Debt and equity markets may be dying, but M&A is thriving, particularly in Brazil, and investment banks are making decent returns. The latest numbers from Dealogic show an 20% increase in disclosed M&A advisory fees, to $320 million in the year to mid-August, from $300 million in the corresponding period of 2007.

Credit Suisse has grabbed the lead, with a hefty $80 million in fees so far, some 22% of the LatAm M&A pool. This is a 123% improvement versus last year’s $35 million and almost 13% more than the shop made in the entire 12 months of 2007. Citi has meanwhile dropped to second place, with $64 million, down 24% on 2007. Rothschild has leapt to third, with $31 million in fees, and the next four places are taken, respectively, by: UBS, Goldman Sachs, JPMorgan and Morgan Stanley.

M&A market participants expect another banner year in 2008. “We do expect the volume of activity and the size of the transactions to continue the upwards trend,” Corrado Varoli, CEO of G5 Advisors, the São Paulo-based investment banking boutique and investment manager. “We are very optimistic on this market for the next five years.”

G5 recently signed a strategic alliance with Evercore Partners, the New York-based boutique investment bank, to advise Brazilian firms. The pair will work on strategic cross-border M&A and related transactions between Brazilian companies and entities located outside South America. They may also team up for deals involving companies in other South American countries, says Evercore.

G5 generally pursues larger transactions, claiming an average ticket size of $1 billion and a backlog in the same order. It competes with the bigger shops like Credit Suisse and Citi, and looks to position itself as the independent and experienced sole advisor to bigger companies. “Where we can add value most is in the larger more complicated transactions,” says Varoli, who says G5 tends to be on the sell side. “Our sweet spot tends to be the Brazilian family that controls a large business and are exposed to the new opportunities of this market,” he adds.

The former Goldman Sachs veteran says the credit crunch could slow growth, but it has yet to dent M&A volumes. “It hasn’t really had an impact on the M&A market, but you can see when you talk to the real estate companies, when you talk to retail companies, you get the sense that the markets are tighter,” says Varoli. “Long term, the market needs more liquidity to continue to grow,” he adds.

Meanwhile, some Brazilian firms that had looked to go public are now more open to an M&A discussion because they feel they cannot do an IPO in the next few years. “The slowdown in the IPO market could increase M&A volumes,” says Varoli. 


 

Vale Heard Mulling Autlán Bid 
Mexican manganese and ferroalloys producer Compañía Minera Autlán is heard
garnering interest from a handful of bidders, including Brazilian mining giant Vale. Vale – whose recent manganese sales hit a record – is understood to be looking at Autlán as prices for its main product hit historic highs. Autlán went onto the block earlier this year and has a market cap of almost $2 billion. If sold to a strategic buyer, the asset could fetch a premium of 20% or more, says a Brazil-based mining analyst who asks not to be identified.

Autlán executives are said to be targeting a sale by October. The unit of Grupo Ferro Minero hired Lehman to advise it on a sale.

VCP Awaits Safra Move on Aracruz
Brazil’s pulp industry is a step closer to consolidation following VCP’s announcement that it purchased a 28% stake in Aracruz – which is optioned by Safra – from the Lorentzen Group for $1.7 billion. Added to an existing 28% stake, VCP now has 56% of voting shares in Aracruz, a global exporter of pulp and the largest of its kind in LatAm.

VCP’s bid to become one of the world’s top pulp exporters depends on Grupo Safra, which also holds a 28% stake in the company. Safra had 90 days to exercise its option to buy the Lorentzen stake from VCP, which would give it a 56% stake, or sell. Bankers on the deal speculate Safra, a financial investor in Aracruz, is not interested in controlling the asset outright.

Credit Suisse advised Lorentzen while Estáter, a São Paulo-based boutique, advises VCP. JPMorgan is advising Safra.  LF