By Guillermo Parra-Bernal and Aluísio Alves
April 3, 2012 – Buyouts led by private equity and sovereign wealth funds should help propel merger and acquisition activity in Brazil this year after a flat first quarter, according to investment bankers.
Even as an economic slowdown and buyer caution put the brakes on dealmaking, Brazil’s diversified economy – the world’s sixth-biggest and Latin America’s largest — still lured a large number of sophisticated investors, Thomson Reuters said in its quarterly M&A report.
Companies announced about $21.95 billion worth of deals in Brazil in the first quarter, up 5.6 percent from a year earlier, the report showed. The number of deals — 175 — was nearly unchanged from 174 in the first quarter of 2011.
Brazil’s economy slowed abruptly in the second half of last year and is unlikely to rebound strongly before June. So far this has only slightly weakened Brazil’s bustling job market, the nation’s main engine of growth in recent years, but has hampered manufacturing and lessened incentives for companies to
merge, some analysts said.
Bankers expect M&A activity to gain traction in coming months as retail, consumer goods and infrastructure companies try to add scale and financial muscle by tying up with rivals. Global buyout firms, flush with cash after raising $6.3 billion for their Brazil investments in 2011, may drive such a recovery.
Take private equity, for instance. About half of last year’s Latin American buyouts took place in Brazil, where 64 percent of the region’s capital commitments were invested, the New York-based Latin American Venture Capital Association said last month.
“Investors are ready to invest heavily and do the long-term investment in the country,” said Jean Dreyer, a managing director for Citigroup’s global investment banking unit. “The market is very positive, and this should continue for a long period.”
Citigroup Global Banking & Markets, as the unit is known, led the first-quarter rankings in Brazil based on deal value after advising on two transactions worth a combined $8.15 billion, the data showed.
Citigroup’s Brazil bankers, led by industry veteran André Kok, advised banking giant Itaú Unibanco Holding on its $6.82 billion plan to take card payment company Redecard private.
Kok, who last year left Itaú Unibanco’s Itaú BBA investment banking unit after six years there, also led the team advising Infravix and partners on the purchase of a $1.33 billion license to remodel and operate the Brasilia airport.
Citigroup also was one of two advisers for Abu Dhabi state investment fund Mubadala’s purchase of a $2 billion stake in Brazil’s EBX, an investment holding company controlled by Eike Batista, the nation’s richest man. The deal was not included on the rankings because it took place between Mubadala
and a U.S.-based investment firm controlled by Batista.
Mubadala oversees $46 billion in assets.
The other adviser to Mubadala was Goldman Sachs Group. Itaú BBA, which ranked second in the quarter with advisory work on deals worth $7.82 billion, helped EBX on the transaction.
“The Mubadala deal is a proxy of what we could see in coming months, as Brazil continues to attract strategic pools of new capital and more sophisticated investor classes,” said Fernando Iunes, global head of investment banking for Itaú BBA.
Itaú BBA worked on nine deals, more than any other top 20 firm in the rankings during the first quarter, the Thomson Reuters data showed.
The nine transactions included CPFL Energia’s $683 million purchase of utilities BVP and SPE Lacenas
Participações between the end of February and the beginning of this month.
Itaú BBA was also one of the advisors to parent Itaú Unibanco Holding on the Redecard deal.
Foreign and local banks kept betting on investment banking as a stable source of earnings despite the slower economy and a possible slump in fees. Fees in Brazil probably fell to about $800 million last year from $1.1 billion in 2010, according to estimates from leading investment bankers.
“All the major investment banks have a presence in Brazil,” Citigroup’s Dreyer said. “In terms of fees … the competition is adding some pressure, but this is not surprising as Brazil isa mature and sophisticated market.”
BR Partners, an independent investment banking firm led by former Citigroup and Goldman Sachs banker Ricardo Lacerda, clinched the third spot in rankings by advising on deals worth $7.08 billion.