Brazil M&A set to gain traction as political turmoil eases
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 economy. 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." 'PERIOD OF STABILITY' 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. MERGER VALUE JUMPS 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 SA. 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 SA. "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 coalition. SCRUTINY 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 Inc 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)
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