Brazilian companies had a prominent role in mergers and acquisitions this year and are likely to be major consolidators in 2022, investment banks told Valor. Dealogic data shows that M&A activity totaled $87.7 billion up to December 20, surpassing by 26% the amount seen in 2020. In volume, 695 deals were closed, up 24% from 2020 and a record of the last 10 years.
The 571 deals involving Brazilian groups totaled $69.8 billion, while the 135 deals of foreign groups buying Brazilian companies reached $20.8 billion, according to Dealogic.
Data from consultancy Kroll show that the total number of operations totaled about R$ 600 million, with 1,500 transactions, a new record, with a more “multisectoral” profile than in other parts of the world.
“We saw activity in all sectors: retail, food and beverage, industrial, health, education, agribusiness, technology, services, oil and gas, and in techs, which is good for overall performance,” said Alexandre Pierantoni, head of corporate finance in Brazil at Kroll. He highlighted fields such as retail, logistics and healthcare, besides technology companies associated with these sectors.
Contrary to capital market offerings, which are expected to slow down next year due to the strong volatility caused by the presidential elections, M&A activity is likely to remain heated this year.
“Some companies that have given up on going public tend to seek private investors as an alternative,” said Diogo Aragão, head of M&A in Brazil at Bank of America.
Those companies that went public whose shares have devalued sharply this year may become targets of consolidator groups, Mr. Aragão said.
A group of 30 to 40 companies intended to go public between the end of this year and the first quarter of 2022, but postponed their plans due to the worsening of market conditions from September on, said Roderick Greenlees, head of investment banking at Itaú BBA.
“To make their projects viable, companies will look for an alternative, and the M&A path seems the most favorable today,” he said. Even so, the growth rate seen last year is unlikely to be repeated.
Mr. Greenlees recalled that, in the last three years, the capital market was extremely active and tapped by many companies with expansion projects. Thus, it was possible to see the result of capital injection in 2021, a very strong year for M&A, both in terms of number and financial volume. “The more we have listed companies, the greater the M&A activity.”
But there is caution from potential buyers about companies that have given up going public and are looking for a private investor. “There is an understanding that the consolidating groups are not willing to pay any price for the asset,” said Gustavo Miranda, head of investment banking at Santander. “The companies that gave up on IPOs had defined a very high price range for their assets.”
Another consensus is that private equity funds (which buy stakes in companies) are willing to look at assets in Brazil, which are cheap because of the weakened real.
Technology, health and education companies will continue to be acquisition targets, as in recent years. Another sector that will continue to be attractive is renewable energy, with interest from local and foreign companies.
“Renewable energy companies are the new tech companies. Biofuels and recycling companies will also continue to draw buyers,” said Mr. Aragão, with BofA.
This year, the number of M&A deals with volumes over $1 billion drew attention, representing about 6% of the deals, said Daniel Bassan, CEO of UBS BB. “This share was around 2% in the previous three years,” he said. The growth seen in large deals was driven by the capital market, where companies took advantage of IPOs and secondary offerings to make their expansion plans feasible.
For Mr. Bassan, the volatility expected for the coming months is expected to open M&A opportunities in the coming months. This is likely to keep activity strong in this segment given that many companies have been capitalized. “But I don’t see companies very leveraged. They don’t need to do business at any cost,” he said.
“Companies used to tap the market to pay debt and reduce leverage. Now most of them have focused on growth,” he said. Next year, with the proximity of the election and a more challenging macroeconomic backdrop, investors – whether financial or strategic – are likely to look at more advantageous deals. “Private equity firms, which have made many divestments, are now likely to start investing again. It will be a year of great opportunity for this class of investor,” he said.
Eduardo Miras, head of investment banking in Brazil at Citi, also sees venture capital funds looking for business opportunities, as well as unicorns (startups valued at over $1 billion). The executive, however, declined to offer any forecast for the number of M&A deals in 2022.
For Mr. Greenlees, the expectation is that the number of deals will remain close to stability, but that the financial volume will fall. “There is a substantial number of deals in the pipeline, due to the worsening of the capital market, but I believe that the size of the operations will be a little smaller.”
Source: Valor international