By Carolina Mandl and Tatiana Bautzer
SAO PAULO (Reuters) – A frenzy of talks for mergers and acquisitions has caught some Brazilian bankers off-guard within the early weeks of 2022.
With the financial system in recession, inflation in double digits and a polarizing election looming, a sliding inventory market has made many corporations into simpler targets for takeovers, they are saying.
“It has been a very long time since we started a 12 months with such a big M&A pipeline,” mentioned Roderick Greenlees, international head of funding banking at Itau BBA.
Brazil’s benchmark Bovespa index fell 17% over the past six months, and the actual has weakened 5% in opposition to the greenback as traders fret about macroeconomic dangers, slipping fiscal self-discipline and the end result of an October presidential election.
Essentially the most fragile corporations are the not too long ago listed ones that misplaced vital market cap, bankers mentioned, with out citing particular potential targets.
Furnishings retailers Mobly SA and Westwing Comercio, mileage program Dotz SA, outsourcing service Getninjas SA and marine engineering agency Oceanpact Servicos Maritimos misplaced greater than 70% of their worth since their IPOs final 12 months.
“There’s a good variety of small- to mid-cap listed corporations with vital value and liquidity challenges to faucet into the fairness capital markets to lift recent cash, so M&A turns into a extra dependable and, in some instances, the one different,” mentioned Gustavo Miranda, funding banking head at Banco Santander Brasil SA.
Banco Modal SA, for instance, had misplaced virtually 60% of its worth since an April IPO and acquired an all-share bid to be acquired by dealer XP Inc this month.
Dialogue between mall operators Aliansce Sonae and BR Malls for a tie-up additionally come as shares in each corporations have been down greater than 20% from a 12 months earlier amid the pandemic. The deal appears to be motivated by a necessity to point out progress and excellent news to traders even because the mall sector struggles to rebound from the pandemic.
BR Malls has rejected Aliansce Sonae’s proposal, however talks are anticipated to proceed. Retailers Americanas SA and Marisa Lojas SA didn’t attain an settlement on a potential transaction final 12 months.
Ricardo Lacerda, CEO and founding father of funding financial institution BR Companions, mentioned the current rout interrupted plans of newly listed corporations and should pressure them into offers. “A few of them have been relying on new inventory gross sales to fund enlargement however could not full the transactions attributable to market volatility,” he mentioned.
Debt has additionally grow to be dearer for corporations, as Brazil’s central financial institution hiked its benchmark price final 12 months to 9.25% in December from 2% in March, including to fundraising prices.
“Given all of the volatility hitting share choices, M&A volumes in 2022 might surpass final 12 months,” mentioned Hans Lin, Financial institution of America’s co-head of funding banking in Brazil. Final 12 months, offers involving Brazilian corporations totaled $101.6 billion, up 152% from 2020.
Most bankers have held off forecasting share choices this 12 months, however a number of anticipate the volumes to fall from 2021. Share choices totaled $26.2 billion final 12 months, barely beneath 2020’s volumes in greenback, however in 78 offers, 17% up year-over-year.
“Final 12 months we had a document 12 months for share issuances, 2022 is not going to be as robust for equities on account of macro and political volatility,” mentioned Itau’s Greenlees.
Some corporations have already introduced plans for follow-on choices, equivalent to hen and pork processor BRF SA and petrochemical firm Braskem SA. The privatization of Eletrobras can be anticipated by June.
Bankers see follow-ons as extra prone to happen than IPOs this 12 months, as traders are likely to depend on identified property throughout risky durations.
“Relying on how the market absorbs this pipeline of follow-ons, we’re going to see investor sentiment enhance, doubtlessly making room for some IPOs,” mentioned Eduardo Miras, Brazil head of funding banking at Citi.
(Reporting by Carolina Mandl and Tatiana Bautzer; Enhancing by Brad Haynes and Alistair Bell)