News: Latest News
Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesBusiness LeadersFinance Pro.CalendarSectors 
All NewsEconomyCurrencies & ForexCryptocurrenciesCybersecurityPress Releases

Brazil's sliding stock market makes M&A targets

01/24/2022 | 05:05am EDT
Brazil's B3 Stock Exchange in Sao Paulo

SAO PAULO (Reuters) - A frenzy of talks for mergers and acquisitions has caught some Brazilian bankers off-guard in the early weeks of 2022.

With the economy in recession, inflation in double digits and a polarizing election looming, a sliding stock market has made many companies into easier targets for takeovers, they say.

"It has been a long time since we began a year with such a large M&A pipeline," said Roderick Greenlees, global head of investment banking at Itau BBA.

Brazil's benchmark Bovespa index fell 17% over the last six months, and the real has weakened 5% against the dollar as investors fret about macroeconomic risks, slipping fiscal discipline and the outcome of an October presidential election.

The most fragile companies are the recently listed ones that lost significant market cap, bankers said, without citing specific potential targets.

Furniture retailers Mobly SA and Westwing Comercio, mileage program Dotz SA, outsourcing service Getninjas SA and marine engineering firm Oceanpact Servicos Maritimos lost more than 70% of their value since their IPOs last year.

"There is a good number of small- to mid-cap listed companies with significant price and liquidity challenges to tap into the equity capital markets to raise fresh money, so M&A becomes a more reliable and, in some cases, the only alternative," said Gustavo Miranda, investment banking head at Banco Santander Brasil SA.

Banco Modal SA, for example, had lost almost 60% of its value since an April IPO and received an all-share bid to be acquired by broker XP Inc this month.

Discussion between mall operators Aliansce Sonae and BR Malls for a tie-up also come as shares in both companies were down more than 20% from a year earlier amid the pandemic. The deal seems to be motivated by a need to show growth and good news to investors even as the mall sector struggles to rebound from the pandemic.

BR Malls has rejected Aliansce Sonae's proposal, but talks are expected to continue. Retailers Americanas SA and Marisa Lojas SA did not reach an agreement on a potential transaction last year.

Ricardo Lacerda, CEO and founder of investment bank BR Partners, said the recent rout interrupted plans of newly listed companies and may force them into deals. "Some of them were counting on new stock sales to fund expansion but couldn't complete the transactions due to market volatility," he said.

Debt has also become more expensive for companies, as Brazil's central bank hiked its benchmark rate last year to 9.25% in December from 2% in March, adding to fundraising costs.

"Given all the volatility hitting share offerings, M&A volumes in 2022 may surpass last year," said Hans Lin, Bank of America's co-head of investment banking in Brazil. Last year, deals involving Brazilian companies totaled $101.6 billion, up 152% from 2020.

NEW OFFERINGS

Most bankers have held off forecasting share offerings this year, but several expect the volumes to fall from 2021. Share offerings totaled $26.2 billion last year, slightly below 2020's volumes in dollar, but in 78 deals, 17% up year-over-year.

"Last year we had a record year for share issuances, 2022 will not be as strong for equities as a result of macro and political volatility," said Itau's Greenlees.

Some companies have already announced plans for follow-on offerings, such as chicken and pork processor BRF SA and petrochemical company Braskem SA. The privatization of Eletrobras is also expected by June.

Bankers see follow-ons as more likely to occur than IPOs this year, as investors tend to rely on known assets during volatile periods.

"Depending on how the market absorbs this pipeline of follow-ons, we are going to see investor sentiment improve, potentially making room for some IPOs," said Eduardo Miras, Brazil head of investment banking at Citi.

(Reporting by Carolina Mandl and Tatiana Bautzer; Editing by Brad Haynes and Alistair Bell)

By Carolina Mandl and Tatiana Bautzer


© Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
ALIANSCE SONAE SHOPPING CENTERS S.A. -1.97% 16.43 Delayed Quote.-22.81%
AMERICANAS S.A. -4.35% 13.42 Delayed Quote.-56.28%
BANCO MODAL S.A. -4.35% 7.7 Delayed Quote.-25.46%
BANCO SANTANDER (BRASIL) S.A. 0.92% 14.33 Delayed Quote.-0.07%
BANCO SANTANDER, S.A. 0.25% 2.7775 Delayed Quote.-6.14%
BR ADVISORY PARTNERS PARTICIPAÇÕES S.A. 2.31% 13.71 End-of-day quote.-5.45%
BR MALLS PARTICIPACOES S.A. -1.17% 7.62 Delayed Quote.-7.22%
BRASKEM S.A. 1.54% 39.5 Delayed Quote.-34.32%
BRAZIL IBOVESPA -0.17% 100591.41 Delayed Quote.-5.87%
BRF S.A. -1.90% 14.48 Delayed Quote.-34.46%
BRITISH POUND / US DOLLAR (GBP/USD) -0.66% 1.2185 Delayed Quote.-9.29%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.02% 0.77665 Delayed Quote.-2.00%
CENTRAIS ELETRICAS BRASILEIRAS S.A. 0.66% 45.7 Delayed Quote.37.53%
DOTZ S.A. -9.57% 3.59 Delayed Quote.48.13%
EURO / BRAZILIAN REAL (EUR/BRL) 0.14% 5.5356 Delayed Quote.-12.46%
EURO / US DOLLAR (EUR/USD) -0.55% 1.05224 Delayed Quote.-7.18%
GETNINJAS S.A. -1.54% 2.56 Delayed Quote.-52.03%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.70% 0.012663 Delayed Quote.-4.81%
MARISA LOJAS S.A. -4.66% 1.84 Delayed Quote.-49.21%
MOBLY S.A. -1.61% 2.45 Delayed Quote.-48.98%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.74% 0.62434 Delayed Quote.-7.66%
OCEANPACT SERVIÇOS MARÍTIMOS S.A. -3.06% 1.9 Delayed Quote.-34.67%
SONAE - SGPS, SA 2.09% 1.175 Real-time Quote.12.76%
WESTWING COMÉRCIO VAREJISTA S.A. -2.76% 2.11 Delayed Quote.-38.00%
WESTWING GROUP SE 0.75% 7.42 Delayed Quote.-65.76%
XP INC. -5.94% 18.67 Delayed Quote.-31.32%
Latest news "Economy & Forex"
04:46pU.s. fda advisers vote in favor of recommending inclusion of omi…
RE
04:39pInvestors seek refuge in Toronto market as Wall Street tumbles
RE
04:36pU.S. FTC sues Walmart for allegedly allowing money transfer services for fraud
RE
04:31pWall Street stumbles as consumer pessimism stokes growth fears
RE
04:31pDisney extends CEO Chapek's contract for three years
RE
04:29pMaterials Down on Flight from Risk -- Materials Roundup
DJ
04:23pThe walt disney company board of directors unanimously votes to…
RE
04:08pU.S. recession 'likely' in the near term -CIO
RE
04:00pR. Kelly seeks 10 years in prison, the minimum, as sentencing looms in sex case
RE
04:00pWall Street ends sharply lower as consumer pessimism stokes recession fears
RE
Latest news "Economy & Forex"