Companies that went public last year started talks with financial advisors to seek capital injections or even merge with rivals, sources say. Of the 45 companies that went public in 2021, only nine are traded above the IPO price – the remainder saw stocks fall, and most of it perform well below Brazil’s benchmark stock index Ibovespa, a survey of Valor Data shows.

“There was a very strong correction [of stock prices]. When this happens, you bring to some companies a renewed focus on value creation through M&A [merger and acquisition],” a source in the financial market said. “Secondary offerings end up leaving the conversation because the market is closed to them, and especially because it punishes controlling shareholders due to the dilution.”

Given this scenario, the natural way is to talk to rival companies, see potential synergies and try and explore this route, the source said. At least 14 of the 45 companies that went public last year are in talks to find an investor, get a convertible loan or merge their businesses.

However, even for the companies that are willing to negotiate the entry of a partner, contribution and even merger, the equation is not simple. Talks have stalled on the pricing of assets, sources say.

Technology and education companies are among those moving in this direction, people familiar with the matter said.

Furniture and decoration e-commerce companies Mobly and Westwing are among groups that have already tried to get closer. However, the talks have not progressed, two sources familiar with the matter said. One source said that Mobly is open to investors and may negotiate a controlling stake. Mobly dropped 86.5% since the IPO, while Westwing is down 82%. In a note, Mobly CEO and founder Victor Noda said he does not comment on market rumors, but affirmed that the company is well capitalized and following the investment plans aligned with investors.

Companies in this industry are going through restructuring. Etna, owned by the Kaufman family (which also controls Vivara), announced it is gradually closing stores – the company unsuccessfully tried to find an investor in the last years. Competitor Tok&Stok is also looking for an investor for the business and has been talking to competitors, sources say. At the beginning of last year, it gave up going public due to market uncertainties.

In the education industry, rivals are also in talks. After raising R$1.2 billion on the stock exchange in February 2021, higher education company Cruzeiro do Sul began talks with Ribeirão Preto-based Moura Lacerda to take over the operation. The talks, however, fell apart – the company announced in a notice of material fact in March that it had given up on the deal.

The education company is down 72.7% since the IPO. The group is in talks with competitors like Ânima Educação, which is also publicly traded, sources say. Ânima wants to focus on medical courses, which have a higher ticket, and is not interested in merging with Cruzeiro do Sul, a source familiar with the matter says.

As a result, the company, owner of Positivo and Braz Cubas colleges, seeks synergies with other groups focused on distance education, and Yduqs is cited as a potential target to a merger. “In this industry, everybody is talking to everybody,” said a financial advisor who asked not to be named.

The consolidation movement involving companies that went public in 2021 began last year. In October, BTG Pactual’s Pan bank bought technology company Mosaico, owner of Bondfaro, Buscapé and Zoom brands. Two months later, it was Eneva’s turn to acquire Focus Energia. The power company shares ceased to be traded in March, a little more than a year after it debuted on the stock exchange. In January, XP bought Banco Modal – the deal involved an exchange of shares. At the time of the IPO, in April 2021, the share had been priced at R$20. On the day of the announcement of the acquisition, January 7, the share had reached its historical minimum: R$8.35.

Technology-related companies are among the most affected in the local stock market and abroad. Loyalty program company Dotz, which went public almost a year ago, saw stocks drop 80%. The company is open to merging with a competitor, a source said. CEO Roberto Chade denies. “We are always looking at opportunities, but no conversation has reached page 2.”

According to Mr. Chade, Dotz recently bought credit fintech Noverde and is likely to close the acquisition of another “tech company” complementary to the business “soon.” Since last year, Chinese giant Ant, the financial arm of Alibaba, has been a minority shareholder in Dotz.

As for GetNinjas, a digital platform that connects professionals from several fields to customers, market capitalization of R$185 million is lower than what the company holds in cash (about R$290 million). Sources say that the company does not rule out conversations with competitors, but is struggling. A source close to the company says that talks with rivals for partnerships are a natural move, but there is no negotiation in this direction.

A few weeks ago, Infracommerce, an e-commerce services company, knocked on the door of large private-equity firms seeking funds to finance its cash flow, Valor reported in April. The company, whose shares have dropped 73.25% since the IPO, may also raise funds through bonds, then convert them into stocks in the future.

In the healthcare industry, consolidation also continues steadily, but this movement has been even more intense in recent years. And despite having falling 45.75% since the IPO, Minas Gerais-based Mater Dei’s expansion plan is moving forward – the company has made six acquisitions since the IPO, including hospitals and an information technology company.

Oncoclínicas, which has Goldman Sachs as its main shareholder, had plans to use the proceeds from last year’s IPO for expansion. According to a financial advisor, however, this healthcare business is very specialized, so it makes sense, as stocks have plummeted, to be part of a larger group.

When they went public last year, companies did not expect such high interest rates – which resulted in increased financial expenses. The high inflation environment and economic policy uncertainties also contribute to the higher volatility of the stock market.

Daniel Wainstein, a partner and CEO of Seneca Evercore, sees many similarities between the IPO drive of 2021 and the 2006-2007 boom, when real estate developers and medium-sized banks went public.

“There is a widespread belief that the public stock market is the most favorable environment for companies to raise capital,” he said. Mr. Wainstein recalled, however, that many companies that went public did not have a distinguished history or sufficient size to trade on the stock market.

Of the 19 real estate companies that went public between 2006 and 2007, the vast majority are valued below their net worth. Of the 10 IPOs of medium-sized banks, six went private, three remain listed and one went through liquidation, according to a survey by Seneca Evercore based on public data on the stock exchange.

With the shares of most companies devalued, it is very difficult to price assets for a private transaction, according to the banker.

“Pricing assets becomes more difficult in an environment where the exchange rate ranges between R$4.6 and R$5.7, the Selic [Brazil’s benchmark interest rate] goes to 12.75% from 2% in a matter of months and stock prices vary 10% or 15% in a single day,” said Fábio Medeiros, head of investment bank at Morgan Stanley in Brazil.

For him, this macro volatility, driven by the Russia-Ukraine war, also disturbs those in the micro level. “It brings insecurity to businesses when making decisions,” he said.

“Nobody likes to price a transaction at a time of great uncertainty,” said Ricardo Lacerda, a partner and CEO of BR Partners. The investment bank also listed on the stock exchange last year and its units are down 1.75% since then.

Mr. Lacerda notes that the window for offering shares remains closed. “Larger companies have found some windows [for secondary offerings], but it will depend on how far interest rate hikes go.”

M&A also slowed this year through May 10. Dealogic’s data show that total transactions in value totaled $20.7 billion, down 43% year over year.

Ânima, Cruzeiro do Sul, Goldman Sachs, Oncoclínicas, Yduqs and Westwing declined to comment. Etna’s spokesperson could not be reached for comment. Infracommerce did not immediately reply to a request for comment.

In a statement, Tok&Stok said it does not comment on market rumors regarding the consolidation move. “The company confirms that it has continued its expansion and development plans, independently of the IPO process it had been conducting.”

In a statement, Mater Dei said it has been following the thesis presented since the IPO – of regional hub definitions in key areas, through organic and inorganic growth. Regarding the performance of the shares, the company understands that “it is much more a matter of conjuncture reflexes and that its plan is medium and long term, (…) and has delivered with efficient and self-sustained growth to generate value to its entire ecosystem”.

Source: Valor International

https://valorinternational.globo.com