War, weak growth slows down M&A activity
Mergers and acquisitions are down sharply this year in light of the economic instability abroad and in Brazil and the uncertainties caused by Russia’s war against Ukraine. In total, 134 deals were announced this year to April 10, down 14.6% year over year. The slowdown is greater when the combined amount involved is considered: it’s down 57% to $12.2 billion, according to a survey by Dealogic.The partial data points to uncertainties about the trend for M&As in 2022, when Brazil holds a presidential election. "What we have seen so far shows that the year will be more difficult than the market predicted at the end of last year," a source familiar with the market said, asking not to be named.According to the snapshot presented by Dealogic, the market saw a lower participation of foreign groups than in 2021. Only 20%, or $2.4 billion, involved investors from abroad.Although the flow of foreign capital has increased in the stock market, foreign groups are waiting for a clearer scenario to define where to allocate their funds. With the war, many investors have put plans for acquisitions on the back burner.Gustavo Miranda, head of investment banking at Santander in Brazil, says that the market volatility has an impact on the price references of the assets traded. "We have a scenario of inflation and monetary tightening here and abroad. Economic uncertainties also affect multiples of listed companies."According to the executive, the cost of raising new money has also increased as a result of rising interest rates. This factor influences how companies finance deals.The business environment at the beginning of this year in the country was more turbulent compared to the same period last year. At that time, although Brazil was still under the strongest effect of the pandemic, the expectation regarding the recovery of the economy was more optimistic than now. In 2021, the country saw record volumes in the capital market, as IPOs and secondary offerings totaled R$130 billion. M&A transactions ended the year at around $90 billion, the highest level in a decade.At the beginning of last year, key deals were closed - the merger of Intermédica and Hapvida created a new company valued at R$110 billion at the time the deal was unveiled, in early March last year. Another important deal in early 2021 was the spin-off of Itaú Unibanco’s stake in XP, which helped boost the value of the business. "This is not exactly classic M&A, but it was computed by Dealogic in...
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