25 de septiembre de 2015 / 16:28 / hace 2 años

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

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.

Others include state-controlled Petróleo Brasileiro SA’s efforts to sell a network of gasoline stations across South America, and plans by ailing engineering firm Grupo OAS SA, which is in the middle of an in-court restructuring, to exit a 24.4 stake it owns in infrastructure firm Invepar SA

A decade-long boom that brought in hundreds of billions of dollars in investments has fizzled in the past couple of years and 2015 has been especially miserable. Stock and bond offerings have virtually ground to a halt and São Paulo’s stock exchange was this week replaced by Mexico as Latin America’s top equity market for the first time since 2003.

“We grabbed our work briefcases and toured the world pitching deals with the idea that Brazil had finally become attractive in dollar terms,” Carolina Lacerda, a director at investment banking group Anbima, told an audience at a MergerMarket event in São Paulo this week. “September’s here and a lot fewer deals than we wished were concluded. It’s been bad.”


While the number and value of deals has fallen short of expectations, advisory work remains intense, forcing firms to deploy more staff than usual to handle otherwise normal transactions, Lacerda added.

But there are signs that activity could pick up again if the volatility around Brazil’s financial markets eases.

Buyout and sovereign wealth funds are still looking for takeover targets in sectors from education and healthcare to technology and real estate, said Samuel Oliveira, head of investment banking at Banco Indusval & Partners.

Private equity firms last year raised a record $5.6 billion for new investments in Brazil and it remains Latin America’s top recipient of private equity money.

“For strategic and long-term investors, Brazil remains very relevant to their business plans,” Oliveira told Reuters. “The storm will pass, and those who make the right buy now have pretty good chances of doing well down the road.”

Buyout firm Advent International is looking for potential targets among local education firms, director Newton Maia Alves said at the MergerMarket event. Advent bought for-profit university Faculdade da Serra Gaúcha in March, one of the several purchases it made in Brazil since last year, when it raised $2.1 billion for Latin American buyouts.

Still, valuing assets has become more difficult for any firm aiming to tap Brazil’s growing consumer and natural resources bases, said Felipe Bittencourt, a partner responsible for financial advisory at Vinci Partners.

“It makes more sense to buy an asset at 3.75 reais per dollar with good predictability, than at 4.25 reais under extreme volatility, like now,” said Bittencourt, who helps oversee Vinci’s 18 billion reais ($4.5 billion) in assets under management. “Valuing assets in the current situation has become a Gargantuan task.”

Even after the real weakened to around 4 reais to the dollar this week from about 1.70 per dollar early in 2013, the currency may still be over-valued, said Daniel Tenengauzer, head of global currency strategy at RBC Capital Markets, citing stubbornly high inflation, a collapse in Brazil’s terms of trade and flagging growth in investment.

($1 = 3.97 Brazilian reais)

Reporting by Guillermo Parra-Bernal; Editing by Kieran Murray

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