Internet and information technology companies accounted for more than half of deals


Mergers and acquisitions in Brazil increased 26.1% in the first half of this year, to 1,104 deals, compared to the first six months of 2021. Internet and information technology companies totaled 590 deals, research by KMPG shows.

The long-time consolidation drive in the technology market remains in place. Totvs announced on Thursday the acquisition of a 60% stake in Feedz, which develops human resources management software, for R$66 million. It is the seventh acquisition in the year and Totvs invested, in total, R$233.1 million this year. The recent agreement includes a clause for the purchase of the remaining 40% stake by 2025.

Semantix, a Brazilian technology company traded on Nasdaq in New York, also announced an acquisition on Thursday, when it bought the startup Zetta Health Analytics. The value of the deal was not revealed. The company offers data consulting services for the healthcare industry and complements the big data platform that Semantix offers its clients.

According to the company, Zetta has processed more than R$42.1 billion in claims and cross-referenced data from 764 databases, and now has 640 clients. Semantix says the acquisition strengthens its big data portfolio, adding services to serve the pharmaceutical industry, insurers, hospitals and other companies in the sector.

According to the KPMG survey, during the first three months of the year, 553 mergers and acquisitions took place, up 47.4% year-over-year. In the second quarter, KPMG found that 461 deals happened, up 7.45%.

Between the first and second quarter, there was a 16.6% drop. “Despite the good perspective for this year, if this deceleration trend [in the third quarter] is maintained, we will be a little further away from surpassing the figure seen in 2021,” said Luís Motta, a partner at KPMG and head of the survey. Last year, there were 1,963 M&A deals, surpassing the previous record in 2019.

Despite the favorable exchange rate for foreign companies, about two-thirds of the 646 deals took place between Brazilian companies in the first half of the year. Foreign capital, either on the buying or selling end, accounted for 36% of the mergers and acquisitions in the first half.

The internet and information technology sectors had the most mergers and acquisitions during the first half of this year, with 410 and 180 deals, respectively. Mr. Motta said that these companies remain active in the market even in situations of macroeconomic uncertainty since attracting investments is part of their growth cycle.

He recalled that the internet and technology industry experienced robust growth in the pandemic, increasing the number of companies in the market.

Technology companies end up being especially affected by rising interest rates as a result of their business models. The many investments to gain scale and expand businesses make them leveraged companies with revenues allocated to the future, which reduces cash flow and makes acquisition by larger groups an alternative.

*By Felipe Laurence — São Paulo

Source: Valor International

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 — Foto: Carol Carquejeiro/Valor
Daniel Wainstein — Foto: Carol Carquejeiro/Valor

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

Gustavo Miranda — Foto: Silvia Zamboni/Valor
Gustavo Miranda — Foto: Silvia Zamboni/Valor

Mergers and acquisitions are down sharply this year in light of the economic instability abroad and in Brazil and the uncertainties caused by Russia’s war against Ukraine. In total, 134 deals were announced this year to April 10, down 14.6% year over year. The slowdown is greater when the combined amount involved is considered: it’s down 57% to $12.2 billion, according to a survey by Dealogic.

The partial data points to uncertainties about the trend for M&As in 2022, when Brazil holds a presidential election. “What we have seen so far shows that the year will be more difficult than the market predicted at the end of last year,” a source familiar with the market said, asking not to be named.

According to the snapshot presented by Dealogic, the market saw a lower participation of foreign groups than in 2021. Only 20%, or $2.4 billion, involved investors from abroad.

Although the flow of foreign capital has increased in the stock market, foreign groups are waiting for a clearer scenario to define where to allocate their funds. With the war, many investors have put plans for acquisitions on the back burner.

Gustavo Miranda, head of investment banking at Santander in Brazil, says that the market volatility has an impact on the price references of the assets traded. “We have a scenario of inflation and monetary tightening here and abroad. Economic uncertainties also affect multiples of listed companies.”

According to the executive, the cost of raising new money has also increased as a result of rising interest rates. This factor influences how companies finance deals.

The business environment at the beginning of this year in the country was more turbulent compared to the same period last year. At that time, although Brazil was still under the strongest effect of the pandemic, the expectation regarding the recovery of the economy was more optimistic than now. In 2021, the country saw record volumes in the capital market, as IPOs and secondary offerings totaled R$130 billion. M&A transactions ended the year at around $90 billion, the highest level in a decade.

At the beginning of last year, key deals were closed – the merger of Intermédica and Hapvida created a new company valued at R$110 billion at the time the deal was unveiled, in early March last year. Another important deal in early 2021 was the spin-off of Itaú Unibanco’s stake in XP, which helped boost the value of the business. “This is not exactly classic M&A, but it was computed by Dealogic in the first quarter,” Mr. Miranda said.

