"Look out for the Brazilians and the Indians," the CEO of a large Fortune 500 consumer products company told me at a lunch a few months ago. And he wasn't talking about the World Cup. He was responding to a question about where the next wave of foreign investors in U.S. assets will come from. A few years ago, dealmakers were abuzz—and many analysts were fearful—about the prospect of sovereign wealth funds from the Persian Gulf and China shifting their strategies from buying U.S. government bonds to purchasing U.S. companies. Since many of those bubble-era deals exploded, the sovereign wealth funds have become much less aggressive about entering the U.S. market.
But now there are signs that the Brazilians may be picking up some of the slack. Last week, Brazilian meatpacker Marfrig agreed to acquire Keystone Foods for $1.25 billion. As a result, the Brazilian firm will now become a key supplier to all-American fast-food chains like Subway and McDonald's. According to Thomson Reuters, there have been eight transactions since last October involving Brazilian firms purchasing U.S. companies or assets from U.S. companies. And there are likely to be more.
Brazilian firms are in a good position to start investing. Driven by a rising middle class, robust commodity markets, and trade with China, Brazil's domestic economy powered through the economic crisis and the recession. Its banking system, which puts directors on the hook for losses, didn't melt down in an orgy of speculation. The country's large firms have healthy balance sheets, and the Brazilian currency has appreciated against the dollar. And like Brazilian soccer players, who ply their trade in every league around the world, Brazilian executives are increasingly comfortable going global. A KPMG survey of executives from 17 countries that was released in March found that "Brazilian businessmen are the most optimistic in the world regarding the behaviour of global economy next year."
The acquisitions have centered mostly on large-scale, old-economy industries—the type that first gained national scale in the United States on the backs of the railroads in the 1890s: beer, meatpacking, oil, chemicals. InBev, the Belgian-Brazilian beer company, led the way in 2008 by acquiring Anheuser-Busch. JBS, the giant Brazilian meatpacker, bought Pilgrim's Pride for $800 million last fall and then in January 2010 acquired Swift for $1.4 billion. It now has a very large presence in the United States. The same month, Petrobras, Brazil's oil behemoth, bought a chunk of Devon Energy's stake in the Gulf of Mexico's Cascade field. In February, Brazilian resin producer Braskem acquired the polypropylene business of Sunoco Chemicals for $350 million. In April, Banco do Brasil, the big bank largely owned by Brazil's government, which has outposts in Miami, New York, and Washington, D.C., received permission from the Federal Reserve to set up retail banking operations in the United States. "We will open 15 new branches in the U.S. over the next five years and we are also considering acquisitions of small local banks to build our operation," Allan Toledo, vice president for international affairs at Banco do Brasil, told Dow Jones.
This source of investment is much more appealing to U.S. nationalists and editorialists than cash coming from other members of the BRIC (Brazil, Russia, India, and China) bloc. The prospect of Chinese firms buying U.S. technology and oil companies has set off alarm bells in hawkish precincts. The Treasury Department is expressing concern over the notion of a Russian firm buying the ICQ instant-messaging service from AOL. Yes, some foreign policy analysts have worried that Brazilian President Luiz Inacio Lula da Silva is too cozy with Iran and Venezuela, but nobody has fretted about well-run Brazilian conglomerates owning well-known U.S. brands. That's a good thing. For America needs Brazilian businesses—and businesses from all over the world—to take a new look at the U.S. market. For all its problems, the United States generally remains the largest single recipient of foreign direct investment in the world. Investments by foreign firms played an important role in last year's recovery. And with the domestic companies and investors deleveraging and hoarding cash, foreign direct investment is vital to fund growth and expansion. Wall Street bankers should begin to learn some Portuguese phrases.