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SAO PAULO, April 1 (Reuters) - Mergers and acquisitions activity in Brazil had an encouraging start to the year, as buyers took advantage of a weaker currency and cheaper valuations to clinch deals in Latin America's largest economy.
Brazil's M&A deal flow remained robust despite mounting global market turmoil stemming from the Ukraine political crisis and eroding confidence in Brazil as growth slowed and inflation quickened. Concerns surrounding elections later this year helped bring buyers and sellers closer in some cases, speeding the conclusion of some transactions that had lingered on for months.
Companies announced about $14.21 billion worth of deals in Brazil during the first quarter, up from $5.12 billion a year earlier, according to a quarterly Thomson Reuters report on M&A activity released on Tuesday. About 108 deals were announced in the past three months, down from 132 in the year-earlier period.
Strategic buyers toned down their caution towards Brazil, while private-equity firms were quick to execute their takeover plans during the quarter. They are openly seeking greater exposure to Brazil based on their need to get a specific asset, and not because of the country's status as an emerging market nation with a massive consumer base, bankers said.
Bain Capital LLC, AmerisourceBergen Corp and Mexico's Grupo Financiero Inbursa SAB were among firms that raced to seal the purchase of healthcare, financial and pharmaceutical companies in the quarter, the report showed. São Paulo-based Itaú BBA topped Brazil's M&A league tables in the first quarter, after advising on 18 deals worth at least $9.451 billion.
"It was an interesting quarter, full of complex deals and more selective buyers," Fernando Iunes, global managing director for investment banking at Itaú BBA, said. "We think the second quarter will be even better."
Luiz Muniz, managing director and head of Rothschild's Latin America operations, agrees. As Brazil's October presidential election could slow activity in the second half, many companies may look to finalize their planned combinations by June.
"We foresee a pickup in M&A with more activity in cross-border deals, corporate reorganizations, restructurings, de-listings and spin-offs," he said. "Firms want to speed up strategic decisions that were in the offing, just because of the political calendar. Some will happen, and some others won't."
Itaú topped rankings for both deal value and number of deals. Grupo BTG Pactual SA, Latin America's largest independent investment bank, ranked second in number of deals, while Rotshchild was No. 2 in terms of deal value.
Compared with the fourth quarter, the value of deals announced in Brazil fell 62 percent from $38.26 billion, with the number of deals slumping 39 percent from 173 transactions.
Many investors expect political wrangling ahead of the election to further weigh on confidence, which has already been rattled by a series of erratic government policy decisions and increased state meddling in the economy.
"The election could weigh down on confidence and have an impact on the way people perceive the outlook for Brazil," Hans Lin, co-head of investment banking at Bank of America Merrill Lynch's, said in an interview.
Yet in recent months, signs of a more business-friendly economic policy framework emboldened bankers, who depend on merger advisory services for about half their revenue in Brazil. President Dilma Rousseff's push to woo investment in infrastructure is fanning optimism that interference will wane.
Brazilians elect a new president, federal and state lawmakers and 27 governors in October. While early polls show Rousseff as a clear favorite for re-election, opposition candidates could gain ground if growth falters or inflation accelerates further, analysts say.
Marco Gonçalves, head of M&A at BTG Pactual, expects private-equity funds to seek more takeovers now that Brazil's currency, the real, might slip further this year. A weaker real, which dropped over 11 percent in the past year, makes it cheaper for dollar-funded buyout firms to buy assets in Brazil.
"While the price correction already took place, Brazilian assets look very attractive for any buyer," Gonçalves said. He foresees robust advisory work for BTG Pactual this quarter.
Bain hired Itaú BBA to help on a $862 million purchase of healthcare company Notre Dame Intermedica SA, which was in turn advised by BTG Pactual. Itaú BBA helped parent company Itaú Unibanco Holding SA win control of Chilean rival CorpBanca SA in a $2.2 billion deal. Merrill Lynch advised CorpBanca in the same deal.
Rothschild, Itaú and BTG Pactual worked together in Cosan Ltd's announced spin-off of its logistics assets. The transaction also involves the takeover of America Latina Logistica SA, the region's largest railway operator. (Reporting by Guillermo Parra-Bernal; Editing by Meredith Mazzilli)