According to another source in the financial market, a good part of the M&A deals, especially in the technology industry, face lower reference prices than those seen last year due to the devaluation of some stocks in the U.S. “There is a substantial correction in the valuation of technology companies,” he said.

This source also points out that the definition of asset prices in mergers and acquisitions also occurs in companies from other sectors in Brazil. With the fall of shares of Brazilian companies listed on the stock exchange, the difference between what the seller asks and what the buyer is willing to pay has increased this year. This factor also helps explain the drop in volumes of deals announced in the first months of this year. Assets linked to commodities (mainly minerals), agriculture and metals, as well as oil and gas companies, are the exceptions.

One of the largest transactions unveiled in 2022 was Rede D’Or’s transaction with healthcare group SulAmérica. The hospital network valued the insurer at R$15 billion. Another important deal underway in the healthcare field is the sale of a stake in Hospital Care, which has Crescera and Abaporu funds, owned by the family of businessman Elie Horn, as shareholders. Bradesco Saúde and private-equity funds are among the interested parties.

Major deals may be closed in the coming months, especially in the power industry. Among them is the sale of Quantum, which gathers Brookfield’s assets in this field, evaluated in R$7 billion. Dommo Energia, resulting from the restructuring of OGX, was also put up for sale, as reported by Pipeline, Valor’s business website.

The sale of the petrochemical company Braskem is also among the most expected by the market. However, the negotiation is considered more complex but may total R$40 billion.

According to Mr. Miranda, with Santander, many private investments, especially from private-equity funds, can be made in companies that failed to go public last year.

If, on the one hand, it is more difficult to draw a scenario for M&A at the beginning of this year, the picture is clearer for the capital market. Given the uncertainties in Brazil and abroad, and the volatility caused by the presidential elections, the market is unlikely to see any IPO in the first half. The projections are more focused on secondary offerings. The market awaits the Eletrobras deal, which may total R$30 billion.

Source: Valor International

Daniel Wainstein — Foto: Divulgação
Daniel Wainstein — Foto: Divulgação

The Russia-Ukraine war has already started to impact M&A operations, according to investment banks and firms consulted by Valor. In these first 20 days of conflict, no deal has been canceled, but there are already discussions about repricing of assets for sale, especially in the segments of oil, gas and agricultural commodities, due to the uncertainties generated in recent weeks.

With the rise in oil prices, the market is trying to understand what the new price level for the raw materials will be. “What is the peak?” — this is the question that needs to be answered to define the prices of assets, notes Gustavo Miranda, head of investment banking at Santander. “We are watching the unfolding [of the war] to start defining the next steps.”

There is also a discussion about how Brazil may be affected by the war. “There is an understanding today that Latin American countries would be less affected because they are far from the battle area and also because they are important commodity producers,” Mr. Miranda said.

“I’m not seeing anyone postponing transactions and the interest in Brazilian assets remains solid,” said Ricardo Lacerda, a partner and CEO of investment bank BR Partners. “But we have already seen price disruption, especially for energy assets. Nobody wants to run the risk of mispricing.”

In late January, when the war was still a geopolitical tension, Petrobras and power company Eneva communicated the closure, without agreement, of the negotiations for the sale of Polo Urucu — belonging to the state-owned company, in the Solimões Basin, in Amazonas. In a statement, Eneva said that, despite the efforts between the parties, it was not possible to converge on an agreement. Petrobras, on the other hand, informed that it decided to terminate the current competitive process and would evaluate the best alternatives for the asset.

The rise in oil prices was determinant for the end of the negotiations. When Eneva started negotiating the purchase of the asset in February last year, the price of a barrel of oil was around $40. At the end of January, the price reached $90. On Monday, the barrel closed at $107 — the peak in the war was at $130 last week.

Russian investors who have been prospecting in the country may have to revise their strategies. In early February, for example, the Russian company Acron announced an agreement with Petrobras to buy a fertilizer unit in Três Lagoas, Mato Grosso do Sul. Market sources are waiting for the outcome of the negotiations.

Russian companies may have greater difficulty in creating liquidity and making payments between international banks, a source said.

Gas assets under negotiation are also likely to undergo price revaluation, according to M&A experts. They were already valued before the war, and deals on renewable energy projects will also continue to draw the interest from investors, particularly foreigners. “We will see a lot of deals in solar and wind power projects, as well as carbon credits,” said Mr. Lacerda.

According to an investment banker, two clients with mandates to sell assets (one energy and the other retail) wished to close the deal in the first half, to avoid greater price and term volatility in the second half, with the elections. Now, with the conflict, both have asked the bank to extend the process, even if it stays until 2023.

For Daniel Wainstein, a partner at Seneca Evercore, it is important to note that the country’s scenario before the war was of demand-based inflation, rising interest rates and low growth prospects. “Now you have more inflationary pressure from supply and the outlook now is for interest rates and inflation rising in Brazil and globally.”

