Mergers and acquisitions register growth in Brazil

Financial exits gain ground in the country, but companies reconsider IPO options

WeWork cancels IPO on the stock market
Financial exits are on the rise, but Brazilian companies reconsider IPO options. Photo: Shutterstock

Mergers and acquisitions among Brazilian companies are growing at a fast pace. If in 2019, 1,231 transactions were recorded and the country hit its largest number since 1999 – now, a survey from consultancy firm PwC Brazil showed that January has also registered a new record for such transactions: it was the highest number ever achieved in this month, considering that PwC ‘s historical series started in 1992.

The survey, reported by Brazilian newspaper Valor, disclosed that 89 transactions were made in January, up from 53 in the same period of 2019. The reason behind such good numbers, according to Leonardo Dell’Oso, partner at PwC, is the optimism over the economic recovery, that has been contributing to the boost in mergers and acquisitions in the country. “We saw an expressive growth from 2018 to 2019 in the number of mergers and acquisitions and the expectation is that we will hit a record in 2020, going over 1,000 transactions, which would be quite emblematic,” the expert stressed to Valor.

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With a 94% growth, the major part of the total of transactions, 64, came from national investment. “Foreign investors are more hesitant. Brazil has already gone through several twists and crises, which leaves them wary. They prefer to invest after the reforms’ approval,” Leonardo pointed out. While the national deals drew 76% of the total acquisitions and minority purchases announced, the number of operations led by foreigners increased by 25%, reaching 20 deals.

But for PwC’s executive, this is showing signs of change. Local businesses are dragging the attention of foreign investors, as his team has been increasingly required diligence work from foreigners. Intentions of acquisition by these investors, however, still involves some caution.

As for the sector boosting these financial exits, information technology leads the survey accounting for 26% of the total deals in January, with 23 transactions registered, up to 64% year over year. “There is a range of service companies, producers and industries that are seeking to improve their processes, equipment, speed up production and are acquiring this kind of company,” he explained.

Financial exits on the rise; IPOs delayed

Amid a context of distrust in IPOs among investors, due to recent underperforming offerings or dropouts – such as Uber‘s and WeWork‘s – companies in Brazil are evaluating their options when it comes to financial exits.

According to Valor, more than 20 Brazilian firms that were planning on going public by the beginning of April, are reconsidering the schedule. In addition, at least 20 others that were previously counting on an IPO in the next seven months, are now studying other options such as trading with private equity funds.

“Many of them chose the direct listing process, instead of finding a partner, as the public market offered a higher price. Some were even anticipating offers for 2021 just to take advantage of this good price, and now that can change ”, the newspaper learned from an investment banker.

Essa jogada dupla, conhecida como “dual track”, foi usual nos anos de 2017 e 2018, mas quase desapareceu no ano passado, com a bolsa decolando. É um bom momento para os fundos de private equity que já estão capitalizados irem às compras – mas é mais difícil para aqueles que ainda estão em fase de levantar recursos ou de fazer desinvestimentos. “

For André Castellini, partner at the consultancy firm Bain&Company, funds that are more capitalized should have less competition in acquisitions, due to devaluation in stocks; while investment firms that are still raising capital are more likely to have a harder time attracting investors.

In Latin America, Brazil takes the lead by far when the subject is financial exits. In addition to recent good numbers of mergers and acquisitions, IPOs in the country increased by 66%, from 3 offerings in 2018 to 5 in the last year.

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