News | Gütersloh / São Paolo, 05/28/2014

‘Tudo Bem’ – It’s All Good For Bertelsmann In Brazil

Thomas Mackenbrock, head of the Bertelsmann Corporate Center in Brazil, looks back on two years of groundwork in São Paolo

A good two years ago, Thomas Mackenbrock made a big move. From Gütersloh to São Paolo. From a small town to the largest economic hub of the southern hemisphere, where he established the new Bertelsmann Corporate Center in Brazil, at the heart of the strategic growth market Latin America, built. From scratch, with a small team, and with all the vicissitudes and unpredictability of a startup: a few successful transactions for starters as well as stubbornly silent phones and unreliable Internet lines. But Thomas Mackenbrock has long since arrived in Brazil: as a young father of two children who were born in Brazil, who can point to promising investments and who clearly feels at home in South America and knows exactly what the two most important words – which also sum up an entire attitude to life – are in Brazil: “tudo bem” – [it’s] all good. The Bertelsmann editorial office met Thomas Mackenbrock to talk about the (ground)work he does for Bertelsmann in Brazil.

In June, the Corporate Center in Sao Paolo will be two years old – looking back, how did the launch and startup phase go for you?

Thomas Mackenbrock: It was a very nice time for me, and at the same time very exciting – both professionally and personally. My two children were born in Brazil – and it's wonderful to see how Brazilians treat children, how they celebrate them with us. For our family, this warmth is the most beautiful experience we’ve been privileged to enjoy in Brazil. And it carries over to the professional realm: Quite often children, or talking about them, are a door opener for a business contact or idea. The way people deal with each other so openly and cordially in their work is very enriching and was a novel experience for me in this "Brazilian” form.

But surely that wasn’t the only thing...

Thomas Mackenbrock: No, of course not. The job itself was entirely new. Even though Bertelsmann has been doing business in Brazil for decades, we built the Corporate Center from scratch. We had to organize everything ourselves, from the renting of suitable premises close to Avenida Faria Lima – the financial lifeline of the city, if not the whole country – and renovating and furnishing them, to installing the telephone lines and internet lines. Not exactly an easy feat in Brazil. All the rubber-stamping and signatures, permits and certificates needed for even the simplest of operations teach you patience and serenity. Things are what they are here, and sometimes they just take longer.

How is the language working out for you?

Thomas Mackenbrock: Portuguese is a beautiful language and – apart from the pronunciation – not a terribly difficult one. The two most important words are “tudo bem” – [it’s] all good. “Tudo bem” expresses the positive Brazilian attitude to life and serves as the answer to a lot of questions.  Our office is sometimes distinctly Babylonian in its multilingual-ness: alongside me as a German, three Brazilians and a Greek American work on our team. So we speak a mix of Portuguese and English with each other, and when I’m on the phone with Gütersloh, German of course.

Does that happen often?

Thomas Mackenbrock: Very often. The Gütersloh Corporate Center team led by Thomas Rabe and Judith Hartmann provides very valuable support to us. For instance in evaluating potential investments and assessing the legal or tax implications of transactions. Of course I also work closely with my boss Fernando Carro, who is also responsible for developments in Latin America on the GMC. Add to that intensive exchange and joint projects with our colleagues in other divisions and departments, such as Emerging Markets and New Businesses.

And how is the cooperation with Bertelsmann’s businesses in Brazil going?

Thomas Mackenbrock: We maintain a constructive exchange and support each other as needed. After all, Bertelsmann is represented in Brazil by four divisions: RTL Group is active through Fremantle Media, which stands for TV shows that are successful and popular here too, such as “Idolos,” “X-Factor” and “Mega Senha.” Penguin Random House, which already owned a 45-percent stake in the renowned publisher Companhia das Letras, has significantly expanded its footprint in Brazil with the acquisition of the Objetiva publishing group from Santillana. Gruner + Jahr publishes car, motorcycle, truck and fitness magazines through Motor Presse. And finally, Arvato and its several hundred employees have offered a wide range of services for over 20 years.

Despite this long tradition, which began back in 1972 with a book club, Bertelsmann is looking for new ideas and investment opportunities in Brazil, and has declared the country its third major growth market alongside China and India. In your experience on the ground, is Brazil really a land of boundless opportunity?

Thomas Mackenbrock: Brazil was and still is often overstated from the outside. A few years ago it was considered a rising star, now it’s turned into a lame duck practically overnight. Both are incorrect. First of all, the facts speak for Brazil: It’s the seventh-largest economy in the world with 200 million people, has a young population with a growing middle class, a Western-influenced culture, a stable democracy with a free press and a free market." All of this coupled with a strong affinity for the digital and online realm, and a distinct need to catch up, especially in the fields of media, education and services. So Brazil is and remains an attractive growth market for Bertelsmann. But Brazil will always be a volatile market, too, with steep ups and downs. This is not a country for short-term engagements, where you make a quick buck and then disappear, but one that requires marathon endurance and long-term thinking. This, too, makes Brazil a perfect fit for Bertelsmann.

