Brazil could see a record number of mergers and acquisitions this year on the back of an increase in fundraising in the local capital markets and lower interest rates, according to Alexandre Pierantoni, head of Latin America and Brazil corporate finance at US consultancy Kroll.
Transactions picked up at the end of last year and will continue to grow this year, he told LatinFinance.
“A more active capital market in 2024 than in 2023 and 2022 is a boost to merger and acquisitions. The economic and political situation is better than it was at the beginning of the year. The outlook is a positive one indeed,” Pierantoni said.
According to Kroll, there were 1,400 M&A transactions last year, a 9% decline compared to 2022. But Pierantoni forecasts as many as 1,600 deal this year.
“Capital markets will be more active either in terms of initial public offerings or in terms of follow-ons by companies that have created some market resilience. We will not have the kind of bonanza that we experienced in 2020-21, but we will have energy and infrastructure companies [in the market],” he said.
Brazilian companies raised BRL31 billion ($6.3 billion) in 21 follow-ons last year while the country’s benchmark Ibovespa equity index notched up a 22.2% gain. Still, there has not been an initial public offering since 2021.
The central bank’s key Selic interest rate is expected to decline to 9% at the end of the year, from a high 13.75% in August 2023, according to Itaú BBA.
FOREIGN CAPITAL
Pierantoni said that foreign investors, who took part in less than a third of transactions last year, are now expected to play a greater role.
“Foreign investors were not very active in Brazil last year either in capital markets or in M&A. But this will change in 2024, which is why 2024 will be better than 2023 or 2022,” he said. “Privatization of [São Paulo water company] Sabesp is going to attract foreign investment for sure,” he said.
Foreign direct investment declined by 33.6% in the 12 months to November compared to the same period a year earlier, according to the central bank.
Consolidation opportunities, increased scale and succession issues in family businesses will be the main driver for M&A, Pierantoni said.
The value of M&A transactions are often not disclosed, making it hard to put a figure on last year’s total, he said.