The more adverse international scenario, political and economic turmoil in Brazil and high interest rates to contain inflation slowed down business between companies in the first half of the year. Operations such as mergers and acquisitions, venture capital, private equity and asset acquisition had been growing since 2017 and gained speed in 2021, but stopped growing this year. Even so, the volume remained high: there were 1,610 transactions from January to June, a drop of only 1% compared to the same period in 2021.
“What has changed since then is the scenario of lower global liquidity. There is less money circulating because of the fight against inflation”, says the director of corporate finance at Kroll consultancy, Alexandre Pierantoni. The United States and Europe have historical inflation records. “The volume of operations was affected worldwide.”
A number of factors contributed to this scenario: it started with the Covid-19 pandemic and was negatively impacted by the war provoked by the Russian invasion of Ukraine and the breakdowns in global supply chains.
The executive assesses that expectations are that the scenario will improve from the turn of the year, when there are definitions in the political sphere and it is clearer how the conduct of economic policy and the behavior of the interest rate will be. “Brazil is extremely attractive for strategic investors.”
Current market projections indicate that the basic rate (Selic) will end 2023 at 10.75% per year, according to the Central Bank’s Focus report. Currently, the rate is at 13.25% per year and a 0.5 percentage point increase is expected at the next meeting of the Monetary Policy Committee (Copom), which started this Tuesday (2) and ends the following day. .
“What the investor, whether strategic or financial, is looking for when carrying out a corporate transaction is predictability and stability”, he says.
Another factor that favors transactions in Brazil, according to Pierantoni, are its almost continental dimensions and the scope of its economy. “It is the backbone of many businesses, especially with regard to agribusiness.”
It is a completely different situation than the second largest economy in South America, Argentina. There, transactions are mainly concentrated in the oil and gas sector. And, despite the fact that the Brazilian economy is four times bigger than Argentina’s, the volume of corporate transactions in Brazil was ten times greater than in the neighboring country in the first half of the year, according to a study by TTR.
Fusions and acquisitions
Merger and acquisition operations fell by 2.3% in the first half of the year, compared to the same period in 2021. According to Kroll, 735 transactions were recorded. In June alone, there were 94 operations, the fourth consecutive month of decline.
The most active sectors continue to be associated, directly or indirectly, with technology, financial services (where technology is also strongly present), services (B2B and B2C), logistics, energy and consumer products. Also noteworthy are the education and health sectors, which continue to show a consolidation movement.
The consultancy points out that, looking to 2023, the data show that national investors will continue – along with foreigners who already know Brazil – active in mergers and acquisitions processes. “New entrants will wait for a clearer scenario to define a long-term investment strategy”, says Kroll.
IPOs and follow-ons
The situation is much less encouraging in the stock market. Since April 1st, when it peaked at 121,570 points, until this Tuesday (2nd), the Ibovespa – B3’s main index – has accumulated losses of 17.4%. This performance was reflected in the IPO operations (initial offering of shares). For the first time since 2015, no such operation was recorded in the first half of the year.
Even so-called “follow-ons” (subsequent offerings of shares by companies that are already publicly traded) had fewer operations earlier this year. In all, according to Kroll, there were 11 operations, which moved R$ 13.5 billion, 10.1% of all the movement in the capital market registered last year. The amounts do not include the Eletrobras privatization operation, which would raise the level to 36%. The largest subsequent share offering involved the meatpacking company BRF, with the issuance of BRL 5.4 billion in shares.
“It was something more restricted and selective”, comments Pierantoni. He points out that there was a “change of winds”, both in Brazil and abroad.
“Global uncertainties and less predictability of demand recovery continue to bother investors. Brazil has its internal challenges in yet another year marked by interference and noise created during the presidential election period”, points out a Kroll report.
A slightly better picture was registered among financial investors. After the record of investments in the country in 2021, with the investment of R$ 53.8 billion in venture capital and private equity operations, in the first quarter they remained stable compared to the same period in 2021, reaching R$ 11.5 billion .
Also known as venture capital, venture capital is investment in new companies with great growth potential; therefore, in general, it is more aimed at small and medium-sized companies. Private equity, in turn, is the purchase of participation in more mature and larger companies.
According to Kroll, conservatism and cash preservation have returned to the main agenda of investors, in a context of greater selection of investments with the basic interest rate in Brazil at high levels and without a reduction bias in the medium term.