Brazil M&A set to gain traction as political turmoil eases

viernes 1 de julio de 2016 12:48 GYT

By Guillermo Parra-Bernal and Tatiana Bautzer
    SAO PAULO, July 1 (Reuters) - The value of mergers and
acquisitions in Brazil in the second quarter jumped by the most
in a year, as optimism over easing political and economic
tensions lured investors back to Latin America's largest
    Companies announced $9.591 billion in transactions in the
quarter to June 30, Thomson Reuters data showed on Friday. That
was more than double the first quarter's total, when fallout
from a corruption investigation at state firms kept buyers on
the sidelines.
    With the Senate expected to dismiss leftist President Dilma
Rousseff in August, ending months of uncertainty over her
impeachment, bankers and lawyers say companies are resuming
their search for takeover targets.
    Sovereign wealth funds and buyout firms are counting on
interim President Michel Temer to scrap many of Rousseff's
interventionist policies, which some investors blame for pushing
Brazil into its deepest recession in eight decades.
    Despite a record budget gap, Temer's efforts to revive the
economy are reigniting confidence, bankers said. Coupled with
more attractive prices for targets, that should help transform a
backlog of work into more M&A deals.
    "The bearish sentiment that resulted in procrastination over
deals at the start of the year has virtually vanished," said
Marco Gonçalves, a partner in charge of M&A at Grupo BTG Pactual
SA, Brazil's top-ranked M&A advisor this year. 
    "We feel that announcements are finally gaining momentum."
    In June, Ultrapar Participações SA agreed to buy
fuel distributor AleSat Combustíveis SA, ending years of failed
buyout attempts.
    On Friday, Estácio Participações SA, Brazil's
No. 2 college operator, said it had accepted a $1.7 billion
takeover offer from larger rival Kroton Educacional SA to end a
month-long takeover battle. 
    Temer's efforts to cut national debt could spark a flurry of
state asset sales in coming months, said Maria Cristina Cescon,
founding partner at law firm Souza Cescon Advogados. 
    Financial services, electricity and healthcare - sectors
that proved resilient during the crisis - are expected to see
M&A activity this year, said Alessandro Farkuh, head of M&A at
Banco Bradesco BBI, the investment-banking unit of Banco
Bradesco SA. 
    "Potential buyers are making up their minds and bracing for
a newfound period of stability," said Farkuh, who estimates that
buyout firms have as much as 50 billion reais ($15 billion) in
funds for acquisitions.
    Other bankers said bidders are eyeing assets in troubled
sectors from oil and gas, real estate and sugar and ethanol to
heavy construction as valuations sink.
    In the first six months, M&A announcements in Brazil jumped
25 percent to $13.682 billion, the data showed. The number of
announced deals, however, fell to 258 from 302 a year earlier.
    São Paulo-based BTG Pactual topped the rankings
for both value and number of deals, after working on 16
transactions worth $4.637 billion.
    Gonçalves and his team at BTG Pactual are advising Estácio
and Inbrands SA, which is discussing a takeover proposal by
larger clothing maker Restoque Comercio e Confecções
    Itaú Unibanco Holding SA's investment-banking unit ranked
second in deal value and number of transactions. Its deals
included power distributor AES Sul SA's takeover by CPFL Energia
    "Long-term strategic investors see Brazil's challenges as an
opportunity," said Roderick Greenlees, Itaú's global head of
investment banking.
    Delayed deals include an estimated $30 billion worth of
asset sales and debt renegotiation linked to companies engulfed
in "Operation Car Wash," an investigation of graft and bribery
between state companies and engineering groups.
    The two-year-old probe has unveiled a scheme in which
companies traded contracts for bribes with members of Rousseff's
    Potential buyers have stepped up legal scrutiny of Car
Wash-linked deals, lawyer Cescon and bankers said. The usual
time for due diligence has doubled over the past year or so. 
    "Potential buyers are conducting early due diligence checks
including opinions from criminal lawyers before launching any
formal talks", said Guilherme Cooke, partner at São Paulo-based
Velloza & Girotto Advogados.
    Petróleo Brasileiro SA, the state-run oil
producer at which the probe started, wants to raise $14 billion
from asset sales by the end of next year. 
    Odebrecht SA, the biggest builder involved in Car
Wash, is negotiating the disposal of $4 billion of assets
outside Brazil while renegotiating $10 billion in bank loans,
sources told Reuters.
  Rank         Advisor         Rank Value per    Number of
   by                             Advisor        Deals per
 Value                            (USD MM)        Advisor
   1     Grupo BTG Pactual SA     4,637.4           16
   2         Itaú BBA SA          4,565.3           15
   3     Morgan Stanley & Co      2,278.0            5
   4       Rothschild & CO        2,234.8            4
   5        Citigroup Inc         1,670.0            2
   6*        Barclays Plc         1,500.0            1
   6*      Deutsche Bank AG       1,500.0            1
   6*    Goldman Sachs Group      1,500.0            1
   6*         Industrial          1,500.0            1
          Securities Co Ltd                    
   10         Lazard Ltd          1,390.6            3
            Subtotal with         11,913.8          70
          Financial Advisor                    
           Subtotal without       1,768.6           188
          Financial Advisor                    
            Industry Total        13,682.4          258
   ($1 = 3.2385 Brazilian reais)

 (Editing by Bernadette Baum)