* Mergers and acquisitions in Brazil to pick up
* Value of deals seen growing
* Companies in financial distress seen as targets
By Aluisio Alves
Mergers and acquisitions activity in Brazil looks poised for a strong revival in the coming months, as signs of improved global sentiment spread across domestic capital markets.
Opportunistic investors are boosting appetite for risk, encouraging business executives to consider joining forces with rivals to ensure the survival of their firms, according to bankers and consultants interviewed by Reuters.
Although a return to the frenzied pace of mergers and acquisitions seen at the end of 2007 and the start of 2008 looks unfeasible now, the gap between buyers and sellers is closing as valuations show signs of stabilizing.
The boom that sent company valuations in Brazil skyrocketing at the end of 2007 turned bust last September, when prices plummeted as the credit crunch intensified.
"We are witnessing that expectations over valuations are going through a correction," Carlos Mello, partner with Sao Paulo-based law firm Machado, Meyer, Sendaz e Opice, told Reuters earlier this week. The firm advised in the takeover of poultry company Sadia (SDIA4.SA: Quote, Profile, Research) by rival Perdigao (PRGA3.SA: Quote, Profile, Research) and the purchase of a 42.5 percent stake in air taxi Lider Aviacao by
Indeed, the Sadia-Perdigao deal is seen by market participants as an example of why mergers and takeovers may be about to pick up in Latin America's largest economy.
Sadia badly needed capital to cover 2.5 billion reais ($1.26 billion) of losses triggered by wrong bets on derivatives contracts.
Weak finances could lead a number of agribusiness, real estate and retail companies to become takeover targets.
"Those with liabilities to refinance in the short term are faced with closed debt capital markets. Managers have to figure out what to do to stay afloat," Andrew Janszky, a lawyer with law firm Shearman & Sterling, said earlier this week.
Transactions may not come as often as in the two or three years before the market crashed, but they are likely to grow bigger in size from current levels. And investors will try to avoid sectors where consolidation efforts are less likely or where potential gains might be tougher to reap.
Even as the value of deals is expected to rise, PricewaterhouseCoopers expects the number of announced transactions in 2009 to decline compared to previous years. A recent PricewaterhouseCoopers survey found that deals announced fell 25 percent to 164 in the first four months of 2009 from the same period a year ago.
"We might see some big deals, but the number of deals announced is unlikely to reverse its downward trend," said Fernando Alves, president of PricewaterhouseCoopers in Brazil, in an interview this week.
And investors are beginning to spot opportunities -- mergers and acquisitions that would not require deploying copious amounts of capital.
"That type of investor is rushing to get deals done, before they miss their chance," Carlos Parizotto, a partner with Cypress Associates, a mergers and acquisitions consultancy, said earlier this week.
In times like these, investors that have large cash pools and a long-term focus for their business, like private equity funds, are well positioned to exploit opportunities. So are the acquiring companies that see takeovers or mergers as a way to expand their competitive advantages in foreign markets -- and have the cash to bid for rivals.
Deals like the acquisition of paper and pulp maker Aracruz Celulose (ARCZ6.SA: Quote, Profile, Research) by larger rival VCP VCP4.SA, or Banco do Brasil's (BBAS3.SA: Quote, Profile, Research) purchase of 49 percent of Banco Votorantim reflect that situation.
This month, private equity fund Advent International, flush with cash after years of boom in the industry, snapped up a 30 percent stake in Cetip, Brazil's largest clearing house. BTG, the securities company controlled by Brazilian banking wunderkind Andre Esteves, also paid in cash for 50 percent of the holding that controls Estapar, one of Brazil's largest parking facility companies.
Sources familiar with the situation, who declined to be cited by name because the transactions are not concluded, told Reuters this week that other private equity firms including Carlyle Group and Sao Paulo-based Patria Investimentos may announce new deals in coming months. A Patria spokeswoman declined to comment. Executives at Carlyle in Sao Paulo couldn't immediately be reached for comment.
And as mergers and acquisitions gain momentum, auditing companies, investment banks and law firms are beefing up staff to cope with what seems will be an escalation in business.
"Our pipeline is looking good these days," said Rodrigo Xavier, head of UBS Pactual, the Latin American investment-banking arm of Swiss bank UBS AG. ($1=1.97 reais) (Writing by Guillermo Parra-Bernal, editing by Gerald E. McCormick)
Matéria publicada nas seguintes fontes:
(Reuters - www.reuters.com 29.05.2009)
(Reuters India - http://in.reuters.com 30.05.2009)
(www.ubs.wallst.com 02.06.2009)
(Reuters UK - http://uk.reuters.com 29.05.2009)
(www.goozad.com 29.05.2009)