Energy accounts for one-third of M&A deals in Brazil this year

From January to mid-September, energy represented around 35% of the total financial volume of M&A advisory transactions in Brazil, which reached roughly R$140 billion, according to data from consultancy Dealogic. That figure includes the R$12 billion acquisition announced last week by Spain’s Iberdrola of a stake in Neoenergia previously held by Previ, the pension fund for employees of Banco do Brasil, one of the largest deals in the sector this year.

Other major transactions include the proposed delisting of Serena by private equity firm Actis and Singapore’s sovereign wealth fund GIC, in a deal worth more than R$15 billion. Another significant deal was Equatorial’s sale of transmission assets to Canadian pension fund CDPQ.

More deals are underway and are expected to boost these figures in the coming months. Engie, for example, has reportedly put a minority stake in its transmission assets up for sale. People with knowledge of the deal also said Energisa is exploring a sale of its transmission lines. Meanwhile, French utility EDF is selling a thermal power plant and looking for a partner in its renewable energy business. Brookfield is close to announcing a deal involving Quantum.

“There’s a lot happening in the energy space,” said Felipe Mattar, managing director at Morgan Stanley in Brazil. “The backdrop is a combination of factors, including the renewal of distribution concessions and future renewals of large hydroelectric contracts. These companies need to recycle assets to make room in their portfolios.” He noted that the upcoming expiration of distribution concessions typically reduces EBITDA, which in turn drives asset turnover.

Energy continues to reshape Brazil’s M&A landscape. Roderick Greenlees, global head of investment banking at Itaú BBA, said the sector has always played a key role in M&A activity and remains central to the country’s largest deals this year. “In transmission, there are groups that win auctions and build the power lines, and then, because these are stable revenue assets, they naturally attract pension funds as buyers,” he said.

However, the trend is not uniform across the sector. The renewable energy segment is facing a supply glut, and many companies are being hit by “curtailment”—a forced reduction or halt in electricity generation imposed by Brazil’s National Electric System Operator (ONS).

Mr. Greenlees said that the only reason energy hasn’t had an even stronger year is that deals involving renewable energy assets are on hold. The main obstacle, he said, is the difficulty in pricing assets impacted by curtailment, which is causing losses.

Engie said in a statement that it is currently conducting “a thorough and strategic analysis to define the most interesting lots for participation in the October auction.” The company added that it “does not comment on market rumors.”