* Credit Suisse, BTG top rankings in value, number of deals
* Buyout funds seen spurring merger transactions in 2013
* Bankers expect limited impact of state meddling on M&A
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO, Jan 3 Concerns about a flagging
economy and a state cap on investment returns in certain sectors
dragged merger and acquisition activity in Brazil down to a
three-year low last year, but bankers have expressed confidence
that a revival is brewing.
Companies announced $71.036 billion worth of deals in the
country last year, down 11.9 percent from 2011, according to
Thomson Reuters' annual deal-making report. The number is the
lowest since $68.40 billion in M&A deals were announced in 2009
-- when financial markets were reeling from the worst crisis in
The downturn in M&A activity is global: the number of deals
worldwide slumped 9.8 percent last year, according to Thomson
Reuters data. Europe's debt crisis, a sluggish economic recovery
in the United States and a slowdown in China have investors and
dealmakers retrenching around the globe.
For most of last year, President Dilma Rousseff put pressure
on banks, telecommunications companies and power utilities to
lower rates for consumers, sparking fears that she was imposing
caps on financial returns in those sectors. Those worries should
fade as economic growth gains momentum this year, bankers say.
Buyout firms' appetite for targets in the consumer sector
and the need for scale in a vastly fragmented market will
encourage Brazilian corporate takeovers this year, said José
Olympio Pereira, chief executive of Credit Suisse Group's
Brazilian unit. In 2012 Credit Suisse topped Thomson
Reuters' Brazil M&A rankings for the first time in three years.
"Part of the reason why we saw all this pressure was because
the economy looked stagnated, but once growth takes off, all
that regulatory noise will hopefully be reversed," he said.
"It's hard to gauge to what extent all this noise impacted
long-term M&A plans -- we hope it didn't."
The situation highlights the risks of strong policy activism
in Latin America's largest country as Rousseff uses regulatory
powers to pressure companies to invest more. Capital spending as
a percentage of gross domestic product fell in 2012 to the
lowest level in almost three years, a trend the government is
struggling to reverse.
Economists do not expect a robust recovery. According to a
weekly central bank survey released on Monday, gross domestic
product should expand 3.3 percent this year. That is down from
estimates a couple of months ago that the economy would grow as
much as 4.5 percent.
As the value of M&A activity in Brazil fell last year, the
number of deals fell slightly to 809, the Thomson Reuters report
showed. Some bankers saw that as the prelude to a recovery.
"How do I read all this? That there is long-term commitment
from investors ... which should ensure that M&A in Brazil
continues to do well next year and for the years to come," said
Patricia Moraes, head of investment banking for JPMorgan Chase &
Co's Brazilian unit.
Moraes, a 17-year JPMorgan veteran, said UnitedHealth Group
Inc's $4.9 billion acquisition of Amil Participações SA
proves "the world is seeing opportunities in Brazil
with special attention." JPMorgan advised UnitedHealth in what
Moraes called a "complex one-shop type of transaction" -- the
largest purchase of a Brazilian company by a U.S. rival.
Another sign of potential recovery: for the first time ever,
Brazil's 10 biggest M&A deals this year were
"multibillion-dollar deals -- that puts our market at a
different level and acts as a precedent for what we expect will
be a strong pipeline of deals in 2013," said Hans Lin, co-head
of investment banking at Bank of America Merrill Lynch.
INFRASTRUCTURE, CONSUMER SECTORS ATTRACTIVE
Activity will gain steam, with infrastructure and
consumer-related sectors luring much of the attention from
potential buyers, said Jean-Marc Etlin, managing director for
investment banking at Itau BBA, wholesale banking unit of local
giant Itau Unibanco Holding SA.
"I see three pillars acting in the market: the strategic
rationale leading to consolidation in some key sectors; the role
of private equity funds that are cash-rich right now; and
cross-border activity, with more Brazilian companies looking out
for potential targets abroad," Etlin said.
With interest rates expected to remain near all-time lows
well into 2013, M&A deals will become more appealing for buyout
firms, bankers noted.
Foreign and local banks are betting on financial advisory as
a stable source of revenue in Brazil even if fees go a little
south, Etlin added. Some bankers said fees in Brazil probably
fell last year from the estimated $800 million reported in 2011.
For the first time in three years, Brazilian banks failed to
best their foreign rivals at funding deals. In 2012, Credit
Suisse overtook BTG Pactual Group as Brazil's top
M&A advisory firm in terms of value.
Three local banks were among the Top 10 M&A advisory firms
in Brazil, down from four at the end of 2011, the report showed.
Credit Suisse advised on $ 28.41 billion worth of M&A
transactions through Dec. 31, followed by Itau BBA's $21.08
billion, the Thomson Reuters rankings showed. Other foreign
banks such as Rothschild & Co, JPMorgan and Citigroup Inc
rose in the rankings, mainly because of their role advising
private equity and sovereign wealth funds on cross-border
Credit Suisse advised Bunge Ltd on the $750 million
sale of a fertilizer unit to Yara International ASA
earlier this month and, jointly with Goldman Sachs, prepared
Amil for its sale to UnitedHealth Group.
BTG Pactual, the Brazilian investment bank owned by
billionaire financier André Esteves, topped the ranking in
number of deals advised with 72, followed by Itau BBA's 70.
Bank of America's Lin and his colleague Roberto Barbutti,
the area's other co-head, expect M&A activity to recover as
buyout firms, which raised $6.3 billion last year for Brazilian
investments, resume purchases in the retail, telecom, heavy and
civil construction and consumer goods sectors.
Buyout firms have "helped unlock situations where there was
no price convergence" between bidders and targets, Lin said,
adding that a "trend in which private equity firms continue to
look for deals in unregulated sectors" is poised to continue.
Media reports say local steelmaker CSN is
considering a bid for ThyssenKrupp's money-losing
SteelAmericas unit. Vivendi, Europe's largest media
company, may sell its Brazilian unit GVT to raise cash, sources
told Reuters recently.
Strategic buyers, especially deep-pocketed local players in
the mining, banking and consumer goods industries, are on the
lookout for takeover targets in a country where more than 40
million people joined the middle class in the past decade, Itau
BBA's Etlin said.
The following is a table with year-to-date rankings:
FINANCIAL ADVISER VALUE RANK NUMBER OF MARKET
OF DEALS 2012 2011 2012 DEALS SHARE
Credit Suisse $28.41 bln 1 3 45 40.0 pct
Itau BBA $21.08 bln 2 2 70 29.7 pct
Rothschild & Co $17.47 bln 3 9 20 24.6 pct
JPMorgan Chase $16.92 bln 4 13 13 23.8 pct
BTG Pactual $16.54 bln 5 1 72 23.3 pct
Citigroup GB&M $16.12 bln 6 11 9 22.7 pct
Bank of America $15.09 bln 7 5 12 21.2 pct
Goldman Sachs $14.56 bln 8 4 12 20.5 pct
Bradesco BBI $13.64 bln 9 6 36 19.2 pct
BR Partners $7.33 bln 10 10 13 10.3 pct
TOTAL W ADVISOR $60.03 bln 278 84.5 pct
INDUSTRY TOTAL $71.04 bln 809