Mergers and Acquisitions in Brazil: Projections for 2021
FEBRUARY 2021
PREPARED BY:
Denise Debiasi [email protected] +55.11.99102.9552
INTELLIGENCE THAT WORKS Copyright ©2021 by Berkeley Research Group, LLC. Except as may be expressly provided elsewhere in this publication, permission is hereby granted to produce and distribute copies of individual works from this publication for nonprofit educational purposes, provided that the author, source, and copyright notice are included on each copy. This permission is in addition to rights of reproduction granted under Sections 107, 108, and other provisions of the US Copyright Act and its amendments.
Disclaimer: The opinions expressed in this publication are those of the individual authors and do not represent the opinions of BRG or its other employees and affiliates. The information provided in the publication is not intended to and does not render legal, accounting, tax, or other professional advice or services, and no client relationship is established with BRG by making any information available in this publication, or from you transmitting an email or other message to us. None of the information contained herein should be used as a substitute for consultation with competent advisors. In 2019, the so-called M&As (mergers and acquisitions) hit a record in Brazil, and the expectation was that, in 2020 alone, such operations would reach 1,3501. However, during the COVID-19 pandemic, the great majority of potential M&A operations remained suspended, gradually resuming from the second half of the year, both as a solution for some companies to maintain their operations; and for others, well capitalized, to take advantage of acquisition opportunities at lower prices, expanding their lines of business and increasing their market shares.
As 2020 ended, even with the US, Europe and Latin America facing the second (or third) wave of contaminations with new lockdown announcements, the M&A forecast is optimistic again. The number of transactions has increased, and the trend is that it will continue to grow, especially after the announcement of coronavirus vaccines with acceptable efficacy rates in the final process to be approved or already in emergency use.
In Brazil, this global context allows the market to remain optimistic about M&As for 2021. The time is ripe for investments in companies seeking alternatives during the crisis, with potential for revenue recovery in the medium term.
M&A Relevant Indicators Some data contribute even more to optimism about new mergers and acquisitions. The Selic rate in Brazil (Central Bank’s interest rate) continues at 2 percent per year, which allows companies to achieve good financing conditions.
The volume of operations in August 2020 was 112 mergers and acquisitions made, 65 percent higher than the same month in 2019 (68 operations). From January to August 2020, there was an increase in the participation of domestic investors (426 transactions), a figure that represents a 24 percent increase in the same period in 2019. Of these, 66 percent occurred only in the southeast region, and 52 percent of the operations are located in São Paulo2. Foreign investors made 151 transactions in 2020, a 4 percent drop from the previous year.
These figures indicate that the number of mergers and acquisitions grew 46 percent3 in the last quarter (July to September 2020) compared to the same period a year earlier. As a whole, it is expected that even more M&As will occur in 2021 in Brazil, surpassing a thousand operations.
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Mergers and Acquisitions in Brazil: Projections for 2021 Mergers and Acquisitions: Top Sectors In Brazil, the sectors that had the highest in total transactions in 2020 were internet companies, information technology, hospitals and clinical analysis laboratories, and business services. Other sectors such as energy, media and telecommunications, food, beverages, and tobacco, had a fall in transaction totals.
Until September 2020, 100 mergers and acquisitions of startup companies were recorded in the country, and this number was higher than those of 2018 and 2019 combined. The main companies acquiring startups in 2020 were Magazine Luiza (Virtual Bookcase, Hubsales, InLoco Media, AiQFome, and Stoq), Sapore (Lucco Fit, Shipp, Zaitt), and XP Investimentos (Antecipa, Dm10, Fliper)4.
Proving that the market remains warm, here are a few more recent or upcoming operations:
- Rede D’Or São Luiz: announced the completion of the acquisition of The Alliance Hospital in Salvador at the beginning of the last semester5.
- PetLove: acquired Vetus6, a petshop management platform, and announced a merger with DogHero to achieve additional synergies in the service sector7.
- Nubank: acquired EasyInvest, a digital broker. The purchase will still be approved by regulators, the Central Bank and CADE.
