What to expect from the M&A recovery in Brazil

The M&A market in Brazil is on the road to recovery but there are growing doubts about how sustainable the uptick will be.

There were 1,165 transactions in January-October, a reduction of 7.2%, according to global risk consulting firm Kroll. By comparison, in January-June, the contraction was 11.8%.

In October alone, the number of transactions increased 10% year-on-year to 131. 

"It is worth noting that the 10% expansion in October was better than expected, confirming my view since the beginning of this year that we will have a stable number [versus 2022] in relation to announced transactions," Alexandre Pierantoni, the head of Kroll’s corporate finance and M&A area, told BNamericas. 

"Looking ahead, it is important to say that predictability has been reduced due to the high level of international interest rates and the war environment that we are seeing. With that said, thinking about a scenario for M&A growth in Brazil is still not very clear," Pierantoni added.  

According to the expert, doubts about the level of interest rate reduction in Brazil could also impact capital markets and the M&A outlook.

On Wednesday, the central bank reduced the Selic base interest rate to 12.25% from 12.75% amid slowing inflation. This was the third consecutive cut since August, when the Selic was at 13.75%.

Despite the reduction there are increasing doubts whether the central bank will soon be able to bring down the Selic to single digits due to issues related to fiscal policy. 

LATAM 

Latin America accounts for around 6% of M&A transactions in world, according to Kroll.

Brazil makes up 66.2% of the total, followed by Mexico (13.1%), Chile (7.8%), Argentina (6.8%), and Colombia (6.2%).

"Brazil will continue to be the flagship with more than 60% of operations,” said Pierantoni. “In relation to sectors, agriculture continues to be important. Infrastructure, mining, and oil and gas are also important sectors, along with the cosmetics industry."

In Mexico, which is facing a general election next year, the M&A scene is likely to continue to benefit from the nearshoring phenomenon, he said.

"Chile and Colombia are countries that have seen a loss of participation due to political uncertainty and in Argentina we continue to see an exit trend," said Pierantoni.

Regarding potential M&A transactions in Venezuela, as a result of the US rolling back a series of restrictions – mostly on the oil and gas industry – after the government recently reached an agreement with the opposition to hold internationally monitored elections next year, the executive said it is too early to make an assessment.