Deals account for 35% of M&A activity this year through October, up from 6% in 2021
11/06/2024
With the Brazilian stock market closed to new listings for over three years, a group of companies is resorting to selling minority stakes to raise funds for expansion. As of October this year, minority transactions accounted for 35% of mergers and acquisitions (M&As), compared to 23% in 2023 and 16% in 2022.
In 2020 and 2021, when the market was fully open due to ample liquidity, even for smaller deals, the percentage was 7% and 6%, respectively, according to a study carried out by Seneca Evercore for Valor.
According to experts, some companies are also seeking a preliminary valuation before going public, anticipating a reopening of initial public offerings (IPOs), which is currently projected for 2025. Others aim to improve their capital structure, as was the case with steel maker CSN, which decided to sell a stake in its subsidiary CSN Mineração.
Among the cases in progress, pharmaceutical company Cimed has hired J.P. Morgan to find a buyer for a minority stake, expected to attract private equity funds, according to market sources. Brazilian chocolate brand Trento, owned by Peccin, has appointed UBS BB to facilitate the sale of a stake, as reported by Valor. The companies declined to comment.
Another notable case is Compass, the gas division of sugar and energy company Cosan, which was in line for a public offering and also plans to sell a minority stake. Rubens Ometto, founder and chairman of the conglomerate, told Valor there is investor interest.
The trend is also seen among fintechs. Act Digital is seeking a partner for expansion. Contabilizei sold a stake to Warburg Pincus, and MeuTudo is also looking for an investor with a bank involved in the process, according to sources. Agibank, waiting for a market window for an IPO, is working with Goldman Sachs on a minority sale. The companies declined to comment.
Daniel Wainstein, a partner at Seneca Evercore, noted that the rise in minority transactions is also due to shareholders deciding to sell their companies. However, with asset values down, they are currently opting to sell only a stake. “The current market perspective is that transactions initially considered for full control have shifted to minority stake sales, partially meeting shareholder desires and reserving a 100% sale for a more favorable market moment.”
Anderson Brito, director at UBS BB, said that the bank currently has about 10 transactions involving minority stake sales in its pipeline, including fintechs, consumer sector companies, software companies, data centers, and firms related to energy transition. “We also see companies that could enter the capital markets now needing to scale up. Others need to see a recovery in multiples and are conducting pre-IPO rounds,” he said.
Mr. Brito noted that companies are also seeking funds to continue expansion plans. In other cases, minority stake sales involve funds that have reached the maturity stage of their investments and need to divest.
Private equity funds and foreign groups are traditionally viewed as investors for companies seeking partners to grow their businesses, said Guilherme Monteiro, a capital markets partner at law firm Pinheiro Neto Advogados.
“Without IPOs, private placements, common in the U.S., gain traction in this scenario. Companies strengthen by bringing a significant partner into their shareholder base,” Mr. Monteiro said. With these private placements, he adds, companies tend to be seen as having a more sophisticated capital structure, even for future IPOs.
For Guilherme Bueno Malouf, an M&A partner at Machado Meyer, private equity funds are the most obvious route, as this format allows for primary investment—capital directed to the company. “These resources enable companies to prepare for larger ventures,” Mr. Malouf said.
He noted, however, that private equity funds have reduced these types of transactions due to the ongoing high-interest rates and geopolitical tensions. “In this context, investments become more conservative, with shifts towards fixed income.”
“There’s also a challenging scenario for companies seeking these investments, with the domestic environment still fraught with fiscal uncertainties,” he added.
Ricardo Thomazinho, a partner at Urbano Vitalino Advogados, confirms that such transactions are reaching the firm, often involving funds as buyers since strategic investors mostly prefer acquiring control.
He noted that strategic investors might initially acquire a minority stake but often with a pre-arranged agreement for future control purchase.
Currently, Mr. Thomazinho said, minority stake sales are also being pursued by companies needing to balance their books. “Many companies are seeking solutions after enduring high interest rates for an extended period,” he said.
Maintaining control of these deals is also crucial for business owners. Renato Stuart, a partner at RGS, said that when a company goes public, one of the goals is to retain control. “That’s why, when they opt against an IPO, they generally prefer selling to a minority fund,” he said.
*By Fernanda Guimarães, Mônica Scaramuzzo — São Paulo
Source: Valor International