(Column from Broadcast - Estadão)For investment banks, deals will materialize when stock market prices improve.

The merger between Arezzo and Grupo Soma moved forward because both companies are publicly listed, providing a price reference.
As buyers and sellers fail to agree on price discussions, investment banks witness yet another year of few mergers and acquisitions, especially among large companies. The consensus on Faria Lima, Brazil's main financial hub, is that major transactions are in hibernation, awaiting a better stock market scenario.
"The price gap between what buyers and sellers want has widened, causing transactions to be postponed," says Victor Rosa, the head of Canadian investment bank Scotiabank in Brazil. According to him, many sellers still perceive their companies as being at 2021 price levels when interest rates were at 2%. This is far from today's scenario, with rates exceeding 10%. Consequently, parties fail to find a middle ground.
Rosa notes that several transactions have been dragging on since 2022, especially those involving companies that do not need immediate liquidity, have credit alternatives, and pursue mergers and acquisitions (M&A) for strategic reasons at a price that makes sense. "These are companies in no rush; they aim for a good deal, not just any deal," says Rosa.
Some deals that have stalled in recent months include Suzano's attempt to acquire International Paper, Eneva's pursuit of a merger with Vibra Energia, and Hortifruti's purchase from Americanas. Additionally, some building materials retail chains have failed to sell. Among successful deals, the Soma and Arezzo merger was one of the most recent but had a significant particularity. Both companies are publicly listed, providing a price reference for both parties and primarily involving a stock swap. Another merger facilitated by both companies being listed was Enauta and 3R, a transaction that had been in the works for a long time and involved a small premium, according to a banker.
According to an executive from another major foreign bank, who spoke on condition of anonymity, the volume of transactions being postponed is the highest in at least six years, reminiscent of the political crisis during Dilma Rousseff's impeachment. He mentions that banks have been investing a lot of time in transactions that fail to materialize. "This year feels somewhat lost, even though credit conditions are excellent," he says.
Sellers Still Demand High Prices in Transactions
With the stock market at historically low levels, with few exceptions, company multiples are unattractive. Private companies see these figures and refuse to believe their valuations are so low, comments an M&A lawyer who has witnessed several significant deals falling apart this year. Of the ten deals he is working on, only two have closed. "The seller wants to sell their company at a ten-times multiple, while its comparable in the stock market is trading at five times, and the deal stalls," he summarizes.
Small and medium-sized companies, however, are maintaining a better transaction pace, largely driven by liquidity needs. Even so, the price perception gap between buyers and sellers has shifted sales strategies.
Daniel Wainstein, managing partner at Seneca Evercore and former president of Goldman Sachs in Brazil, notes that some companies planning to sell 100% of their business are now selling minority stakes to address short-term liquidity issues or seize investment opportunities in other companies. In this case, the strategy is to attempt to sell the remaining stake later under better conditions. "Even if the minority stake is sold at a lower price, this can be a solution to acquire another company whose value is significantly depreciated," he explains.
Wainstein agrees that the first half of the year was not strong in terms of deal closures but argues that the coming months are likely to see an increase in transaction announcements. According to the British consultancy TS Lombard, Brazil may have already hit the bottom of its stock market decline after President Lula signaled greater fiscal commitment.
Wainstein also highlights that many transactions do not appear in statistics because they involve negotiations with financially distressed companies. According to him, 20% to 25% of the transactions Seneca Evercore is currently working on involve companies seeking liquidity, while the remainder is split between minority stake sales and control sales.
With Depreciated Prices, Financing is No Longer the Main Issue
Unlike in recent years, the primary challenge in closing a major deal is no longer securing financing. One indicator is that the domestic issuance market is breaking records, signaling available resources. In the first half of the year, a record R$ 206 billion was raised in debentures, a 164% increase compared to the same period in 2023, according to Anbima.
At the same time, M&A statistics show declining volumes compared to 2023, which was already a weak year. TTR Data mapped 747 transactions in Brazil in the first half, a 26% decrease. These deals totaled R$ 102 billion, a 2.6% reduction.
This text was published in Broadcast on 07/26/24, at 4:52 PM.
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