Mergers and acquisitions grow eightfold in Brazil

Finance, retail, energy, and health are the areas attracting foreign investors

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  • Banks expect activity to remain buoyant during the second half of the year, driven by a more optimistic economic outlook, with sectors such as retail and finance/fintechs in the spotlight;
  • Energy and health are also leveraging the market.

As Brazil tries to recover from the pandemic effects on its economy – annual GDP growth of 5% is expected for 2021– Brazilian companies are closing huge deals. The volume of mergers and acquisitions grew eightfold in the first half of 2021 compared to the same period last year, to $56.8 billion, while equity offerings totaled $15.3 billion, an increase of 55%.

Banks expect activity to remain buoyant during the second half of the year, driven by a more optimistic economic outlook, with sectors such as retail and finance/fintechs in the spotlight. Energy and health are also leveraging the market.

READ ALSO: EBANX changes leadership aiming a new funding round in 2021, and later an IPO

In the first half, the $9.58 billion acquisition of Notre Dame Intermédica by healthcare operator Hapvida was the seventh-largest deal in emerging markets, while Petrobras‘ agreement to offset the onerous transfer of the Atapu deepwater oil fields and Sepia, of $6.45 billion, was in thirteenth place.

The privatization of Cedae, the water and sewage concessionaire in the State of Rio de Janeiro, generated around $4 billion, attracting Singapore’s GIC, Canada’s pension fund CPPIB, and the local holding company Itaúsa.

There is a virtuous circle: economic activity is recovering, interest rates remain low, and capital is available.

eduardo miras, Head of Investment Banking at Citi in Brazil.

This year, the largest share offering in Brazil took place on the last day of June, with the sale of Petrobras‘ stake in fuel distributor BR Distribuidora, a deal that generated BRL 11.36 billion.

Raízen (a joint venture between Cosan and Royal Dutch Shell, and one of the largest Brazilian energy companies by revenue), cement company Intercement Brasil, and the network of clinics for cancer treatment Oncoclinicas plan to price multimillion-dollar IPOs in the coming weeks.

These deals are expected to attract foreign investors, who shunned Brazilian stock offerings amid the worsening pandemic and the political turmoil earlier this year.

READ ALSO: Etsy acquires Elo7, a Brazilian online marketplace, for $217 million

“Foreign investors are no longer so concerned about the pandemic because the pace of vaccination has increased in recent weeks,” said Roderick Greenlees, head of investment banking at Itaú BBA, which topped the stock table in the first half. He predicts that share offerings will reach BRL 160 billion this year, a 33% increase over 2020.

Foreign investors spent BRL 65.1 billion buying shares of Brazilian companies in the first half, according to B3, compared to a net outflow of BRL 62.8 billion in the same period last year.

On the other hand, domestic investors became more cautious, with benchmark interest rates rising from 2% in January to 4.25%. Equity funds received BRL 1.7 billion in net resources this year through May, overshadowed by net inflows of BRL 94.1 billion to fixed income funds.

READ ALSO: Buffett-backed Nubank in talks to hire U.S. IPO underwriters

A virtuous business cycle

Strong capital market activity is also increasing the resources available to finance acquisitions, said Bruno Amaral, head of M&A at BTG Pactual, which topped Brazil‘s mergers and acquisitions table in the first half. Sectors hardly affected by the pandemic, such as retail, are now among the most active in terms of deals in recent months. “We are also seeing a lot of deals in the financial area, mainly from fintechs competing with the big banks and in health,” he added.

Warren Buffett‘s Berkshire Hathaway led a $750 million financing round at Nubank, while private equity manager Advent International invested $430 million in payments fintech, EBANX.

(Translated by LABS)

Below, the Brazil league tables for M&A advisory and ECM bookrunning during the first half:

(Financial adviser/ Deals value/ Number of deals)

Banco BTG Pactual/ $20.9 billion / 31 deals.

JPMorgan/ $19.8 billion/ 8 deals.

Itau Unibanco/ $17 billion/ 18 deals.

BR Partners/ $15.2 billion/ 8 deals.

Citi/ $14.5. billion/ 7 deals.

XP Investimentos/ $10 billion/ 5 deals.

Santander/ $8.9 billion/ 13 deals.

Banco Bradesco/ $8.8 billion/ 17 deals.

BofA/ $6.9 billion/ 4 deals.

Rothschild/ $6.7 billion/ 10

Total: $57.2 billion, and 494 deals.

Source – Refinitiv Deals Intelligence.

Below, ECM, Global Equity and Related, Brazil:

(Book Runner/ Proceeds ($ million)/Number of issues)

Itau Unibanco/ $2.6 billion/ 34 issues.

Banco BTG Pactual/ $1.7 billion/ 31.

Morgan Stanley/ $1.4 billion/ 16.

BofA Securities/ $1.3 billion/ 13.

XP Investimentos/ $1.2 billion/ 18.

JPMorgan/ $1.2 billion/ 14.

Santander/ $1 billion/ 15.

Banco Bradesco/ $1 billion/ 17.

Citi/ $914 million/ 11.

Goldman Sachs/ $858 million/ 8.

Total: $15.3 billion, and 46 issues.

Source – Refinitiv Deals Intelligence

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