Currency decline fails to revive Brazil M&A as rout scares bidders

viernes 25 de septiembre de 2015 12:28 GYT

By Guillermo Parra-Bernal

SAO PAULO, Sept 25 (Reuters) - The steep slump in Brazil's currency is dealing a fresh blow to domestic mergers and acquisitions activity, which is having its worst year in a decade.

Just a few months ago, dealmakers at some of Brazil's largest investment banking firms, like Bradesco BBI and Goldman Sachs Group Inc, believed a gradual slide in the real would boost activity as takeover costs would fall in dollar terms for cash-rich private equity and sovereign wealth funds.

Instead, the real has sunk abruptly. With the economy in recession, annual inflation running at 9.5 percent and business confidence slumping, it has lost 33 percent so far this year and this week traded at all-time lows of around 4.20 to the dollar.

As a result, buyout firms are walking on egg-shells and multinational firms are also taking longer than usual to execute due-diligence work or negotiate acquisitions in Brazil, dealmakers told Reuters.

In the year through Sept. 25, companies announced $24.3 billion worth of M&A transactions in Brazil, the lowest in a decade and down 45 percent from a year earlier, according to Thomson Reuters deal intelligence data. About 410 deals were announced so far this year, slightly below the 413 transactions in the same period a year earlier.

While short-term currency fluctuations seldom affect long-term investment decisions like corporate takeovers, bankers are wary given the speed of the real's decline.

"Investors worry that the real may devalue further and, in particular, after they had written a large check in reais," said Daniel Wainstein, who heads Greenhill & Co Inc's Brazil unit. "As most investors track their performance in dollar terms, a devaluation could significantly cut their potential returns."

Deals taking longer to close include medicine and personal care goods producer Hypermarcas SA's planned sale of its diaper unit as bidders increasingly question its returns and appeal with consumers, a source with knowledge of the process said.   Continuación...