Stratus Capital Partners III
The Project consists of an Equity Investment up to US$10 million as a limited partner in Stratus Capital Partners III. The Fund is the third fund with a middle-market strategy managed by Stratus Corporation through its Brazilian subsidiary Stratus Gestão de Carteiras Ltda. (the “Fund Manager” or “Stratus”), to invest in companies already operating in Brazil or with business plans to expand its operations to Brazil. The IDB Invest’s participation is expected to play a key role in attracting additional international investors and sending a strong signal from an institution with significant exposure and experience in the region and will allow the Fund to reach the necessary scale to effectively execute its investment strategy and reach its size of US$200 million. SCP III is a multi-sector fund that will invest capital in middle market companies with business plans combining both organic growth and add-on acquisitions. The Fund will diversify its portfolio of investments in sectors such as: (a) healthcare services; (b) education; (c) processed food; (d) logistics; (e) specialty services; (f) business services; (g) consumer services; (h) marketing and commerce distribution (retail and/or wholesale, etc.).
The IDB Invest’s involvement is instrumental for the coexistence of local players in a highly dynamic market with very well-known international players. Furthermore, the IDB Invest’s participation in the Fund would benefit a segment of small and medium-sized enterprises that has been relatively underserved by the main private equity funds in Brazil. Stratus is making an effort to identify investments in regions and cities outside Brazil’s metropolitan areas, as well as to engage businesses that may encompass a regional perspective and/or a broad international expansion.
Furthermore, IDB Invest’s investment will increase availability of private equity for growth-oriented, mid-market companies in Brazil, contributing to increased competitiveness and economic growth in the country. Such availability will come to add a better balance in today’s market inefficiency, helping to remove restrictions from the country / regional entrepreneurial ecosystem. The Fund will acquire equity positions with defined exit strategies, with investment tickets between US$10 million and US$50 million in companies that are generating revenues in the range of US$30 million to US$200 million.
1. Overview of Scope of IDB-Invest E&S Review The environmental and social review of the proposed transaction was carried out through an E&S desk research of pertinent information from the client. This included a review of Stratus’s environmental and social policies and procedures applied by Stratus.
2. Environmental and Social Categorization and Rationale The sub-projects to be supported are expected to have a medium risk potential. Therefore, per the IDB Invest’s Environmental and Social Sustainability Policy, the Fund has been categorized as FI-2. The fund will be restricted from financing Category A sub-projects.
Stratus has environmental and social review procedures in place. In addition, it is developing a set of standardized operational procedures and a manual based on the United Nations’. Principles for Responsible Investment, which will encompass an improvement in the current Environmental and Social Management System.
3. Environmental and Social Risks and Impacts The main Environmental and Social (“E&S”) risks of these projects are associated with Stratus’s capacity to identify and manage the E&S risks associated with its investing activities. The potential risks associated with its main investing activities include occupational, health and safety (“OHS”) related themes for services companies and pollution prevention for utilities and manufacturing.
Stratus has in place an Environmental and Social Management System to identify and manage the E&S risks of its portfolio. Its systems include E&S procedures, and an assigned E&S Officer to manage E&S risks and impacts.
4. Mitigation Measures Each company in which the Fund invests must comply with the environmental laws, regulations, and standards of the respective applicable jurisdictions, as well as with applicable IDB Invest Exclusion List, applicable E&S local laws, and the IDB Invest’s environmental and social guidelines. High risk companies must comply with the International Finance Corporation (“IFC”) Performance Standards.
To enable the investee companies to better understand the IDB Invest’s requirements, Stratus will be required to attend the IDB Invest’s Environmental and Social Risk Management training workshop for financial intermediaries. Companies in which the Fund invests will be required to provide evidence of compliance with all applicable laws, regulations, and standards regarding the environment and occupational health and safety.
IDB Invest requires that its financial intermediaries’ clients develop and implement an External Communication Mechanism to review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations. Stratus will also be required to hire a qualified external consultant to assess the E&S risks of applicable transactions, to submit the E&S due diligence conducted prior to investment and submit an annual E&S monitoring report to IDB Invest.
IDB Invest Project Team
Investment Officer: Lina Margarita Peña