Brazil sees dealmaking boom led by energy, retail, healthcare

Jul 4, 2021 | News

Brazilian companies are striking mammoth share offerings and M&A deals, as Latin America’s biggest economy recovers from the pandemic with expected full-year GDP growth of 5%, potentially further lifting sectors from energy to healthcare.

M&A volume grew eightfold in the first half of 2021 from the same period a year earlier, to $56.8bn, while share offerings totaled $15.3bn, up 55%.

Bankers expect activity to remain buoyant during the second half, boosted by an optimistic economic outlook, with sectors such as retail and fintechs in the spotlight.

In the first half, healthcare operator Hapvida’s $9.58bn acquisition of Notre Dame Intermedica was the seventh largest deal in emerging markets, while state-controlled oil company Petrobras’ $6.45bn acquisition of deepwater oil fields Atapu and Sepia fields ranked thirteenth.

The privatization of Rio de Janeiro state water and sewage utility Cedae raised roughly $4bn, luring Singapore’s GIC, Canadian pension fund CPPIB and local holding company Itausa.

“There is a virtuous circle in place for deals: economic activity is picking up, benchmark interest rates are low and money is available,” said Eduardo Miras, Brazil head of investment banking at Citi.

Brazil’s largest share offering this year happened on the last day of June, with the sale of Petrobras’ stake in fuel distributor Petrobras Distribuidora SA. Petroleo Brasileiro, as the seller is formally known, raised $2.3bn.

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Companies such as energy firm Raizen, a joint venture between Cosan SA and Royal Dutch Shell, cement maker Intercement Brasil SA and oncology clinics chain Oncoclinicas plan to price multibillion-real IPOs in the coming weeks.

These deals are expected to lure deep-pocketed foreign investors, who shunned Brazilian share offerings earlier this year amid snowballing pandemic and political turmoil, taking the place of domestic investors who have grown more cautious.

“Foreign investors are no longer as worried about the pandemic as the pace of vaccination has picked up over the last few weeks,” said Roderick Greenlees, head of investment banking at Itau BBA, which led the equities league table in the first half. He predicted share offerings will reach 160bn reais this year, a 33% rise from 2020.

Foreign investors spent 65.1m reais buying Brazilian companies’ shares, net of outflows, in the first semester, according to stock exchange operator B3, compared with a net outflow of 62.8bn reais in the year-ago period.

Still, domestic investors have grown more timid, as benchmark interest rates have risen to 4.25% from 2% in January. Equity funds have gotten 1.7bn reais in net new money this year through May, dwarfed by net inflows of 94.1bn reais for fixed income funds.

Deals Cycle

Strong capital markets activity is also increasing funds available for acquisitions, said Bruno Amaral, head of M&A at Banco BTG Pactual, which led the Brazil M&A league table in the first half.

Hard hit industries during the pandemic such as retail have been among the most active in deals in recent months as Brazil recovers and consumption rises, Amaral said.

“We are also seeing a lot of deals in the financial area, mainly fintechs taking on the large banks, and in healthcare,” he added.

Warren Buffett’s Berkshire Hathaway led a $750m funding round in fast-growing fintech Nubank, while private equity firm Advent International invested $430m in payments company Ebanx.

Source: Reuters

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