Poultry powerhouse São Salvador prepares for IPO

Zé Garrote sold his house, his drugstore and all his state to raise chickens with his father-in-law. Two times he almost went bankrupted, but his bet ended up succeeding and now São Salvador Alimentos is in the sights of investment bankers, in what may be the first IPO in the meatpacking industry since 2007.

From the quiet Itaberaí, in the state of Goiás, the family built one of the most profitable slaughterhouses in Brazil. It is a business of almost R$2 billion in revenue, with brands that may be unknown in major markets like São Paulo and Rio de Janeiro but prevail in the Central-West region, and which boasts profitability to make rivals BRF and Seara envious. While the giants celebrate when the Ebitda margin is above 15%, São Salvador delivered almost 23% on average over the past five years.

The company is expected to file the request for a public offering in the first quarter, an operation that will be coordinated by banks Itaú BBA, XP Investimentos, BTG Pactual and Bradesco BBI, according to sources. To try and raise around R$1.5 billion and reach a valuation of more than R$4 billion, São Salvador wants to rely on this profitability comparison to seek an edge over competitors.

A valuation similar to that of BRF, whose shares trade at 6.3 times the Ebitda, would give São Salvador a market capitalization of just over R$2.5 billion, assuming an Ebitda of R$470 million and a net debt of R$400 million. Some players in the financial market, however, calculate the company would have no less than a multiple of 10 times.

One explanation for the high profitability is the proximity to grain supply, an increasingly expensive input. The commercial and regional strategy, focused on small retailers in the Central-West - the company's market share is around 30% in Goiás and the Federal District -, also helps. Currently, large retail chains represent less than 10% of São Salvador's sales.

The company broke ground in the capital market at the end of last year, with the issuance of R$200 million in Certificates of Agribusiness Receivables (CRAs), but has been trying to get ready to go public since 2007, when it hired BDO to audit its balance sheet. It was the year of the greatest optimism regarding public offerings in the country, with the debut of JBS, Marfrig and Minerva on the stock exchange. São Salvador was still a free-range chicken grange, but Zé Garrote had already set his goal. "[I] only slaughtered 40,000 chickens a day. [I] didn't have the...

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