Equity Research

BTG Pactual Global Research

Brazil
Technology, Media & Telecommunication
Company Note
29 October 2020

Locaweb
M&A mode continues – Locaweb buys Vindi Rating Buy

Biggest M&A in company’s history may create a lot of value 12m Price Target R$90.00/US$15.65

Locaweb announced that its Board of Directors approved a binding proposal for the Price R$70.60/US$12.28
acquisition of Vindi, a leading SaaS platform for recurrent payments in Brazil. Locaweb RIC: LWSA3.SA, BBG: LWSA3 BZ
is offering to pay R$180mn for the acquisition of the whole company. On this date, the
Trading Data and Return Forecasts
proposal has been accepted by 79.33% of Vindi’s shareholders, including the three
52-wk range R$71.00-10.20/US$12.63-1.98
founding shareholders who are also the main executives and will continue their work at Market cap. R$8,836m/US$1,537m
the company, aligned with earn-outs. The deadline for the other shareholders to accept Shares o/s (m) 125.2
the offer expires on December 5, and if some of them don’t accept then Locaweb may Free float 65%
Avg. daily volume('000 Shares) 1,738
acquire a stake between the 79.33% already approved and 100% of the company.
Avg. daily value (R$ m) 104.3
Accretive M&A with a clear path for cross-selling Forecast price appreciation +27.5%
Forecast dividend yield 0.0%
Vindi posted revenues close to R$30mn last year (more than doubling y/y) and Forecast stock return +27.5%
processed a total payment volume (TPV) of R$2.7bn (this year TPV should go up to
R$4bn). This means that Locaweb is paying a highly accretive multiple – 6x considering Stock Performance (R$)
100.0 200
2019 revenues, and since Vindi is growing at a stellar pace, the multiple is probably
significantly lower than that if we consider 2020 revenues (LWSA trades at 13.3x 2021). 80.0 160

In addition to that, there may be some interesting revenue synergies. Locaweb has 60.0 120

369k clients in the BeOnline/SaaS segment, and the bulk of them are service providers. 40.0 80

20.0 40
SaaS + payments – a powerful combination
0.0 0
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29-Oct-20
Vindi tackles recurrent payment problems via a software platform that consolidates
clients’ billing information from different acquirers, banks, ERPs and other software Price Target (R$) Stock Price (R$) Rel. Ibovespa

(more details on Vindi’s offer inside the report). The company is a combination of an
SaaS and a payment company. Their entry-level subscription plan costs R$199/month. Carlos Sequeira, CFA
In addition to the subscription, and like any other payment company, they earn a take- New York – BTG Pactual US Capital LLC
rate over the TPV. 80% of its revenues come from subscriptions. Vindi was founded in [email protected]
2013 and has 6,000 clients, including some large players like Viva Real, Wizard, +1 646 924 2479

Buscapé, LatAm, Exame, etc. Osni Carfi

Brazil – Banco BTG Pactual S.A.
Outstanding LTV/CAC in a big, unexplored market
[email protected]
Our TP of R$90 for the company doesn’t include M&As. This is the third acquisition that +55 11 3383 2634
the company announced in 40 days, and we are increasingly confident that these
acquisitions will generate a lot of value and are an interesting optionality for investors.

Valuation 12/2018 12/2019 12/2020E 12/2021E 12/2022E

RoIC (EBIT) % 27.6 25.2 19.7 32.9 43.9
EV/EBITDA - - 62.7 46.9 36.0
P/E - - 141.4 92.1 66.7
Net dividend yield % - - 0.0 0.1 0.3

Financials (R$mn) 12/2018 12/2019 12/2020E 12/2021E 12/2022E

Revenues 315 386 486 604 736
EBITDA 79 111 135 178 229
Net Income 19 28 62 96 132
EPS (R$) # # 0.50 0.77 1.06
Net (debt) / cash (51) (147) 406 475 567
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 4
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Any U.S. person receiving this report and wishing to effect any transaction in a security
discussed in this report should do so with BTG Pactual US Capital, LLC at 212-293-4600, 601 Lexington Avenue. 57th Floor, New York NY 10022.
 Locaweb
29 October 2020 page 2

Biggest M&A in company’s history is highly accretive and

may create a lot of value
Locaweb announced earlier today that its Board of Directors approved a binding
proposal for the acquisition of Vindi, a leading SaaS (Software as a Service) platform
for recurrent payments in Brazil. Locaweb is offering to pay R$180mn for the acquisition
of the whole company. On this date, the proposal has been accepted by 79.33% of
Vindi’s shareholders, including the three founding shareholders who are also the main
executives and will continue their work at the company, aligned with earn-outs.

The deadline for the other shareholders to accept the offer expires on December 5,
and if some of them don’t accept then Locaweb may acquire a stake between the
79.33% already approved and 100% of the company.

At this point, Locaweb hasn't disclosed much information about the deal (we believe
they will do so after the closing of the transaction). But according to interviews that we
found with Vindi’s founders and the company’s website, they posted revenues close to
R$30mn last year (more than doubling y/y) and processed a total payment volume
(TPV) of R$2.7bn (this year TPV should go up to R$4bn). This means that Locaweb is
paying a highly accretive multiple – 6x considering 2019 revenues, and since Vindi is
growing at a stellar pace, the multiple is probably significantly lower than that if we
consider 2020 revenues (Locaweb trades at 13.3x 2021).

