Recovery will guide mergers and acquisitions of companies in Brazil in 2018

Recovery will guide mergers and acquisitions of companies in Brazil in 2018.

The recovery of the Brazilian economy and falling interest rates are likely to change the nature of merger and acquisition activity in the country in 2018, from sales pressured by scandals to transactions driven by investor bets on resumption of economic growth, say investment banking executives and lawyers specializing in the field.

Conglomerates under pressure from corruption and high debt scandals were forced to sell significant assets last year, which helped increase the value of mergers and acquisitions in Brazil in 2017 to $ 61.77 billion, up 33 percent from 2016 The average value of transactions increased as the number of transactions fell from 615 to 544. Investment bank executives expect a similar volume of operations in Brazil this year, but with the encouragement of these new motives, as the Brazilian economy positions itself to grow at the fastest pace in at least five years. “

I believe that 2018 will continue to have a large volume of mergers and acquisitions in the areas of infrastructure and energy, but the resumption of the economy should also stimulate business with companies related to consumption and retail,” says Roderick Greenlees, head of investment banking of Itaú BBA, which led the ranking of operations in 2017 verified by Thomson Reuters in number of transactions.

Some of the first agreements of 2018 highlight the new type of buyer interest in the country. China’s Didi Chuxing last week announced the purchase of control of the urban transport application operator 99 as part of an expansion in Latin America. Boeing is also negotiating with Embraer, looking at the regional jets and military cargo ship of the Brazilian manufacturer.

Last year, some of the biggest deals were sales made by conglomerate J & F Investimentos, which paid the highest leniency fine in history for its role in corruption scandals, such as that triggered by the Lava Jato operation. J & F sold Vigor Alimentos to Mexican company Grupo Lala in August and pulp maker Eldorado Brasil to Paper Excellence in September.

Although operations related to corruption scandals are declining, some large Brazilian groups still need to sell assets to reduce their high indebtedness, explains Leandro Miranda, managing director of Bradesco BBI, the leader of the 2017 ranking in transaction values. Falling interest rates this year may also favor financial buyers, such as private equity funds, in relation to strategic investors.

Low interest rates may also facilitate financing of merger and acquisition agreements, Miranda added. Although the volatility generated by the October presidential election may weigh on capital markets activity, Greenlees of Itaú BBA does not expect a significant impact on mergers and acquisitions.

Despite that, he said investors will note the federal government’s efforts to approve the pension reform to help address the fiscal deficit. “In this sense, the approval of the pension reform is more important than the election for long-term investors, who are buyers in merger and acquisition processes,” he says.

The Ibovespa rally this week to a new record also drove the value of companies to levels that could stimulate more moves similar to the larger business closed in 2017. In that transaction, Vale migrated to a structure of only common shares, entering the Novo Mercado segment of B3. The transaction included the merger of holding company Valepar into Vale.

The miner is also taking gradual steps towards ending the shareholders’ agreement and transforming it into a sprawling capital company. The improvement in corporate governance and the isolation of the company from government influence helped Vale’s action to accumulate a 64% increase last year. “

I believe that more companies mirror the example of Vale’s operation, which succeeded in changing the paradigm of governance among the largest Brazilian companies. We can see other companies that today are penalized by the market wanting to do the same, “said Alessandro Zema, head of the Morgan Stanley Investment Bank in Brazil.

Source: FORBES