Brazilian payments provider PagSeguro Digital redrew the boundaries in Latin America’s primary equity markets with its US$2.6bn IPO, opening the region’s tech space to a global audience and laying the ground for a string of similar names to follow.
In a rare US listing from Brazil, PagSeguro defied past experience in selling LatAm securities and positioned itself among global and US tech investors hungry for new opportunities in emerging markets.
LatAm IPOs have typically lured only emerging market-dedicated accounts, local investors and on occasion sovereign wealth funds. “It was the first time in all my years as a banker that we were able to get crossover investors – US tech funds, growth funds – actually buying into a Brazilian stock,” said Facundo Vazquez, co-head of LatAm ECM at Goldman Sachs, which acted as sole global coordinator.
Bank of America Merrill Lynch, Bradesco, Credit Suisse, Deutsche Bank, Itau BBA and JP Morgan were bookrunners.
Confidence in a global bid with a broader mindset made all the difference in January when Brazil’s polarised electoral landscape was starting to dampen appetite among EM accounts and locals for the country’s assets. Reaching traditional buyers was made harder once Brazilian regulators prohibited in-country roadshows unless the stock was listed locally.
“We weren’t shy to find the very best fintech investors all over the world,” said Lyle Schwartz, who runs Goldman’s LatAm ECM business alongside Vazquez. “We let them compete for the asset and create scarcity, and ultimately price the transaction at levels that exceeded the client’s expectations.”
Such accounts liked PagSeguro’s disruptive potential as a provider of technology solutions for small and medium-sized companies in a Brazilian financial sector still dominated by big banks.
An order book of US$25bn allowed the company to upsize the deal to US$2.6bn, making it the second largest IPO of a non-US issuer on the New York Stock Exchange and the biggest float out of Latin America in four years.
In a rare move for LatAm issuers, PagSeguro priced above the range (pricing at US$21.50 compared with the US$17.50–$20.50 range). It proved a big payday for the banks, which shared US$91m of underwriting fees.
Many of the US accounts, which made up 74% of the book, had never bought a Brazilian stock before, bringing a fresh view to the LatAm market and better valuations for the company.
The final IPO price valued PagSeguro at 24 times forward earnings, well over local peers such as Cielo, as tech investors instead looked to US comps such as Square and PayPal, which at the time traded at 90 times and 36 times over earnings.
“Very little was placed locally because all the buyers at higher values were offshore,” said Schwartz. “We demonstrated that we could take a Brazilian asset and execute it on a global standard.”