Brazil M&A Market 2021

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+1 561-717-9727 / +55 11 97632-9201

 

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In 2021, the global volume of Corporate Transactions reached a new historic record, totaling US$ 5.8 trillion, a growth of 63% when compared to 2020, according to Dealogic. With the current liquidity in the financial markets and the low cost of capital, the Mergers and Acquisitions movement should follow this strong trend observed in recent years, despite persistent inflation and imminent interest rate hikes worldwide.

A survey conducted in Brazil by a local Mergers & Acquisitions Portal indicates 1,880 M&A deals were completed in 2021, representing a 63% growth in the volume of transactions, when compared to the 1,151 registered in 2020. Last year 58% of transactions were up to R$ 50 million (~US$ 9M), and the total amount is estimated as of R$ 715 billion (~US$ 128 Bn), a 105% growth in relation to 2020, considering the preliminary numbers known so far (December 2021). The most active sectors in 2021 in Brazil were (i) Information Technology (IT), (ii) Telecommunications and Media, (iii) Hospitals and Health Clinical Analysis Lab, and (iv) Financial Institution.

We are going through a unique moment in history, with many mergers and acquisitions opportunities arising, due to the economic degradation resulting from the measures implemented by governments during 2020 and 2021, as well as the infrastructure investment agenda in Brazil and the numerous IPOs carried out locally. According to a B3 (Brazilian Stock and Exchange) report (Nov/21), IPOs reached 45 offerings, which raised BRL 65.2 billion (~US$ 11,65 Bn), an increase of 48.5% compared to 2020, with 29 IPOs. If we consider Follow-On operations, it totals 71 IPOs and reach R$ 130.1 billion (~US$ 23,2 Bn).

Many companies are fragile, with a high level of indebtedness, and ended up becoming acquisition targets. As a result of the accelerated transformations imposed by the market itself, companies were impelled to invest heavily in the development and acquisition of new technologies, innovation, new models and ways of working and doing business. In this scenario, market consolidation and transformative transactions play a vital role.

Brazil M&A Market – July 2021

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+1 561-717-9727 / +55 11 97632-9201

 

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The Brazilian Mergers and Acquisitions market is very active, as occur in several other countries at this moment. In Latin America, Brazil concentrates on average 50% of all transactions in the region.

In the first quarter of 2021, M&A operations in Brazil had an increase of 50% compared to the same period in 2020, and volume 104% higher than the average for the quarter for the period from 2015 to 2019.

In 2020, there was a record of 1,038 transactions in Brazil, and 2021 presents an acceleration in business and a strong growth trend in the volume of transactions, with potential for a new record.

Due to Covid-19, which generated many uncertainties, especially in the months of March and April 2020, the resumption of growth in the number of transactions took place from June 2020, in a regular and significant manner. The volume for the 2nd quarter 2021 shows a growth of 23.7% compared to the previous quarter, and the 1st half of 2021 totaled 812 operations in Brazil, a volume 98% higher than in 2020, and investments of R$ 353 billion (+229.8%), with a predominance of Strategic Investors with a 91% increase in volume and 291.3% in investments compared to 2020. Financial investors recorded an increase of 111% in volume and 167.2% in amount.

Among the most active sectors in 2020 and 2021, Information and Communication Technology (IT), Financial Institutions and Hospitals and Clinical Analysis Laboratories stand out. Historically, around half of the transactions in the country are worth up to R$ 50 million reais (about US% 10M), with the IT sector being the most active, accounting for around 50% of all local transactions. The Southeast Region concentrates an average of 60% of the M&A activity, and only 5% of the volume of transactions takes place outside the country.

National Investors, in the accumulated result for the year, were responsible for a growth both in volume, of 113.8%, and in amount, of 249,5%, with 680 operations (+113,8%) compared to 2020, with 83,7% of operations. The investment was in the order of R$ 277,6 billion, equivalent to 78,6% of the total, corresponding to a growth of 249,5 % in relation to the same period of the previous year.

In the first half of 2021, Foreign Investors registered 132 operations, growth of 43,5%, and R$ 75,5 billion in investments, an increase of 173% over 2020, totaling 16,3% of M&A in the country. The most active foreign investors in the country are generally from the United States, followed by France and Spain, with an important participation of the United Kingdom, Germany, and Argentina.

Considering the role of the country as one of the world’s largest agriculture producer, with an important Privatization agenda in place, a huge demand for large Infrastructure projects, flourishing startup and innovation scenario, and a favorable exchange rate, Brasil stands out as a great capital investment destiny for the real economy in the short term.

