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TGF 2023: Spotlight on Brazilian M&A trends
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TGF 2023: Spotlight on Brazilian M&A trends

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The Transactional Growth Forum (TGF) was an event that provided analysis, insights, and forecasts based  on the current Brazilian M&A market, bringing together experts and 10 years of TTR data. Sponsored by iDeals, the 2023 edition of the event focused on the Brazilian middle market and showcased the buyer-side perspective.

The last decade of M&A transactions

Over the past 10 years, Brazil has been the leader in M&A activity in Latin America, in both volume and value. 

Specifically, the middle market deal volume has been increasing steadily, from 807 deals in 2013 to a peak of 1,834 in 2021, before settling at 1,516 in 2022. At the same time, the aggregate value has risen from BRL 112.7bn in 2013 to a 10-year high of BRL 439.6bn in 2021, before settling at BRL 231.5bn in 2022.

The number of private equity (PE) deals each year has been relatively consistent, ranging from 87 in 2013 to 110 in 2020, before falling to 64 in 2022. 

However, the aggregate value of these deals has increased steadily from BRL 17.25bn in 2013 to a high of BRL 29.17bn in 2021, before dropping to BRL 19.97bn in 2022. Venture capital (VC) deal volume has grown significantly since 2013, with an aggregate value of BRL 22.85bn in 2022. 

Where deals are happening

It is no surprise that most VC and middle market deals have been concentrated in São Paulo, but start-ups are proving attractive investments in other states. Especially in financial services, retail and distribution, healthcare, consulting, industrials, real estate and construction, natural resources, and energy deals.

CVC activity

CVC activity has exploded over the past four years, although it remains a small percentage of overall VC activity. Deal volume has doubled since 2019, and continues to grow (up to 104 deals in 2022), though the value peak was in 2021 with BRL 6,61K of CVC acquisitions. 

The services and distribution sector has been the most popular middle market draw, followed by technology and telecoms, energy, industrials, real estate and construction, natural resources, and infrastructure.

Private equity

Equity capital markets have been an effective financing route for Brazil-based issuers and a viable exit alternative for PE investors, although there have been long lulls between periods of activity, including a lack of IPOs in 2022. 

The number of PE deals declined between 2013 and 2017 but then climbed steeply, with 2021 reaching BRL 29,17K of investments. This dropped to BRL 19.97K last year, but that was still higher than in 2013.

Listed acquirers have played a significant role in consolidation, with almost twice as many deals in 2022 as in 2013, totaling BRL 132.7bn.

The event attracted an impressive range of speakers, but, we have chosen to focus our attention on selected highlights from specific panels. These panels included the following speakers:

  • Clarisse Cordeiro, Innovation and Ventures Partner, Deloitte
  • Laura Constantini, Co-founder and CSO Astella
  • Danilo Mininel, Corporate and M&A Partner, Madrona Fialho Advogados 
  • Luiz Guilherme Arakaki, Principal, Vinci Partners
  • Gustavo Dalcolmo, Senior Partner, FM/Derraik
  • Luiz Osório Dumoncel, CEO and founder Três Tentos Agroindustrial

Block 1: Venture capital & growth

Over the last decade, CVC has surged in Brazil, accounting for 10% of all venture capital investments in the country. Start-ups have experienced impressive growth, with transactions increasing 14-fold and the number of deals up 40% since 2019. 

Additionally, the value of VC deals has increased 103% over the same period. Historically, 61% of VC deal volume and 82% of aggregate value have been concentrated in São Paulo, but other states are now starting to attract VC interest, particularly for start-ups.

The boom in CVC is being fueled by several factors, including the trend towards digitization post-Covid, the drive to decarbonize, and companies seeking greater diversification to enhance their competitiveness. 

As a result, funds are actively seeking valuations from companies in the tech and service sectors, particularly in internet services, industry-specific software, retail, and transport/logistics. In 2022, the biggest VC deals were in financial insurance, distribution and retail, healthcare, and consultancy.

Looking ahead to the second half of the year, we anticipate more investments in tech, including telecoms, and clean energy, with opportunities within Brazil’s flourishing CVC ecosystem.

Block 2: Scale-up and consolidation

After a boom in 2022, the Colombian economy stalled in the face of high inflation and interest rates and uncertainty about the economic outlook. However, the middle market M&A landscape is slowly but steadily returning to sustained growth. Over the past decade, there has been a 9% increase in deal volume and a 24% rise in aggregate value. In comparison to 2018, these figures have increased by 10% and 31% respectively in 2022.

Consolidation in the health, education, and financial services sectors has been at the forefront of this trend, driven by digitization and the emergence of fintech. Meanwhile, deals in health and education have been focused on cost reduction and expanding into new regions.

Looking ahead to H2, the speakers predicted a greater emphasis on decarbonization, particularly in renewable energy and recycling, as well as a continued focus on digitization, including AI. Notably, the highest annual growth rates have been in electric energy (22%), wind energy (155%), solar energy (137%), waste management (45%), and agribusiness (19%).

Block 3: IPO-ready

Over the past decade, the number of companies planning, confirmed, or rumored to be planning an IPO has been volatile, increasing from 72 in 2013 to a peak of 224 in 2017 and again at 219 in 2021, but none were launched in 2022. 

Service and distribution emerged as the dominant sector of interest, accounting for 644 IPOs, followed by real estate (164), technology (154), and industry (140). 

Renewables also showed promise with 97 deals. Although finance, healthcare, and distribution were the primary focus, a Brazilian power company’s US$6.9 billion equity deal was the world’s second-largest equity deal of 2022. In addition, the privatization of Latin America’s largest utility company was successfully completed.

Panel on technology in agribusiness

During the technology in agribusiness panel, Luiz Osório Dumoncel emphasized how the agribusiness sector has already experienced significant benefits from the increased use of technology to optimize and streamline processes. 

He strongly disagreed with the notion that technology creates distance between companies and their customers, citing the example of Colombia Grain International, an app that simplifies the grain-selling process and eliminates the need for invoicing, making transactions faster and easier.

Both panelists shared an optimistic outlook on the adoption of more responsible practices and the implementation of new technologies in the industry. 

They emphasized the positive impact these changes can have on both companies and society as a whole. 

Their responses reflect the growing trend of companies placing a greater emphasis on sustainable practices and their ability to adapt to evolving regulatory and technological requirements.