Information on the Target

Zion Invest is set to divest a portion of the equity held by one of its real estate investment funds in Brazil's leading private cemetery, mausoleum, and funeral services operator, Cortel Holding. This strategic move will involve the sale of 40% of the shares owned by Brazilian Graveyard and Death Care Services (CARE11), equating to 734,000 shares, for an estimated total of R$ 38.6 million, translating to R$ 52.62 per share. This sale marks a significant return, representing a 42.4% premium over the initial purchase price established in 2018.

Cortel Holding operates eight facilities across three states and eight municipalities in Brazil, catering to the cemetery and funeral service needs of the region. The funds raised from this transaction will be distributed as dividends over the next 12 months. The current market value of CARE11 shares was reported at R$ 0.86, reflecting a 33.3% year-to-date decrease as of 2020.

Industry Overview in Brazil

The funeral service industry in Brazil operates within a context of cultural significance, as the country grapples with a diverse demographic profile and fluctuating mortality rates influenced by socio-economic factors. Recent trends indicate a gradual shift towards more professionalized and organized entities in the sector, creating opportunities for investment and growth. This evolution is propelled by an increasing willingness among families to seek comprehensive and reliable funeral service options.

Moreover, the pandemic has highlighted the need for efficient funeral services, resulting in an uptick in demand for structured and scalable operations. This underscores the value of established players like Cortel Holding, which can navigate the complexities of local regulations and consumer needs effectively. The competition within the sector, however, remains robust, with numerous independent services and local providers contending for market share.

Brazil's cemetery and funeral services market is projected to continue its evolution as urbanization intensifies and the population matures. Investors are likely to be attracted to the industry's stability, as it offers consistent demand irrespective of economic fluctuations. Furthermore, the focus on long-term investment strategies may encourage greater participation from institutional investors.

The Rationale Behind the Deal

This transaction is pivotal as it represents the first divestment from the CARE11 fund, showcasing the maturation of its assets after a two-year hold on investment in Cortel Holding. According to João Eduardo Santiago, the manager at Zion Invest, this deal illustrates their strategy of maintaining asset stability during economic turbulence, contributing to consistent performance for shareholders in the long term.

The establishment of a new investment vehicle exclusively for professional investors emphasizes Zion Invest's intent to attract seasoned players interested in capitalizing on the long-term prospects of the cemetery and funeral services sector. This strategic move affirms their commitment to facilitating professional investor entry into an industry typically characterized by family-run businesses.

Information about the Investor

Zion Invest is a prominent player in the Brazilian real estate investment sector, known for its strategic management of assets across various industries, including paper and pulp as well as shopping centers. The firm’s expertise lies in identifying and capitalizing on emerging opportunities, particularly in sectors poised for growth.

The firm's strategic vision is underscored by its focus on structured funds that cater to professional investors, both domestically and internationally. This approach underlines Zion Invest's acknowledgment of the evolving landscape of investment, particularly within specialized markets requiring robust management to deliver sustainable returns.

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The deal presented by Zion Invest in divesting part of its holdings in Cortel Holding could be seen as a prudent strategic move to realize gains while nourishing investor confidence through timely returns. The fact that the shares are being sold at a substantial premium showcases both the maturity of the asset and the foresight of the company in capitalizing on favorable market conditions.

Moreover, by creating a dedicated investment vehicle, Zion Invest is positioning itself to attract long-term capital, which may provide additional stability to the sector as a whole. However, it's important to maintain vigilance regarding fluctuations in market performance and changing consumer preferences in the funeral industry.

Carefully assessing the dynamics of the Brazilian funeral services market affords investors insight into the potential for growth, given the increasing professionalization and organization within the industry. If managed effectively, this investment could yield lasting benefits, contributing to sustained capital appreciation.

In conclusion, while there are inherent risks to consider, particularly with the current share price dynamics, the framework established by Zion Invest seems conducive to fostering an environment ripe for positive returns in the long term, especially as they cater to the evolving demands of the Brazilian demographic landscape.

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