Volume of mergers and acquisitions grows five times in 2021 first quarter in Brazil

Despite the COVID-19 tragedy and the political crisis, the country's business environment is hotter than in 2020

B3, the Brazilian stock. Photo: REUTERS/Amanda Perobelli/File Photo

01.Apr.2021 17:25 BRT
UPDATED 18:17 BRT

Even with the strong pressure on the real, which depreciated 8% against the dollar in the first quarter, the impact on business was small;
The volume of transactions almost quintupled in the first quarter of the year, to $25.6 billion, according to data from Refinitiv.

According to lawyers and analysts, Brazil may break a record in the volume of mergers and acquisitions this year, despite the effects of the COVID-19 pandemic and the growing political and economic instability.

The volume of transactions almost quintupled in the first quarter of the year, to $25.6 billion, according to data from Refinitiv. The biggest transaction so far was Hapvida‘s purchase of Notre Dame Intermédica for about $9 billion, proposed in January.

Since last month, markets have been unstable when President Jair Bolsonaro decided to replace Petrobras‘ president and waved the possibility of abandoning commitments to liberal policies. The bad economic news occurred simultaneously with the increase in the number of deaths due to COVID-19, which triggered new measures to restrict circulation, reducing economic growth projections to 2021.

Even with the strong pressure on the real, which depreciated 8% against the dollar in the first quarter, the impact on business was small. “Mergers and acquisitions are traditionally more resilient to short-term volatility than stock offers; I still expect business growth this year,” says the head of investment banking at Itaú BBA, Roderick Greenlees.

Ricardo Lacerda, the founder of investment bank BR Partners, says that even with volatility, the year 2021 may record mergers and acquisitions. “But it is evident that the high economic and political volatility causes huge concern about the scenario for the rest of the year,” he said.

Health, retail, infrastructure, energy, and education must have the largest number of businesses. Bruno Amaral, who heads BTG Pactual‘s mergers and acquisitions area, also expects more business between fintechs, increasing rounds of investment and potential unicorn IPOs, as companies that reach a value above $1 billion are known.

Brazil is also expected to see its first deals involving SPACs, as more North American companies set up for acquisitions are looking for new assets in Latin America. A first sign was the beginning of negotiations between Procaps, a Colombian softgel manufacturer, used as an excipient by the pharmaceutical industry, and a SPAC to become a Nasdaq listed company, reported by Reuters last month.

Cooling down of IPOs?

Market volatility has led some companies to postpone IPO plans, such as the retailer Kalunga and the real state developer CFL. The first quarter of the year had 23 stock offers, according to Refinitiv. Still, the total dollar value fell 26%, partly because of the currency devaluation and partly because investors in Brazilian assets started to accept smaller offers.

“Today we have offers ranging between 600 million reais and 10 billion”, says Fabio Nazari, head of the Equity Capital Markets area at BTG Pactual. Even in the midst of market turmoil, Nazari expects up to 80 offers this year, up from 61 in 2020.

Investors are a little more selective in sectors with many offers, such as construction companies, but there are still many large companies with good listing potential, says lawyer Tobias Stimberg, of the Milbank office.

Translated by LABS