- Localiza and Unidas: both merged and will become a company valued at R$ 50 billion, if the merger is approved by CADE.
Data from the merger between Localiza and Unidas - Source: Valor Econômico8
- B2W Marketplace: The ecommerce company, created in 2006 by the merger between Submarino, Shoptime, Americanas.com, and Lojas Americanas, announced that it will invest part of the funding of R$ 4 billion in mergers and acquisitions, and a possible acquisition is that of Supermarket Now9.
Factors to Stimulate M&A Operations in 2021 Generally, when a company carries out M&A operations, the main goal is to grow; however, with the scenario imposed by the COVID-19 pandemic, the challenge becomes that of the survival of the target companies themselves, even if the worst of the crisis has passed.
Already solid companies are focused on absorbing the technological capacity of startups, since the importance of technology has become accentuated in this period, with many companies having to adapt hastily to the home office, which most startups have been doing for a long time.
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Mergers and Acquisitions in Brazil: Projections for 2021 Thus, one can offer the other what is best: the most traditional companies offer the base and knowledge they have, and the newer companies offer their capacity for innovation and reaching current customers. And that is not counting the benefit of greater efficiency and the acquisition of more customers as a way to mitigate the impacts of the recession, so much so that the two most used exchange currencies are money or stocks.
In this context, 2021 will be a year of many opportunities for mergers and acquisitions of companies in Brazil, both for domestic and foreign companies. Internally, in addition to the favorable interest rate, the increase in investments in the stock exchange is stimulating the process of opening capital, the famous IPOs (initial public offerings), providing greater ease of capture and liquidity for buying companies in order to increase the competitive business advantage and eliminate competitors.
In addition, the current exchange rate, added to the low prices of Brazilian companies seeking survival throughout the crisis, makes the opportunities to acquire these targets even more attractive and cheaper for foreign investment.
Therefore, in 2021, acquiring a company established in the Brazilian market, with significant customer base and brand reputation, becomes more than ever a promising entry strategy into a country with great legal, tax, labor, and cultural challenges. Attractions include:
- Size of the economy and the internal market - Consolidated democracy
- A need for basic services, technology, and infrastructure - Legal stability
- Expectation of policy reforms favorable to the business - Natural resources environment - Developed industry
- Largest economic hub in the region - Technological aptitude
Conclusion Given the global scenario of positive expectations regarding combatting the pandemic, mainly, opportunities in various segments, the M&A market in Brazil is an important driver in the resumption of business and the economy.
In addition to the segments already mentioned in this article, there are expectations of movements favored by the foreign exchange situation, in which international investors can leverage operations even in more historically resilient sectors, such as energy and agribusiness.
Consolidation is also expected in nonessential segments, such as tourism, entertainment, and shopping malls, with capitalized companies seeking to expand their operations. Other sectors that promise growth in mergers and acquisitions are retail, health, and education.
- Marketing and business synergies - Financial modeling, with growth and profitability projections - Business culture - Valuation - Economic scenarios and SWOT analysis - Operational, labor, tax, environmental, and compliance risks
For a merger and acquisition operation to be successful, some stages of the process are indispensable and involve different analyses, usually offered by specialized advice in M&As, including:
In general, the negotiation process in these transactions includes the presentation of a letter of intent (LOI) and/or non-disclosure-agreement (NDA) for the buyer company to have confidential access to the sensitive information of the target company.
While analyses and evaluations occur, and preferably before a binding merger or acquisition offer takes place, another essential step for transparency between the parties and for the success of the operation in the long term involves the due diligence process in the companies involved. This process ensures an independent and impartial review of the analyses carried out and the information obtained by the two companies.
Therefore, the scenario of M&A operations in Brazil for 2021 is extremely promising. Due to the urgent decisions required by companies throughout the pandemic crisis, it is critical to highlight the importance of adequate and in-depth valuation and due diligence processes by independent and experienced companies as a critical success factor of these operations.
