In April, Hering was acquired by Grupo Soma for 5.1 billion reais. Photo: Disclosure / Hering
With the recovery of the economy after the uncertainties generated by the pandemic of the new coronavirus, the volume of mergers and acquisitions transactions of Brazilian companies is expected to reach an all-time high in 2021. Perspective of stability, contained transactions and anticipation of plans on the eve of an election year are some of the factors that help explain the atypical move, analysts say.
Among the big deals are the purchase of Hering by Grupo Soma, for an amount of 5.1 billion reais, after a dispute with Arezzo, and the merger of Hapvida and NotreDame Intermédica, the two largest operators of health plans. from the country.
In the first seven months of the year alone, there were 1,169 merger and acquisition (M&A) transactions, which generated around 285.5 billion reais – roughly US $ 55 billion – according to one. Track Record (TTR) transactional platform report. The numbers represent a 50% increase over the same period last year.
“The year 2020 has started well, but the economy has been hit – not only in Brazil, but around the world – by the pandemic. The first effect was to reduce the number of transactions, because it was a context in which everyone is more concerned with the short term, with its survival, with the renegotiation of the debt, than with looking at the long term ”, explains Luís Motta, partner at KPMG. .
“But with the pandemic also began – and this is an unprecedented fact – the strategy of many companies to invest in acquisitions in order to operate in the digital world. In the context of the pandemic, we have seen a movement of traditional businesses that needed to maintain their operations, focusing on e-commerce, on logistics, on creating platforms for segments ranging from training to distance to fintechs, ”he adds.
With that, Motta says, companies that had long-term digitization plans looked at projects in order to accelerate projects through the acquisition of tech startups.
According to the TTR survey, the most hectic field this year was technology, with a total of 449 companies, an increase of 98% compared to the same period in 2020. The purchase of the Kabum! by Magazine Luiza for an amount of 3.5 billion reais, including shares, and the acquisition of the Santa Catarina RD station by Totvs, via its subsidiary Bematech, estimated at 1.8 billion reais, were part of these operations.
The M&A boom follows an increase in the number of IPOs of companies that have also felt the need to raise funds. According to the Brazilian Securities Commission (CVM), 34 companies have gone public since the start of the year, up from 28 throughout last year. There are also 15 other public offerings scheduled for 2021.
“Shortly after the onset of the crisis, at the beginning of last year, there was a moment when companies wanted to raise funds to strengthen their balance sheets and resist this difficult situation,” he explains. . “That’s why we’ve seen activity in the stock market, like IPOs and sequels, which has come faster than the M&A market,” says Gustavo Miranda, Head of Investment Banking in Santander.
“Then when you start to have a scenario with more prospect of the economy stabilizing, with interest rates and debt spreads at lower levels, it gives confidence to companies that want to consolidate in their markets. sectors to make acquisitions, because they know that they will be able to raise funds to honor the commitments of these operations, ”says Miranda.
Acquisitions of Brazilian companies by foreigners on the rise again
In the latest KPMG survey, which has analyzed the scenario quarterly for more than two decades, the first three months of the year saw the highest number of M&A deals in the historic series. Between January and March alone, there were 375 transactions, the majority (244) between Brazilian companies.
But the number of foreigners involved in acquiring local businesses has also drawn attention. During this period, 116, or 31% of transactions were of the CB1 type, i.e. foreign companies buying Brazilian companies. This is the highest volume of all quarters historically analyzed by the institution.
Thirteen other transactions were of the CB2 type, when Brazilians acquire a business established abroad from foreigners; one was of type CB3, in which a Brazilian buys a company established in Brazil from foreigners; and one was CB4, in which a foreigner acquires a business established in another country from foreigners.
“There is a movement to resume the presence of foreigners in the country, which was lost last year, when the pandemic began,” analyzes Luís Motta, KPMG partner and research coordinator. “In the context of the crisis, companies have focused more on survival and on the main market in which they operate, which means that some internationalization plans have been put aside until there is a scenario. more predictable.
The trend is expected to continue through the end of the year and decrease in 2022
It is likely that the trend observed in the first few months will continue or even intensify until the end of the year. “From what we see in our business, in the Santander sample, the movement is not decreasing,” says Miranda. “If in the first half of the year the M&A market was over US $ 50 billion, it is quite possible to imagine something like US $ 110 or 120 billion by the end of the year.
There are reasons for the estimation. In general, companies prefer to close deals before the end of the year to close the balance sheet with offers already announced, explains the economist. “There is a rush of offers before December 31st.”
Another reason is that the discussion of the different stages of tax reform underway in Congress may cause the market to anticipate operations for 2021. Tax, which may make the second half better than the first.
The fact that there will be parliamentary elections in 2022 should also make next year less conducive to such negotiations, opening up opportunities to anticipate plans. “When the campaign period begins, the market often prefers to wait for the election results to know what economic policy the central government will actually follow, to know how to value the assets,” he explains. “The trend is to have a shorter market window in 2022, with a concentration of offers and transactions until the start of the year.”