“We are in a moment in which the investor is adopting a wait-and-see approach, without much haste, in expectation in what will happen in the coming weeks,” he said. Seneca closed four deals this year. “The appetite for Brazil has not reduced. With the war, we are holding on.”

The executive says that Brazil is among the countries that will benefit from the conflict. “The B3 in relation to other stock exchanges in the world suffered a low impact because a good part of the companies operate with commodities.”

The war between Russia and Ukraine has a special meaning for Mr. Wainstein. The Seneca Evercore executive’s maternal grandparents were Ukrainian. “My grandfather was a Bolshevik and fought in the Russian revolution. He fled there when Stalin started persecuting the Jews,” he said.

In the capital market, the short term is also uncertain. “The environment is one of volatility here and overseas. We won’t be able to see IPO operations in the short term. It is also challenging for secondary offerings,” said Mr. Miranda, with Santander, noting that the movement in the capital market was already weak because of the election year.

For Bernardo Parnes, a partner at One Partners, the capital market activities are more affected than the pace of acquisitions, especially considering the full year. “The M&A adapts terms, changes price, solves problems with clauses such as MAC or with a guarantee account. But it happens one way or another,” said Mr. Parnes.

Consulted by Valor, Eneva maintains the same position as the one communicated on January 28. Petrobras declined to comment. Acron did not immediately reply to a request for comment.

Source: Valor International

Entenda o que é M&A e como esse processo funciona - Deallink

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

What You Can Learn from Mergers and Acquisitions

Six important deals announced on Monday show how hot the Brazilian M&A market is getting this month, while several additional large transactions are expected to happen by the end of the year.

The sale of chemicals maker Oxiteno by Ultra group to the Asian Indorama Ventures for $1.3 billion, hospitals operator Rede D’Or’s offer for healthcare services provider Alliar and the acquisition of pasta manufacture Santa Amália by food giant Camil reinforce the movement of consolidation and expansion in various sectors of the economy.

Drug and medical products distributor Viveo, which raised R$2 billion in its IPO early this month, also announced the purchase of Profarma Specialty and Cirúrgica Mafra, for R$900 million. And digital services company Bemobi bought the Chilean Tiaxa, specialized in microfinance.

In addition, through its Terras FII fund, Riza Asset purchased agricultural properties from Canadian asset manager Brookfield.

More capitalized, companies that went public this year are looking for opportunities to expand their operations in the country, says Gustavo Miranda at Santander’s investment bank. Diogo Aragão, from the mergers and acquisitions area of Bank of America (BofA), says that many operations that should be announced this year are being anticipated due to the more volatile scenario of 2022, because of the presidential elections and the expected tax reform.

Data from consulting firm Dealogic show that from January to Monday, total transactions reached $61.7 billion, an increase of 250% compared to the same period in 2020. The market expects more important transactions to take place in 2021. Among them the sale of Echoenergia by the private equity firm Actis and of additional assets by Petrobras.

Source: Valor international

Some companies that canceled IPOs this year are now betting on M&A. After failing to raise funds in the stock market to prop up their expansion efforts, they decided to search for private partners. In addition, firms partially owned by private-equity funds are seeking a way out for these partners.

In the year to July 21, companies raised R$100 billion through 54 IPOs and secondary offerings, a survey by Santander shows. Thirty-five companies went public during the period. Market players expect the amount to reach R$150 billion this year. Despite the heated market, 40 companies gave up their offerings, data by the Securities and Exchange Commission of Brazil (CVM) show.

The failed IPOs are driving the M&A activity. In the year to July 21, 286 deals totaled $54.8 billion, compared with 253 deals totaling $11 billion in the same period last year, according to consultancy Dealogic.

Tok & Stok, the furniture and decoration chain that has Carlyle (now SPX Capital) as a partner with a 60% stake, is seeking a private investor, three people familiar with the matter say. The company postponed plans to go public earlier this year as market conditions were not “ideal.” Carlyle, which acquired control of the company for $700 million in 2012, has been looking for some time for an exit door for this investment, sources say.

One of Brazil’s leading decoration companies, Tok & Stok had plans to launch an IPO in 2019, but it did not materialize. Late last year, it filed with the CVM after rivals Madeira Madeira, Mobly and Westwing did so.

However, unlike its competitors, the company founded in 1978 was not prepared for digital sales, sources say. The company, which revamped the management team last year, has been investing in the digital channel and talking to potential investors, a source says. Carlyle does not rule out tapping the capital markets in the future. The fund also invests in the restaurant chain Madero, which is preparing to go public, and toy retailer Ri Happy.

