The private-equity unit of Brazilian investment banking powerhouse BTG Pactual (BBTG11.SA) agreed to buy a minority stake in local apparel retailer Leader Participações, the latest buyout in a consumer sector boosted by a thriving middle class.

BTG Pactual Participations and two funds that it controls will pay 558.4 million reais ($281 million) in cash for a 35.9 percent stake in Leader, according to a securities filing on Tuesday. BTG will pour 106.7 million reais of fresh capital into the retailer, giving it an additional 6.4 percent stake.

The purchase is the second that São Paulo-based BTG Pactual, controlled by Brazilian billionaire André Esteves, has unveiled since its $1.99 billion initial public offering in April. On April 30, the bank paid an undisclosed sum to join the controlling bloc of BodyTech, Latin America's biggest fitness chain.

The bank's private-equity arm is stepping up acquisitions of consumer-related companies in Brazil, where the emergence of about 40 million people from poverty over the past decade has sparked a boom in demand for clothing and entertainment services. Further acquisitions to strengthen Leader's market position are possible, a bank executive said on Tuesday.

"We want to drive Leader a step higher in terms of growth," Carlos Fonseca, who heads BTG Pactual's merchant banking unit, said in a conference call. "We have a few ideas but nothing concrete at the moment."

Leader's controlling shareholders gave BTG Pactual an option to acquire common stock that could increase the bank's stake in the company by another 20 percent to 30 percent. The option takes effect 90 days after the BTG-Leader deal closes.

Shares of BTG Pactual closed 0.4 percent higher on Tuesday at 26.91 reais. The shares have shed about 15 percent since their late-April debut.

APPETITE FOR GROWTH

Should BTG Pactual exercise that option, which Fonseca said was likely, the value of the deal could near 1 billion reais.

"We want the company to become a benchmark in the sector ... our appetite for growth is huge," Fonseca said.

BTG Pactual beat out a number of bidders for Leader during the sale process that began last year, a source with direct knowledge of the deal told Reuters. The deal still requires regulatory approval.

Lojas Renner (LREN3.SA), Brazil's biggest listed apparel retailer, tried to buy Leader for 670 million reais in cash in mid-2008. The deal was terminated later that year after local credit markets seized up.

Private-equity firms are flush with cash after raising more than $7 billion for their Brazil investments last year. Three out of four Latin American private equity-led mergers and acquisition deals last year took place in Brazil, industry group LAVCA said in March.

BTG Pactual's buyout unit raised $1.6 billion in July for a private equity fund to expand investment in nonfinancial industries. The fund began life shortly thereafter as Brazil's first cycle of massive private equity investments matured.

Rio de Janeiro-based Banco Modal advised Leader on the transaction.

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