January 5, 2015 / 3:30 PM / 5 years ago

Attractive valuations seen helping Brazil M&A recovery this year

SAO PAULO, Jan 5 (Reuters) - Mergers and acquisitions in Brazil should gain steam in coming months as a slumping currency and lower asset prices prompted foreign companies and investment funds to spend $33.1 billion on takeovers in Latin America’s largest economy last quarter.

A stagnant economy and a 12.5 percent tumble in Brazil’s currency last year drove down asset prices and narrowed the gap between asking prices and bids, bankers said. That helped spur some robust dealmaking activity on complex deals like spinoffs, de-listings and debt restructurings, a trend that bankers expect again in 2015.

Last year, companies announced $77.07 billion worth of corporate takeovers in Brazil, the largest amount since 2011, a Thomson Reuters report on M&A activity showed on Monday. Some 553 deals were announced last year, down from 633 in 2013.

Credit Suisse Group AG and Itaú BBA, Itaú Unibanco Holding SA’s wholesale and investment banking unit, topped last year’s rankings in terms of value and number of deals, respectively.

Strategic buyers such as SBM Offshore NV raised their exposure to Brazil with a few acquisitions. Private-equity firms such as Advent International Corp also went on the prowl, snapping up targets in sectors from technology to education and consumer goods.

“It was a tough year but the resilience we saw on the M&A front in recent months showed how mature Brazil has become as a destination for M&A,” said Fabio Mourão, Credit Suisse’s investment banking head for Brazil. “Even though 2015 looks challenging, we are excited about the deal flow.”

The fourth quarter’s 63 percent jump in quarterly M&A announcements, as measured against the third quarter, came as President Dilma Rousseff was narrowly re-elected on Oct. 26. Investors remain skeptical over Rousseff’s ability to reverse a four years of economic sluggishness and revive confidence.

While some bankers expect Rousseff to implement more business-friendly policies, others fear that her penchant for intervening in the economy could further hamper investment and capital markets activity.


The retraction in valuations after years of exuberance will allow buyout and sovereign wealth funds to snap up takeover targets for less, said Ricardo Lacerda, chief executive officer of BR Partners Banco do Investimento SA.

The retraction in valuations should also allow industrial and services companies to make more competitive bids, “which is pretty good for our M&A market,” Lacerda added.

Sectors that are likely to see robust M&A activity include telecommunications, where consolidation is underway, and sugar and ethanol, where years of low prices as well as rampant debt-taking could lead to some mergers, bankers said.

A graft scandal involving state-run oil company Petróleo Brasileiro SA and contractors could also lead to some debt restructurings, asset sales and combinations, they added.

Fees for M&A advisory work, however, are unlikely to recover significantly from last year’s tumble, bankers said. Itaú BBA’s Jean-Marc Etlin said last month that Brazil’s share of the region’s total fee pool - which includes M&A as well as stock and bond sales - slipped to a record-low 34 percent last year.

For a table on Thomson Reuters' M&A rankings for Brazil in terms of deal value and number of deals for this year, click on Editing by W Simon

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