Brazilian M&A Rebounds With Strong Momentum Poised To Continue Throughout 2018

While Brazil still faces political uncertainty with its upcoming presidential election in October, the country's economy is rebounding, with investment and mergers and acquisitions activity showing strong momentum.

After consecutive quarters of declining activity, mainly due to political and macroeconomic uncertainties, the Brazilian M&A market is bouncing back. Headwinds and tailwinds continue to impact the market, but local and global investors are beginning to see positive returns on investments.

According to data from Bain & Company and PitchBook, 2017 global M&A activity grew to $3.3 trillion in total deal value, with 38,500 deals (resulting in an average deal size of $85.7 million). Concurrently, Brazil had a 9% growth in the number of companies being bought and sold, achieving a record of 856 transactions with a combined deal value of approximately $87.3 billion, according to Fusões & Aquisições. This also represents a 4.8% increase in Brazil's deal volume compared to 2016. Brazil's average deal size of $101.9 million in 2017 was strongly affected by more than 10 multibillion-dollar deals announced in that year. According to Fusões & Aquisições, prior to 2017, the historical average deal size ranged from $30 million to $40 million.

Many large deals were completed in Brazil in 2017, mainly due to Brazilian conglomerates in need of restructuring. Examples include Paper Excellence's acquisition of Eldorado Papel e Celulose; State Grid's acquisition of CPFL Energia; and China Three Gorges' acquisition of Central Hidroeléctrica Chaglla, an Odebrecht investment in Perú. The current environment has changed from 2016 and 2017 when foreign investors, private equity and Brazilian holding companies acquired businesses of conglomerates or public companies with cash flow pressure, who needed to sell given their excessive debt and limited access to credit lines.

Opportunity for growth also awaits Brazil's private equity and family office investments. In 2017, global private equity activity represented some 13% of the M&A value and 8% of the number of completed deals, and family offices represented some 3% ($100 billion) of the total M&A value. According to PwC, private equity was involved in some 15% of the announced deals in Brazil over the past 7 years. With regard to family offices, it is likely that the same four-fold increase observed globally — from $25 billion in 2011 to $100 billion in 2017 — will be seen in Brazil in the coming years.

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