Note to Investors

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+1 561-717-9727 / +55 11 97632-9201

 

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What are your main considerations when evaluating an investment opportunity? What does an investor look for in terms of return? Despite the particularities, such as preference for certain sectors, strategies or even financial metrics as position size, risk and return, every investor has a ultimate purpose that guides their allocation decisions.

Of course, the goal is to maximize return with the lowest possible risk, but to reach this goal our analysis needs to be based on solid parameters, we must ask ourselves the right questions to ensure that the investment is aligned with our purpose.

Investing in an established company, pondering only its size and market position, no longer guarantees the permanence of the business or the return of investment in a rapidly changing environment. The company’s ability to innovate is increasingly important, whether in its products or services, business model, its use of technology or even its ability to aggregate people.

One movement already evident is the search of companies established by new businesses, disruptive, to use a word in vogue but that represents the moment quite well. The companies constituted in the previous century, under the old paradigm, are concerned with the continuity of their business, and rightly so. We are going through a transition period in an accelerated pace, we have not yet reached the new definitive model, but we know that we can not continue to do the same, expecting an extraordinary return, something new or disruptive.

Not every return can be easily measured in financial terms. Companies that are technology- intensive and adopt new business models, such as startups, are a good example. The IPO of Uber, to cite a more recent case, showed that the company has been burning a lot of cash to be able to remain a protagonist in the market.

A fundamental question to ask when analyzing an investment is whether the company in which we are considering investing is becomes very successful (with exponential growth). Is the business big enough in terms of potential, is it relevant? Are the products, services and/or business model authentic in order to benefit the customers, generating a great impact in the market? The vision, purpose and commitment of the entrepreneur are one of the most important differentials that can make the business a great success and deliver a truly superior return to all stakeholders.

What use can we make of our capital, beyond the ultimate goal of only generating more capital, if not to build a vision and generate positive impact? Do you have a focus on competing or dominating the market? Market domination, in a good sense, requires more than mere differentials, requires an authentic point of view, with a well-defined purpose, and can not be easily replicated by competitors, such as the Blue Ocean Strategy. These are the real reasons that make contemporary investment analysis challenging.

Investing in Emerging Markets – Brazil

Phone:
+1 561-717-9727 / +55 11 97632-9201

 

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A new and exclusive study on the opportunities between Brazil and the U.S. have been released by the Brazilian Trade and Investment Promotion Agency (Apex-Brasil), in partnership with the Brazil-U.S. Business Council and the American Chamber of Commerce in Brasil, entitled “Bilateral Investment Map Brazil / USA”.

The study presents important investment flow data and relies upon information provided by BUREAU OF ECONOMIC ANALYSIS (BEA) and FINANCIAL TIMES (FDI Markets), for the period of 2008 to 2017, covering the immediate moment before 2008 turmoil, through the worse economic historical moment of Brazil in 2015/2016, and a highly political uncertainty period, and capture the post crisis slow recovery attempt afterwards. The complete study may be downloaded at http://www.apexbrasil.com.br/inteligenciaMercado/MapaInvestimentosBilaterais

The United States is the major source of FDI for Brazil. In 2017 US foreign direct investment position reached US$ 68 Billion (3,3% of the local GDP), representing a relevant 15% average annual growth from 2008. Brazil is the 17 th destination of American FDI, ranked 10th US greenfield investment destination, with a total of US$ 63 Bn for the period.

A comprehensive M&A report provided by TTR (Transaction Track Record database) reveals that the United States ranks first for inbound acquisitions in Brazil. There were 108 acquisitions completed by US companies in 2018, totaling almost US$ 8 Billion dollars. The deals concentrate in Information Technology (22 deals), Financial and Insurance (16), Internet (15), Healthcare (15), Distribution and Retail (12), Oil and Gas (10), and in other acquisitions in relevant sectors such as Agriculture, Chemical, Transport, Consultancy and Engineering.

In a report entitled “Latin America’s missing middle of midsize firms and middle-class spending power”, on May 2019, McKinsey presents an important overview about Emerging Markets dynamics, focusing specifically on Brazil, Mexico and Colombia. Please find the full report at https://www.mckinsey.com/featured-insights/americas/latin-americas-missing-middle-of-midsize-firms-and-middle-class-spending-power?cid=eml-web

One of the main drivers of GDP growth in the region has been the expansion of the labor force, as a result of the demographic boom. Brazil is a large consumer market, the 9 th world’s largest economy, with a population of around 210 million people, and although many are still vulnerable, there is a repressed consumer market with high potential.

In Latin America smaller companies employs a large contingency of the population, with an elevated degree of informality and productivity issues to be addressed. The challenge is to improve this environment and offer ways to them to be more competitive and by consequence empowering the labor force with better compensation, boosting domestic demand and developing the consumer market.