Brazil's M&A market: A stable forecast with a sunny bias

The volume of M&A transactions in Brazil is expected to expand in 2025 as the impacts of the start of a cycle of interest rate reductions in the US begin to take hold locally. 

In the first quarter, the number of M&A transactions announced in the country reached 376, down 22% year-on-year, while the announced financial value of the deals totaled US$8.06bn, a 2% reduction, according to a study carried out by international insurance and reinsurance broker AON with data from TTR Data.

Brazil accounted for more than half of the 603 M&A operations reported in Latin America in the first quarter.

Pedro da Costa, M&A and private equity transaction solutions leader at the Brazilian unit of AON, talks with BNamericas about the local outlook for M&As.

BNamericas: What is the outlook for M&A operations in Brazil in the coming months?

Costa: In Brazil, we will probably see stabilization in the number of M&As in the coming months, with the number of deals in the coming quarters similar to what we saw in the first quarter of this year.

There are important points to be taken into consideration regarding the mergers and acquisitions market, which is related to international economic behavior.

We have already started to see positive signs regarding an approaching reduction in interest rates in the US, and when this actually happens, it will have an impact on everyone. Any move to reduce interest rates in the US improves the M&A scenario and also for IPOs.

So, from my point of view, this year I see a scenario of stable M&A numbers over the next few months, but with a positive tendency.

BNamericas: When will we see an increase in M&A operations?

Costa: The positive impact of a reduction in interest rates in the US will likely have a positive effect on M&A operations in Brazil with some lag, which has always happened historically.

During the COVID-19 pandemic, for example, we saw a recovery in M&A transactions in the US, which gained traction in 2021, and that only ended up being reflected positively in Brazil in 2022. Given the lag, I believe that 2025 will be a year of expansion of M&A transactions in Brazil.

BNamericas: Which sectors currently generate the most M&A transactions in Brazil?

Costa: There’s a lot of interest from private equity funds in the areas of infrastructure, natural resources, and renewable energy.

In the infrastructure area, two prominent segments are highways and sanitation. In renewable energy, Brazil generates a lot of interest from funds, given the characteristics of the Brazilian energy matrix, which is closely tied to clean energy. Renewable energy has a lot of appeal for international investors.

Other segments that generate significant M&A deals are the health sector, including hospitals and health clinics, as well as the technology sector in Brazil.

With respect to technology, it should be noted that this is a segment that’s more associated with venture capital than with private equity, because although there are lots of businesses, the average transaction ticket is small.

BNamericas: Are mining assets linked to the energy transition already a target for M&As in the country?

Costa: Many M&A moves around the world are linked to ESG aspects at the moment. Policies and businesses focused on environmental risks have been a major focus for investors because where there are great risks, there’s great potential for return. Many qualified investors see the chance of leveraging their returns by taking on operations that have considerable environmental risks and need improvements to be leveraged.

We have an ongoing example of a company trying to leverage a series of businesses. BYD, for example, has been trying to bring sustainability to the entire Brazilian transport matrix while also wanting to operate in mining through investments in lithium.

Business opportunities associated with mining occur because Brazil still needs to improve its technologies to attain a better mineral production model with lower risk. This potential for improvement in operations attracts professional investors.

BNamericas: What insurance solutions are there in Brazil at present to mitigate risks in M&A operations?

Costa: We have solutions now such as representations and warranties insurance, which basically covers the risks of incorrect statements provided by the sellers of a given asset. This reduces the need for a guarantee that a seller has to give to complete the deal, generating greater liquidity in the M&A market. It also has its own guarantee insurance.

BNamericas: How do extreme weather events, like the prolonged floods in Rio Grande do Sul state, impact the insurance market and insurance solutions for M&As?

Costa: Talking about risks is the same as talking about a living being. We often calculate probabilities using mathematical models, but that isn’t always possible in every situation.

The case of Rio Grande do Sul is an unparalleled tragedy for Brazil in terms of extreme weather events that will impact the insurance market as a whole.

In the M&A sector, this impact is smaller, as we are more associated with financial operations risks than with other factors.

But for the insurance market as a whole, when we talk about property and life insurance, we are set to see a severe sector impact, with an increase in claims being paid, and this should even generate an upward impact on insurance prices in the future.