Brazil’s main ICT M&A boutique negotiates first LatAm deals

Brazilian M&A boutique firm IT Investimentos, expert in fundraising and advising acquisitions to companies in the technology and telecom sectors, is coordinating its first deals outside the country in Latin America, founding partner Gustavo Barros told BNamericas.

IT Investimentos claims to be the main Brazilian M&A firm focused on the ICT segment, particularly on non-national telecom players and internet service providers (ISPs).

“An expansion to Latin America is on the radar and it is very likely that a first transaction is concluded this year,” Barros said.

While not revealing details, Barros said the company being advised is an internet service provider in one of the main economies in Latin America.

In addition to Brazil, where ISP consolidation has been intense, this trend is gaining traction in other markets with similar characteristics, with numerous smaller telecom players in operation, he said.

IT Investimentos advised 18 M&As worth 2.5bn reais (US$488mn) in Brazil last year, 15 of which in the telecoms and three in the technology sectors. It targets companies with annual net revenue of over 30mn reais.

IT Investimentos' telecom customers include big ISPs such as Mob Telecom, Sumicity, Desktop, as well as WDC Networks and NB Telecom, among others.

Barros said M&A activity remains intense this year despite the electoral scenario. The company is at present involved in 11 transactions expected to close by September, eight of which in the telecom sector as well as the first two in the healthcare sector. More operations are likely to emerge.

“Businesses are still thriving [in the sector], you still see buyers with resources and deep pockets. We still see high liquidity for these deals. The election, even with Lula winning, is not a factor that can hurt business.”

According to Barros, the recent devaluation of the dollar against Brazil’s real and the good performance of the stock market show that investors already prized a Lula victory in, preferring a “president with stability.”

Barros admitted, though, that liquidity may recede a bit and affect the pace of M&As due to the slowdown of the real economy, with rising inflation and debt.

So far, in addition to traditional consolidators, there are new potential buyers entering the market by strengthening their capital through raises, IPOs and follow-ons, he said.

'CALCULATOR'

Recently, IT Investimentos launched an online calculator aimed at estimating the market value of ISPs.

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

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

MARKET

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

The technology sector was the most active, with 933 transactions over the year, an increase of 57%.

In January 2022, 176 transactions were tracked for a total of 22.4bn reais, according to TTR. 

The internet, software & IT services sector was the most active in January, with 38 transactions, but up just 3% compared to the same period in 2021.

TTR projects a growth trend in the number of transactions, due to restructuring processes, asset sales and mergers of companies that were in stand-by mode.

"Constant activity in the technology and internet sectors is expected, not only in Brazil, but also in partner countries in the region, areas that can be explored by strategic investors and funds in finding opportunities to acquire companies and assets in the region, especially in private equity and venture capital investments," TTR’s research and business analyst Marcela Chacón told BNamericas.