How exactly is Bertelsmann developing this market?

Thomas Mackenbrock: On the one hand, the divisions are implementing their individual and specific strategies in expanding to or in Brazil. On the other hand, in our work at the Corporate Center we are focusing on the two strategic priorities of Education and Digital. Both offer excellent prospects, and they are closely interrelated. Every second Brazilian is online – that’s 100 million people at this point. In absolute terms, Brazil is the world’s third-largest Facebook country and one of the most important markets for Youtube. Brazilians love the Internet and they love video, so Internet penetration is growing by the day. The Internet also offers the advantage of short virtual paths and quick accessibility in this vast country. Especially in the field of education, say, in online learning via the Internet, this has a huge impact. Here as in other growth regions, education is the key to participation, prosperity and growth. At this point, the portion of the population that has access to higher education is still much too small. Only 13 percent of 25- to 34-year-olds in Brazil have a college degree. In the U.S., for example, the share is 43 percent. So there is still vast pent-up demand. The peculiarity in Brazil is that the government is relying especially on private providers to close this gap. Well over 5 million students, nearly 75 percent of all students, that is, attend private universities.

Bertelsmann has brought relatively small investments to such a large market up until now...

Thomas Mackenbrock: And that is quite deliberate. We're not an investor that quickly enters into businesses and then gets out again just as quickly - but with as much profit as possible. Our intent is to strengthen Bertelsmann’s footprint and importance in this huge market by building an attractive long-term portfolio of companies with attractive growth prospects. I would be happy if Brazil's standing in the global economy were to be more adequately reflected in Bertelsmann’s revenue distribution than it is today. To achieve this, we must now identify the companies that make this difference possible.

Though you do operate much like a fund…?

Thomas Mackenbrock: Indeed. As a classical corporate investor, we also use funds to gain access to attractive businesses that could be interesting for a later acquisition by Bertelsmann. This gives us a foot in the door so that we can participate directly at the right time.

How specifically do you proceed?

Thomas Mackenbrock: in three consecutive steps. First, we formed a network in Brazil by investing in established funds such as Monashees and Redpoint eVentures, with a view to establishing ties with interesting partners. Second, we made direct investments fast-growing young digital media companies that are leading in their respective segments. In the third step, we enter into closer cooperation with selected partners to secure our access to attractive companies and to benefit more from these partners’ long years of local expertise. Bozano Investimentos is one of those partners. We have worked closely with them for the past two years because they really know their way around the country’s education market. Last year, we jointly launched the BR Education Ventures fund, which focuses on investments in companies that offer technical solutions and services in the field of Education. As the anchor investor, Bertelsmann holds a stake of around 30 percent in BR Education Ventures, so we have already made two investments in attractive digital education businesses. We already see that this partnership and this approach are working out very well, and I’m convinced we will soon manage larger projects in this way.

Can you already tell us which projects are coming up next?

Thomas Mackenbrock: For several months, we’ve been working very hard on building a new investment platform: Together with a partner, we want to build a leading provider of education in the field of health and medicine in Brazil. Given the inadequate availability of medical professionals in many regions of Brazil, we see opportunities for growth in this segment. We’re also considering the Brazilian market for e-learning and corporate training. I don’t want to announce anything yet, but we are looking to the next few months with optimism.

If one takes a look at Bertelsmann’s investments in Brazil to date, how have they developed in the first two years?

Thomas Mackenbrock: The investments we’ve made since establishing the Corporate Center have done very well so far. We are indirectly involved in 30 attractive startups in Brazil through our investments in the funds. The two companies we made direct investments in are seeing double-digit growth and already reach eight million Brazilians a month with their services. Our last two investments with the Education Ventures Fund, report very successful operations

And where do you see this development headed?

Thomas Mackenbrock: Brazil has fascinating perspectives for Bertelsmann. We will take things step by step. In the years ahead, we would like to further strengthen Bertelsmann’s role in Brazil through new investments in attractive companies. In particular, we are looking at direct investments in major platforms, and already have a few projects in the pipeline. However, we won’t proceed in haste, will not pay excessive prices, and will continue to apply our investment criteria stringently. But there is one thing we mustn’t forget: We are based in a city that is not only the economic hub for Brazil, but for all of South America – Sao Paolo. Latin America has a total population of 500 million people. The whole continent is on the verge of taking off. However, in the months ahead we will concentrate on the exciting ongoing projects in the pipeline in Brazil.

In a few weeks, however, Brazil will enter into a temporary state of emergency and become the [soccer] World Champion on its own turf...

Thomas Mackenbrock:... at least the Brazilians believe so. Whenever I’m approached about the World Cup, and that happens almost daily at this point, people are betting the final will be fought between Brazil and Germany. Then they pat me on the shoulder with a chuckle as if to say that the winner of the final is as good as certain, too….