Merger activity in Brazil expected to gain steam by year-end
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO, July 2 (Reuters) - Mergers and acquisitions in Brazil are expected to gain steam by the year-end as economic and political risks ease, helping companies and private-equity firms scouring for takeover targets focus on tapping the country's long-term potential.
Three years of sub-par economic growth, a weaker currency and declining profits have driven asset prices lower and boosted the appeal of takeover targets. But some acquisition hunters could remain cautious ahead of a presidential election in October, making it harder for bids and offers to converge before then, bankers said.
Companies announced about $28.328 billion worth of deals in Brazil in the first half of the year, up 34 percent from $21.006 billion in the same period in 2013, a quarterly Thomson Reuters report on M&A activity showed on Wednesday. About 221 deals have been announced so far this year, down from 303 a year earlier.
Strategic buyers are brushing caution aside and seeking greater exposure to Brazil, some in search of a specific asset, others to tap the country's massive consumer base and need for infrastructure. Buyout firms are also on the prowl, eyeing targets in sectors such as financial services and technology, while also looking to exit some investments.
"There are sectors in which the only way for some players to grow in Brazil is through M&A," said Fernando Iunes, global managing director for investment banking at Itaú BBA. "Sooner or later, these players will buy assets in Brazil to avoid seeing their cost of opportunity grow."
Michelin & Cie SCA, American Tower Corp and KKR & Co LP were among companies that raced to seal takeovers last quarter. The weakest start for local equity markets in six years is helping fan takeovers, providing capital for firms and shareholders alike, said Patricia Moraes, JPMorgan Chase & Co's head of investment banking in Brazil.
But the flow of deals fell in the second quarter as election uncertainty, slower activity during the World Cup and weak confidence delayed the conclusion of some deals. The number of transactions fell to 104 from 117 in the prior quarter, although total deal value rose 3.3 percent to $14.396 billion.
Luiz Muniz, head of Latin America investment banking for Rothschild, said he is not worried about the slowdown, and is encouraged by increased activity in deals of greater complexity such as inbound cross-border takeovers, de-listings, corporate reorganizations, debt restructurings and spin-offs. Continuación...