Avelacom buys Brazilian infrastructure specialist to accelerate LatAm expansion

Capital markets participants worldwide have long recognized the emerging Brazilian market as a source of potential growth, but complain of challenges around infrastructure, access, and the difficulties of doing business there as a foreign company.

Fintech providers setting up technology hubs or access points in Brazil say challenges include connectivity issues and delays in receiving international shipments of technical components. In the past, providers of high-performance technologies have described trying to make those work using Brazil’s older infrastructure as driving a Ferrari on a dirt road—no matter how fast your system is, it will slow to a crawl without a highway modern enough to accommodate it.

According to Brazilian central bank figures, foreign investment in IT services in the country is dwarfed by extractive industries like oil and gas mining. 

An April report from the US bank arm of Spanish financial group Santander highlights Brazil’s attractiveness to foreign investors because of its “diversified economy that is less vulnerable to international crises, and a strategic geographic position that allows easy access to other South American countries.” However, the report also warns that investing in Brazil can prove risky because of “cumbersome and complex taxation, bureaucratic delays and heavy and rigid labor legislation.” To combat these factors, the country has introduced electronic certificates of origin to simplify and speed up imports, and has shortened the number of delays to create a Brazil-domiciled company from 79.5 days to 30 days.

So when low-latency financial network provider Avelacom began a push into Latin America last year, driven by demand for access to Brazilian exchange B3 from traders in North America and Europe, and found itself impacted by many of these factors, the vendor decided to take a different approach. First, it gave up trying to do everything itself and enlisted a local partner, Brazilian financial IT infrastructure designer and operator ITDN, which had previously been involved in developing Oracle’s Corente Cloud Services Exchange, deploying Brazil’s national fiber-optic backbone, and conducting projects for RTM, a Brazilian IT integrator and DMA platform operator that is part-owned by B3.

After ITDN helped the vendor deploy what it says is the lowest-latency route between B3 and North American markets last year, “We decided it would be better to just buy them,” says Avelacom CEO Aleksey Larichev. “They have really good local expertise and relationships with vendors and the financial community. We could have done this on our own, but it would have taken a lot of time to accomplish.”

After beginning negotiations around the start of Q4 last year, the vendors reached a formal agreement in January and closed the deal in March for an undisclosed sum. ITDN’s 12 staff will become Avelacom employees, and the local business will be rebranded Avelacom LatAm.

ITDN’s expertise will be crucial not only in building connectivity and local managed services for foreign trading clients seeking access to B3, but also to expanding Avelacom’s client base within Brazil and more broadly across South and Central America.

“First, we want to develop the financial infrastructure inside Sao Paulo and pick up local clients there. But step two will be to set up in Chile, Colombia, Mexico and Argentina—and the Brazilian team will be the driving force behind that,” starting with setting up points of presence in Santiago, Chile and Bogota, Colombia based on client demand, Larichev says. “We see strong demand for access to Brazil and Mexico. Demand for Chile is also picking up, as is demand for Colombia. Obviously some of this demand is coming from the US, but most of this regional demand is coming from Brazilian companies expanding in Latin America.”

So far, it appears that this expansion can be run from Brazil, but if it emerges that the company needs additional local markets expertise to attract regional clients, or requires a local presence, Larichev says Avelacom would consider buying other local specialists.

And while ITDN’s expertise helps those firms with their local needs, Avelacom’s broader product portfolio and general knowledge of capital markets worldwide can help Brazilian firms extend their reach geographically to enter new markets and trade globally, Larichev says. “Local infrastructure providers don’t have that global presence,” he adds.