The market is excited about the mergers and acquisitions sector. This is due to the major privatizations on the horizon coupled with the growth of industries like technology and healthcare. Though very turbulent politically, 2017 saw the government establish legal and governance changes that increased transparency and boosted investor confidence. The way the operation Car Wash (Federal Police, corruption probe) is unfolding also helped to improve the country's image, as companies started watching compliance tools more closely. Adding to it are upcoming privatizations - especially pertaining to Eletrobras and Petrobras - which prepare the way for major deals.
All of these measures have led specialists to estimate that the number of transactions in 2018 will increase 10-15% compared to last year. "This number is poss., but only if the privatizations do in fact occur," Luiz de Magalhaes Ozorio, MRA Professor at !kn. College, warns. "For investors, the more uncertainty and instability, the greater the risk. Given the current situation and the upcoming elections, by Q3 we expect the number of transactions to decrease compared to the same period last year." It is during Q4 that the increase in the amount of transactions should take place to justify those 15%. Corroborating with this forecast, a survey by Transactional Track Record (TTR) shows that the Brazilian market recorded 210 transactions in Q1 "FOREIGN CAPITAL COMING IN IS CRUCIAL FOR BRAZIL TO GROW," SAYS MARIA MICHELIN, OF LAW FIRM BRAGA NASCIMENTO E ZILIO ADVOGADOS.
2018, a 19.85% drop in mergers. In 2017, after two straight years dropping, the market finally started showing signs of improvement "The number of transactions went up 8% We can't say how much this is in figures; explains Tereza Fernandez, of consuking firm MB Associados. "Few of those operations involved more than US$ 1 billion. Most are worth up to US$ 28.2 million. We have to remember that the domestic market is composed primarily of medium and small enterprises." Majority stake takeovers make up most of them, with 385 transactions. After those are purchases, with 216 deals - with only 16 of these involving amounts of over US$ 1 billion. Mergers accounted for the least, totaling 20.
The largest acquisition deal last year was Dutch group Paper Excellence's US$ 4.3 billion-purchase of Eldorado Celulose e Papel - of JHF holding, which includes JBS. "Foreign capital coming in is crucial for Brazil to grow and make the crisis a thing of the past," says Maria Michelin, an associate with law firm Braga Nascimento e Zilio Advogados. Privatizations and concession auctions planned by the governments play a major role in all this. Michelin mentioned that Eletrobras' privatization, the biggest of them all, is still up ahead, being expected to take place in 2019. "The government is still reading the bill which will guide the whole process. A public offering alone won't do much," she says, referring to how the model for this privatization is still unclear. Other than providing resources for the government, many argue that the transaction will help ma. electricity bills cheaper.
So far. in 2018, the largest deals were the ongoing concession agreements for highways, airports and ports, in addition to oi. gas. in relation to figures, the forecast for this and the next years is related to the divestiture program to sell off assets the government announced in late 20177 Ozorio says. During this period, the government passed rules for governance, transparency and good market practices (Decree 9188/171. According to Ozorio, this affected investors positively.
"The Administrative Council for Economic Defense is more rigorous than it has been in the past too," notes Lior Pinsky, a specialist at law firm Veirano Advogados, adding that 'This is a game changer." Last month. the Council vetoed the acquisition of Liquigas (owned by Petrobrasl by Ultragaz to prevent the latter from owning more than half of the market share - Ultragaz would have as much as 6095 in some municipalities. Already in place in the country are firm laws regulating the power. highways and airports sectors. "We have evolved in this regard. One example was the divestiture process power utility company Cemig announced last year in the amount of USS 1.9 billion: says Alberto Faro, an associate with the Machado Meyer Advogados law firm. "Not all sectors have had rules laid down for them. Railways and sanitation have a lot of room for improvement"
One promising sector is Technology. which has been reporting large amounts of transactions since 2014.,cording to UK Q1 2018 has 46 deals. 31, more than Q1 2017... CMorio states. Operations with fintechs (startups working in finance and insurance, are attracting a growing number of investments. in finance, the highligh. in the three first months of 2018 were investments made in the fintechs Nubank and RecargaPay."
For Adam Patterson. director at Legacy Partners. technology, finance and healthcare are the areas that combined should drive mergers and acquisitions in Latin America during the first half of 2018. "The education, paper and cellulose. and food and beverages sectors will also heat up.- Patterson adds that we may see the market getting more cautious until October when the presidential election will occur, especially global investors. “It the agenda of the next president should match Temer’s, with respect to economic reforms, Brazil will do well in mergerns and acquisitions”. He also mentions the reforms that have not been made, such as tax and social security. Fabio Perrone, managing member of law firm Campos Mellos Advogados agrees with Patterson. “If we can maintain this scenario, 2019 swill be the year we turn things around. All we need is an administration that is geared towards business matters.
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