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Mergers Quadruple in Brazil as Companies Raise Fresh Capital

Mergers Quadruple in Brazil as Companies Raise Fresh Capital

Mergers and acquisitions are booming in Brazil as companies raise capital in the public equity markets and look for takeover targets.

Deals have almost quadrupled from the same period last year, soaring to $34.7 billion, according to data compiled by Bloomberg. At the same time, total stock issuance by Brazilian companies jumped 83% to 69.6 billion reais ($13.6 billion).

Companies in Brazil are offering more shares on public markets as interest rates below inflation push many investors in search of higher yields. At the same time, the Covid-19 pandemic has cut revenue at small firms, increasing acquisition opportunities for their bigger rivals.

Mergers Quadruple in Brazil as Companies Raise Fresh Capital

“Many companies are full of cash after selling stock in the public markets in recent years, and they’re taking the opportunity to consolidate,” Alexandre Bertoldi, a partner at law firm Pinheiro Neto Advogados, said in an interview.

Bertoldi’s firm, which ranks second among legal advisers for Brazil mergers this year, worked with health-care company Hapvida Participacoes e Investimentos SA on its $10.6 billion merger with Notre Dame Intermedica Participacoes SA, this year’s biggest transaction.

Intermedica has raised 16.9 billion reais in five public share offerings since its 2018 initial public offering, according to data compiled by Bloomberg, and said this month it agreed to buy for 1 billion reais a smaller competitor, Centro Clinico Gaucho, a provider of health-care and dental plans. Hapvida raised about 8.5 billion reais in three transactions in the same period, the data show.

Afya’s Purchases

Education-services provider Afya Ltd., which went public on Nasdaq in 2019 and did an additional share offering, raising $642 million in the two transactions, said in May it agreed to acquire the college Unigranrio at an enterprise value of 700 million reais. It’s purchased four other firms this year, including a health-tech company and a drugstore chain.

“The booming equity market is fueling many M&A deals, and we’re working a lot,” said Joao Ricardo de Azevedo Ribeiro, a senior partner at Sao Paulo-based Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, this year’s No. 1 M&A legal adviser.

Government-owned companies are also selling stakes. Petroleo Brasileiro SA, known as Petrobras, said in March its board approved the sale of the Landulpho Alves Refinery and its associated logistics assets in Bahia to Mubadala Capital for $1.65 billion.

Other Brazilian companies are trying to sell units to foreign investors. Northfield, Illinois-based Stepan Co. and private equity firm Advent International Corp. are among companies in talks to buy the chemical division of Brazilian conglomerate Ultrapar Participacoes SA, called Oxiteno, in a deal that people familiar with the matter said could be valued at about $1 billion.

Those kinds of deals are still the exception, however.

“Cross-border transactions have been rare, as international investors are not the main buyers,” said Marcos Goncalves, head of M&A at Sao Paulo-based XP Inc.

Total direct investment in Brazil excluding inter-company loans reached $12.9 billion this year through April, a 57% decline from the same period last year, according to data from Brazil’s central bank.

©2021 Bloomberg L.P.