Westwing, a rival of Tok&Stok, raised R$1.1 billion on the stock exchange in February, but fell since then. The stock closed on Friday at R$9.03, down 30.5% since its debut on February 10. The company “is in talks with competitors” to mull alternatives, and sources say Renner and Riachuelo were sounded out, but the talks did not move forward.

LG Informática, which develops technology for HR management, also decided to halt its IPO in April. The company, which intended to raise R$900 million, then hired Rotschild to find a buyer, a source says. In July, the company announced the acquisition of Norber, which will strengthen the company’s technology ecosystem to make it more attractive for a potential buyer.

The search for a private investor is also in the plans of office supplies chain Kalunga, which has given up on going public this year, sources say. The company, which invoiced R$1.8 billion last year, is looking for investors to grow and reduce debt, which totaled R$738 million at the end of 2020. The controlling shareholders do not rule out resuming the plans to go public when market conditions improve.

Eduardo Miras, head of investment banking at Citi, does not see IPOs as “a beginning, nor as an end” of the cycle for a company. Those giving up the IPO can seek private capital and resume plans to go public later. Stock prices often reflect the short-term scenario, he said. “IPO shows you the price, not the value.”

It is a natural path for companies to raise funds in the capital markets, says Diogo Aragão, head of mergers and acquisitions in Brazil at Bank of America (BofA). The transition to M&A after a failed IPO, however, may have a different dynamic, once the asset value has already been tested by the market, he said.

In some cases, private companies may merge with listed ones, a process known as “reverse takeover.”

Mergers and acquisitions are expected to remain firm by the end of the year. “We saw many consumer, retail and health companies launching IPOs, creating a reference value in the market,” Mr. Aragão said.

Gustavo Miranda, head of investment banking at Santander, says failed IPOs make M&As easier because these companies have already gone through due diligence.

This is the case with Cosan’s gas company Compass, which raised R$810 million in a round led by the asset manager Atmos months after giving up launching an IPO. The deal was well received by the market, since Cosan’s company is seen as the front-runner to take over Petrobras’s Gaspetro.

Sought for comment, LG Informatica said “it is analyzing several alternatives for growth.” Tok & Stok said in a note it is committed to improving its logistics structure and offering the best experience for the consumer. “Tok&Stok is moving forward with its expansion and development plans in 2021, regardless the IPO it had been conducting … Our goal is to become a public company in the medium term, as soon as we reach a scenario with greater synergy with our company profile,” CEO Octávio Pereira Lopes said.

Kalunga said it decided to cancel the offering but is still registered as a public company. During this period, the company is adjusting governance and “working to tap the capital markets publicly or privately” while carefully monitoring “funding opportunities in line with its growth plan and business strategy.” Carlyle, Westwing and Renner replied that they would not comment on market rumors.

Source: Valor international

XP will start financing clients in mergers and acquisitions. Guilherme Benchimol’s brokerage, which was authorized to operate as a financial firm, has been making moves to strengthen itself as an investment bank and better compete with already established rivals. The brokerage’s investment banking team gained prominence in recent years in the capital markets, with new IPOs and secondary offerings. With the consolidation of domestic companies because of the pandemic, XP also wants to gain ground in M&A. To lead this business, XP brought Marco Gonçalves at the end of December after buying Riza, a firm specialized in M&A. Mr. Gonçalves’s goal is to make XP a leader in these transactions, overtaking Itaú BBA and BTG Pactual. In recent years, BTG and Itaú BBA have taken turns as Brazil’s number one in transactions.

Source: Valor international

Consolidation should warm the M&A market this year. Felipe Thut, Bradesco BBI’s Managing Director, says these transactions will grow this year, above all, because of the pandemic crisis. For him, the healthcare, retail and financial industries will continue to see the main consolidation moves in the coming months. Last year, M&A operations involved about $40 billion in Brazil, with 340 transactions. Mr. Thut does not yet have an estimate of how the sector should close this year, but predicts the figure to be higher than in 2020. The first-quarter results and the advance of vaccination in the country are also factors that should play in a more vigorous resumption of capital market operations, such IPOs and secondary offerings. “If it were not for the pandemic, the value of transactions last year would have exceeded R$129 billion, with 57 offerings. Bradesco alone has 70 filings. We have today an estimate of R$160 billion, with chances of being much higher.”

Source: Valor international

The Brazilian M&A market could see a remarkable year after record volume of transactions in January. According to a survey conducted by PwC Brasil, 89 deals were announced in the period, compared to 53 a year ago. This is the largest figure since official records began in 1992. The recovery of the economy, even a gradual one, helps drive mergers and acquisitions, says PwC Brazil partner Leonardo Dell’Oso. “We saw significant growth from 2018 to 2019 in the number of mergers and acquisitions and expect a record in 2020 of over 1,000 deals, which would be emblematic.”

Source: Valor Econômico