By buying Vindi, Locaweb is also strengthening its footprint in the payments market.
We expect that Yapay will post a TPV of R$1.5bn this year, i.e. with Vindi the company
is almost quadrupling its size in the payment market, and probably getting a step closer
to the point where it may make sense to consider becoming a full acquirer.

A closer look at Vindi

Vindi was born to make the life of companies that receive recurring payments easier.
To better illustrate the value proposition of the company, let’s imagine a gym that has
500 clients. Every month, the company has to send 500 payment slips to their clients.
After that, the gym has to check if each one of those 500 payments were made, and
then issue 500 invoices. Vindi makes this process frictionless thanks to its software. If
this gym hires Vindi’s solution, it could register those 500 clients on the platform in a
single move and the software would do everything (recurring charges, conciliation,
tracking delinquency, invoices, etc).

So, Vindi is a combination of an SaaS and a payment company (like Locaweb), and
their entry-level subscription plan costs R$199/month (for clients that have up to 250
customers). In addition to the subscription, and like any other payment company, they
earn a fee / take-rate over the payment volume processed. According to the company’s
blog, 80% of its revenues come from subscriptions. Vindi was founded in 2013 and has
6,000 clients, including some large players like Viva Real, Wizard, Buscapé, LatAm,
Exame, etc.

Vindi tackles recurrent payment problems via a software platform that consolidates
clients’ billing information from different acquirers, banks, ERPs and other software.
With Vindi’s services, clients reduce payment rejection (due to cards that expired) and
 Locaweb
29 October 2020 page 3

they know the best time for the client to receive SMS/e-mail to update payment
information. The software is an “information hub” that gives management a
consolidated view of important KPIs such as # of new subscriptions per day or how
much revenue is not being charged due to billing failure (below we show some images
of the software).

Figure 1: Vindi’s software main dashboard – clients may follow signatures, average ticket, revenues, etc

Source: BTG Pactual and company reports

Figure 2: Clients dashboard

Source: BTG Pactual and company reports

This will be the biggest acquisition in Locaweb’s history and it reinforces our bullish
stance on the company. In addition to the huge aforementioned value accretion, there
may be some interesting revenue synergies. Locaweb has 369k clients in the Be Online
/ SaaS segment, and the bulk of them are service providers. Our TP of R$90 for the
company doesn’t include M&As. This is the third acquisition that the company
announced in 40 days, and we are increasingly confident that these acquisitions will
generate a lot of value and are an interesting optionality for investors.
 Locaweb
29 October 2020 page 4

Required Disclosures

This report has been prepared by Banco BTG Pactual S.A.

The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results.

BTG Pactual Definition Coverage *1 IB Services *2

Rating
Buy Expected total return 10% above the company’s sector 56% 51%
average.
Neutral Expected total return between +10% and -10% the 42% 35%
company’s sector average.
Sell Expected total return 10% below the company’s sector 2% 0%
average.

1: Percentage of companies under coverage globally within the 12-month rating category.
2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
Absolute return requirements
Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed:
a) a Buy rated stock must have an expected total return above 15%
b) a Neutral rated stock can not have an expected total return below -5%
c) a stock with expected total return above 50% must be rated Buy

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list.

Statement of Risk

Locaweb Serviços de Internet S/A [BRLWSA] (Primary) - Our target prices for Latin American telco and tech companies are DCF-derived, based on long-term enterprise free cash flow. Besides volatile
equity markets and notable macroeconomic risks in LatAm (affecting currencies, cost inflation, market potential, and ability to borrow), these companies in general face risks from regulation, competition,
and technology change.

Valuation Methodology

Locaweb Serviços de Internet S/A [BRLWSA] (Primary) - Our target price for TMT coverage is DCF-derived based in long-term enterprise cash flow.

Company Disclosures

Company Name Reuters 12-mo rating Price Price date

Locaweb 1, 9, 18, 20, 21, 22 LWSA3.SA Buy R$70.60 29-10-2020

1. Within the past 12 months, Banco BTG Pactual S.A., its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.
9. Banco BTG Pactual S.A. has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates or subsidiaries within the past 12 months.
18. As of the end of the month immediately preceding the date of publication of this report, neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries beneficially own 1% or more of any class of
common equity securities
20. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries engaged in market making activities in the subject company's securities at the time this research report was published.
21. Banco BTG Pactual S.A. or its affiliates or subsidiaries have not received compensation for investment banking services from the companies in the past 12 months
22. Banco BTG Pactual S.A. or its affiliates or subsidiaries do not expect to receive or intends to seek compensation for investment banking services from the companies within the next 3 months.
 Locaweb
29 October 2020 page 5

Locaweb
Stock Price (R$) Price Target (R$)
100.0

80.0

60.0

40.0

20.0

0.0
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29-Jul-20
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29-Oct-20
Buy
Neutral
Sell
No Rating

Source: BTG Pactual and Economatica. Prices as of 29 October 2020

 Locaweb
29 October 2020 page 6

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