVSno1283395Novo MercadoCivil ConstructionCompanyyes421197225Novo MercadoCivil ConstructionGafisayes24121427Level 2Cable TVVivaxno3700370Novo MercadoWater & SewageCopasa

20062006

2,2519911,260Subtotal 2005yes258125133Level 2ISPUOLno3660366Novo MercadoAgribusinessCosanno3943940Novo MercadoBankNossa Caixano20514956Novo MercadoRoad ConcessionsOHLno4906484Novo MercadoElectricityEDPyes22768159Level 2Civil AviationTAMyes1091090Novo MercadoCar RentalLocalizayes19514056Novo MercadoE-CommerceSubmarinono707Novo MercadoAgribusinessRenar Maçãs

20052005

1,536952584Subtotal 2004no1298544 Novo MercadoInsurancePorto Seguroyes15010743 Novo MercadoDiagnosticsDASAno2112110 Novo MercadoShoesGrendeneyes28147235 Novo MercadoElectricityCPFL Energiayes20111091 Level 2LogisticsALLyes301130171 Level 2Civil AviationGolyes2632630 Novo MercadoCosmeticsNatura

20042004

PE / VC Presence

Total(US$ MM)

Secondary Offering (US$ MM)

Primary Offering (US$ MM)

Corporate Governance SegmentSectorCompanyYear

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Exit OptionsIncreasingly Liquid Exits (2/2)



Note: 1) Up to Feb/06Source: Bovespa; Monitor Analysis

3,5071,1472,360Partial 2006

yes24016278Novo MercadoHealthcareOdontoprevno27724235Novo MercadoITPositivo Infno2182180Novo MercadoCivil ConstructionLopesyes4044040TradicionalRetailDufry

no546128418Novo MercadoCivil ConstructionBrascan

12,8745,0627,812Total 2004–20072,0482861,762Subtotal 20071)

no4940494Novo MercadoTelecomGVTno19575120Novo MercadoAgribusinessSão Martinhono2520252Novo MercadoMall ServicesIguatemino36392271Novo MercadoCivil ConstructionTecnisano24020220Novo MercadoCivil ConstructionCCDIno2060206Novo MercadoCivil ConstructionRodobensyes29899199Novo MercadoCivil ConstructionPDG Realty

20072007

7,0392,8334,206Subtotal 2006

yes1740174Novo MercadoBiodiesel productionEcodieselno28896192Nível 2ElectricityTernano18442142Novo MercadoPharmaceuticalProfarma

no1891890Novo MercadoFoodM. Dias Brancoyes4294425Nível 2Port servicesSantos Brasilno24277165Novo MercadoCivil ConstructionKlabin Segallno341124217Novo MercadoHealthcareMedial Saúde

2006 2006 (cont.)(cont.)

PE / VC Presence

Total(US$ MM)

Secondary Offering (US$ MM)

Primary Offering (US$ MM)

Corporate Governance SegmentSectorCompanyYear

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Exit OptionsRecent Successful VC/PE Exits

9%

242%

199%

40%

38%

36%

26%

22%

481%

Construction

Energy

Sector

Airline

IT

Medical Services

E-commerce

Airline

Logistics

Car rental

Time to Exit

2 years

1 year

<1 year

5 years

6 years

9 years

8 years

7 years

8 years

Net Revenues 2006 (US$ million)

393

1,746

161

308

1893

305

3,374

793

517

Equatorial

Company

GOL

TOTVS

DASA

Submarino

Gafisa

TAM

ALL

Localiza

Investment (US$ million)

11

26

16

100

83

78

77

202

49

12%

130%

32%

20%

IT

Logistics

Telecom

IT

4 years

7 years

4 years

6 years

n/a

122

352

n/a

Akwan

Autotrac

Atrium

Microsiga1

n/a

2,5

20,5

7

IPO

sIP

Os

Trad

e-Sa

leTr

ade

Trad

e --Sa

leSa

le

Estimated IRRs in US$

Backup-ExamplesBackup-

Examples

Note: 1) Buyback; 2) 2004; 3) Jan to Sep 2006Source: Press Clippings; Company websites; Interviews; Brazilian Capital Markets and Private Equity (R. Freitas, P. Passoni); Monitor Analysis

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