Brazilian ICT firms in capitalization drive amid cash flow, investment needs

Brazilian companies from different sectors of the ICT landscape continue to seek capitalization through a range of different financial instruments, amid a scenario of growing competition, cash flow demands and investment needs.

In recent days, two key players in the segment announced new efforts to raise capital.

The board of Desktop, ranked the country’s third largest ISP in terms of accesses, approved the issuance of 250mn reais (US$45.9mn) in notes, the proceeds of which will be used for general cash flow, as well as for refinancing and extending its debt profile.

Desktop went public last year with an IPO on Brazil’s B3 stock exchange in which it raised 715mn reais. The company has bought several ISPs since then, three of them in December. 

WDC Networks, in turn, said that it intends to raise 5mn reais in a new public offering of common shares, a transaction being coordinated by Banco BTG Pactual.

The company, which offers access and optical solutions to telcos and ISPs, raised 450mn reais with an IPO last July.

WDC Networks reported consolidated sales of approximately 1.46bn reais in 2021, up 45.5% year-over-year, in pre-audited financial figures.

VALUATION

Given the high level of movement in the ISP sector, business consultancy IT Investimentos, expert in M&As and fundraising for the ISP sector, launched an “online calculator” aimed at estimating the market value of ISPs.

The tool provides an approximate valuation that takes into account information such as the provider's location, number of installed internet gateways and size of customer base.

IT Investimentos said that the calculator can be used for ISPs in M&A negotiations.

Currently, IT Investimentos claims to be working on 30 M&A deals in the telecom sector.

The company expects 2022 to be another busy year, continuing the wave of consolidation seen in the country over the last three years. 

In 2021, the consultancy said that it advised deals worth some 2.5bn reais.

HECTIC INVESTMENT

The ICT sector saw intensive activity in terms of IPOs, consolidation and private equity and venture capital investments in 2021, although the IPO trend is expected to be less intense this year due to the challenging macroeconomic environment and the proximity of national elections in Brazil.

Investments by private equity and venture capital funds in Brazilian companies reached 53.8bn reais in 2021, an increase of 128% compared with 2020, according to a survey by KPMG and by the Brazilian private equity and venture capital association (ABVCAP).

Considering only investments in information technology, communication or media companies, the total was 6.6bn reais.

Transactional Track Record (TTR), meanwhile, reported a total of 2,560mn transactions (up 51% year-on-year) in Brazil last year, including M&A, private equity, venture capital and asset acquisition deals. Altogether, these transactions moved 596bn reais, the research firm reported.

The technology sector was the most active, with 933 transactions over the year, an increase of 67%.

In 4Q22 alone, some 717 mergers and acquisitions were reported, including announced and completed deals, for a total value of 190bn reais.