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Big M&A Deals Are Back, but the Best Is Yet to Come

Writer's picture: Seneca Evercore | NotíciasSeneca Evercore | Notícias

(InfoMoney) The second half of the year marks the return of strategic acquisitions, but negotiation timing suggests higher deal volumes in 2024 By Rikardy Tooge | Sep 18, 2023, 7:01 AM – Updated 2 days ago


The second half of this year reveals a new profile for the mergers and acquisitions (“M&A”) environment in Brazil. While earlier in the year deals were focused on deleveraging, transactions now take on a strategic character, involving higher values and greater foreign participation. This shift is reflected in the packed schedules of financial advisory firms and consultancies specializing in M&As, which foresee even higher volumes at the beginning of 2024.


“I’m very confident about the first half of next year. Conversations resumed between June and July. If the process started during that period, deals will likely close between December and January,” explains Daniel Wainstein, partner at Seneca Evercore. “Considering the life cycle of negotiations, I believe many deals could be initiated this year and finalized in the first half of 2024,” adds Reinaldo Grasson, a partner in Financial Advisory at Deloitte.


From January to August this year, there were 1,300 M&A transactions, totaling BRL 151.2 billion, according to Transactional Track Record (TTR) data compiled by Deloitte. Compared to the same period in 2022, this represents a 27.5% decline in volume and a 38.3% drop in revenue.


Despite the decline, experts emphasize that the return of strategic buyers, particularly international ones, is a key driver for optimism. “International investors don’t buy just because a company is cheap; that’s the logic of distressed deals. Foreign buyers will invest if they see a good opportunity within a favorable macroeconomic context,” says Wainstein of Seneca, which handled $3.8 billion in transactions over the past 12 months, second only to Morgan Stanley. Recently, the firm advised Evertec on the acquisition of Sinqia, a BRL 2.5 billion deal announced in July.


Among international investors, Saudi Arabia recently stood out by purchasing a 13% stake in Vale’s base metals business for $3.4 billion. Additionally, it partnered with Pátria Investimentos to win a highway concession in Paraná, requiring BRL 7.9 billion in investments. However, these deals are not easily secured. “It’s a more time-consuming process with significant persuasion involved. They value procedure and expect you to present the investment to them. So, I don’t see it as a constant flow, but there is interest,” Wainstein continues.


Meanwhile, private equity funds have also gained momentum as the window for initial public offerings (IPOs) has been closed for two years. Recent examples include the Nestlé-Kopenhagen deal, which allowed Advent to exit, the sale of Dori Alimentos to Ferrara, and Mubadala’s acquisition of a 51% stake in Bluefit from Leste.


It’s no coincidence that the year’s major deals began after much of the political and economic uncertainty surrounding the market dissipated. Earlier in the year, a wave of bankruptcy filings, particularly by Americanas and Light, combined with doubts about fiscal policy, kept buyers on the sidelines. Higher-risk funds, such as those focused on special situations, dominated the market during this time.


“M&As don’t stop, whether during prosperity or crisis, but the timing and profile of the deals vary. We saw transactions with limited upfront payments and significant structuring, such as the use of earn-outs,” notes Renata Simon, lawyer and partner at VBSO specializing in M&A. “These weren’t mega deals but rather creative ones. Even tax losses became an upside factor in valuations.”


Examples of opportunistic transactions in the first half of 2023 include Magalu selling Luizaseg to Cardif BNP Paribas for BRL 1 billion, JSL acquiring smaller competitors, InterCement divesting its African operations, and businessman Nelson Tanure taking control of Light. Companies like BRF continue deleveraging efforts, as seen with the slow-paced sale of its pet food unit since the first half of the year. Additionally, the sale of Novonor’s (formerly Odebrecht) stake in Braskem remains on the radar, with Apollo and Adnoc, Unipar, and J&F competing for the deal.


As the year progressed, fiscal framework approval, progress on tax reform, and the start of the interest rate-cutting cycle have improved evaluations. Brazil’s Credit Default Swaps (CDS), or “country risk,” peaked at $310 in October 2022, have been declining since April, and now stand at around $165. “The agendas are set, and the market has absorbed them. There are no new issues causing our clients to halt negotiations,” adds Grasson of Deloitte.

Recent examples include Nestlé’s BRL 4.5 billion acquisition of Kopenhagen to accelerate its retail and premium product strategy. Another was Minerva’s BRL 7.5 billion investment to boost its beef export production, competing against industry leader JBS. Minerva’s purchase of 16 Marfrig plants aligns with its strategic push, while Marfrig shifts focus from commodity beef to processed foods and reducing leverage.


Experts believe sectors like technology, healthcare, and education will benefit most from the current scenario. However, there is a growing focus on more specific niches, such as primary education and medical specialties, explains Alberto de Oliveira Neto, partner at JK Capital. Another driver could be companies planning IPOs making acquisitions to validate their business thesis before going public.


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