Traded volume in the year to date totaled $6.1 billion
06/13/2023
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Daniel Bassan — Foto: Nilani Goettems/Valor
The slowdown in the Brazilian M&A market in 2023 had the worst start to the year since 2020, a period heavily affected by the shock caused by the outbreak of the Covid-19 pandemic. According to data from Dealogic consultancy collected through the end of May, the traded volume in the year to May totaled $6.1 billion, down 73% year over year. In 2020, in the same interval, the figure reached $5.7 billion – also down 67% compared to the same period of 2019.
However, despite a tepid start to the year with few deals, the industry is showing the first signs of recovery. Investment bankers expect activity to improve in the coming months, which could push volumes closer to those of 2022, when this industry saw $50 billion change hands. The recovery could be supported by sales of distressed assets, such as Americanas and Unigel, experts say.
So far this year, there have been few “billion-dollar” deals announced. Yet, recent announcements have begun to have this profile and are already showing some recovery in activity. They include Natura’s sale of Aesop, which in practice is not a Brazilian asset, and the takeover bid of EDP Brasil by its parent company, which decided to take its Brazilian subsidiary private, a process that is still ongoing. Another important transaction was the one between Neoenergia and GIC, Singapore’s sovereign wealth fund, which became a shareholder with a 50% stake for R$1.2 billion.
An important deal announced in May was the sale of Liberty’s Latin American business to the insurance company HDI for nearly R$7 billion. Another recently announced deal that is likely to be included in the year’s list of M&A deals is the investment by the Arab sovereign wealth fund Salic in the meatpacker BRF, which has not been completed yet. Another deal with the potential to be one of the largest of the year is the sale of Coelce, which could reach R$8 billion.
According to specialists, the lower number of M&A deals is due to a number of factors that historically cool the market and corporate events that slowed down the credit market – including Americanas and Light. However, the pipeline of banks hired to lead deals remains unchanged and the decrease in the number of announced transactions reflects a direct effect of the increased volatility: they are taking longer.
Bruno Amaral, a partner and head of M&A at BTG Pactual, said that this weaker start to the year is a direct reflection of the poor timing. This is because, given the current market context, discussions between buyers and sellers are taking longer. According to him, it is normal for M&A talks to take nine to 12 months from the hiring of the financial advisor to the announcement of the transaction. Today, however, that timeframe is between a year and 14 months. “But I don’t see a decrease in the pipeline,” said the executive.
In fact, Mr. Amaral said he is already seeing an acceleration in the pace of negotiations, something that is likely to be reflected in the volume of announcements. “I think we are starting to see a more predictable environment and I see a more favorable environment being created,” he said.
Eduardo Miras, Citi’s head of investment banking, said the beginning of the year reflects a weaker M&A crop, with investors more cautious when making a decision. “Debates are taking longer,” he said. There is also the issue of more expensive financing, something that cannot be ignored, he said. “We see a deepening of the debate within companies, credit is more restrictive, and this generates more caution from companies,” the executive said.
Despite the challenging environment to close a deal, banks have seen the pipeline of mandates grow, although many are not for classic M&A. “The big growth in the pipeline has been for private placements. There is a demand by foreign investors for Brazil, and there is a prevailing view that Brazil is the next place for growth. If that expectation comes true, with GDP growth, we are likely to see capital market issues again, and that is likely to be used for new M&As,” said Daniel Bassan, the CEO of UBS BB.
Fabio Mourão, head of M&A at UBS BB, points out that the volume of M&A was low at the beginning of the year precisely because the profile of transactions has changed in the current market conditions. “We see more transactions as private capital increases to adjust the capital structure, carve-outs of assets, seeking value arbitrage and consolidation,” he said. According to him, it is common for these transactions to take time to mature, which is reflected in a lower number of announcements on the one hand, but an increase in the pipeline on the other.
Pedro Mesquita, head of XP’s investment bank, said that the slowdown at the beginning of the year, which he believes was caused by uncertainty, has already turned the corner, and deals will gain more traction in the second half of the year. “The market was straitjacketed, but we see better months ahead, with some of the activity recovering. The mood is much better,” he said.
*Por Fernanda Guimarães — São Paulo
Source: Valor International