Many may be surprised at the strength of the Brazilian IPO market in 2020, even in the scenario of the covid-19 pandemic. So far, there have been 23 initial public offerings registered with the CVM in 2020, and another 39 applications under review, of which, it is quite true, a portion represents transactions that were interrupted and are awaiting better market conditions. However, in parallel with the significant increase in the number of transactions, there is also an increase in the volume of cancelations and cases in which securities show losses after their stock market debut.
The expectation regarding the Brazilian IPO market has been nourished since the end of 2019. Structural reforms and the prospect of a resumption of growth, coupled with falling interest rates, have created an environment conducive to accessing capital through equity offerings. Investors previously accustomed to lumpy returns linked to public securities now have to seek the desired return on equity, generating great potential demand for offerors. There was, therefore, a significant increase in domestic participation in share offerings, previously marked by the predominance of foreign capital.
On the other hand, the market has shown that it is not willing to pay any price for the shares, and this is reflected in the pricing of the offerings at the floor of the indicative ranges stated in the prospectuses (or below them) and even cancelations of transactions. Added to this scenario is the market volatility caused by the uncertainties regarding the course of the pandemic (for example, expectations about vaccines and the occurrence of new waves in various countries), the concern about fiscal policy, the interruption of structural reforms in Brazil and external tensions, such as that experienced during the heated election process for the presidency of the United States.
Although the capital markets continue to be an interesting option for the capitalization of companies, the scenario requires extra care regarding pricing and timing of transactions. Structured, high-growth companies that are solid in their fundamentals continue to be sought after and in demand. The importance of preparing and selecting advisors in the process becomes even more critical to the success of transactions. Machado Meyer has a highly specialized team prepared to assist businesses in this process, from the preparation phase to the post-IPO phase, with experience and relevant history with companies of all types, industries, and sizes.