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Mergers and Acquisitions in Brazil: Projections for 2021 References
DEBIASI, Denise. Cenário de fusões e aquisições no Brasil durante a MACHADO, Gabriela de Ávila. Aumento de fusões e aquisições crise. BRG. Disponível em: https://thinkbrg.com.br/cenario-de-fusoes- reforça a importância do due diligence. Conjur, 29 de outubro de 2020. e-aquisicoes-no-brasil-durante-a-crise-denise-debiasi/. Acesso em 30 Disponível em: https://www.conjur.com.br/2020-out-29/machado- de outubro de 2020. aumento-fusoes-aquisicoes-valoriza-due-diligence. Acesso em 30 de outubro de 2020. DECLOEDT, Cynthia e GUIMARÃES, Fernanda. Pandemia acelera fusões e aquisições como remédio das empresas contra crise. Estadão, 22 de AMORIM, Daniela. País registra em agosto recorde de fusões e aquisições. outubro de 2020. Disponível em: https://economia.estadao.com.br/ UOL, Rio de Janeiro, 14 de outubro de 2020. Disponível em: https:// blogs/coluna-do-broad/pandemia-acelera-fusoes-e-aquisicoes-como- economia.uol.com.br/noticias/estadao-conteudo/2020/10/14/pais- remedio-das-empresas-contra-crise/. Acesso em 30 de outubro de 2020. registra-em-agosto-recorde-de-fusoes-e-aquisicoes.htm. Acesso em 30 de outubro de 2020. ESCOBAR, Cynara. B2W investirá em fusões e aquisições e automação do varejo em 2021. Agência CMA, São Paulo, 30 de outubro de 2020. REUTERS. Fusões e aquisições voltam ao radar das empresas como Disponível em: https://www.agenciacma.com.br/b2w-investira-em- antídoto para a crise. Money Times, 7 de outubro de 2020. Disponível fusoes-e-aquisicoes-e-automacao-do-varejo-em-2021/. Acesso em 30 em: https://www.moneytimes.com.br/fusoes-e-aquisicoes-voltam- de outubro de 2020. ao-radar-das-empresas-como-antidoto-para-crise/. Acesso em 30 de outubro de 2020. GUIMARÃES, Luiza. Fusões e aquisições: cenário de 2020 e perspectivas para 2021. Pereira, Dabul Advogados. Disponível em: http://www. SOUZA, Marcos de Moura e, BRANDÃO, Raquel e BRAUN, Daniela. pereiradabul.adv.br/fusoes-e-aquisicoes-cenario-2020-2021/. Acesso Localiza e Unidas acertam fusão. Valor Econômico, Belo Horizonte em 30 de outubro de 2020. e São Paulo, 24 de setembro de 2020.
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Mergers and Acquisitions in Brazil: Projections for 2021 About the Author Denise Debiasi Managing Director | Leader of Corporate Finance in Brazil São Paulo, Brazil T. +55 11 3509-1809 C. +55 11 99102-9552 [email protected]
Denise Debiasi is Country Manager and responsible for BRG’s operations in Brazil. Her previous experience in companies such as FTI Consulting, Holder International, and Kroll and as CFO of Latin America for companies such as Goldman Sachs, Volvo, and Votorantim enables her to work in areas ranging from financial advisory and restructuring to forensic accounting, complex investigations, and litigation support.
Before joining BRG, Ms. Debiasi was vice president of the Research and Forensic Accounting of the Forensic and Litigation Consulting group of the Ibero-American region of FTI. She was also the managing director responsible for FTI’s operations in Brazil, where she led large and complex cases in Brazil and the Ibero-American region. She was also vice president and director of Holder International, responsible for all financial and litigation consulting tasks.
Ms. Debiasi’s knowledge of forensic and financial investigation extends to examinations in accounting procurement projects, accounting irregularities and inaccurate financial reports, inventory procurement and embezzlement schemes, fraud and embezzlement, supplier fraud schemes, banking-sector issues, and compliance issues for large multinational companies.
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