Acquisition of listed companies gains strength in Brazil

By Fernanda Guimarães

In a period of increased market turbulence and risk aversion, Brazil’s mergers and acquisitions (M&As) will increasingly involve companies already listed on the stock exchange.

This is because the prices of companies with shares traded are beginning to be seen as more attractive by investors.

Consequently, they may attract companies in search of consolidation and also private equity funds that are capitalized and ready for a new investment cycle.

More commonly abroad, this type of transaction has grown in recent years in the Brazilian market and has already represented a relevant part of the largest M&A movements in 2022.

Such were the cases of Rede D’Or acquiring SulAmérica, Fleury with Hermes Pardini, the merger between BR Malls and Aliansce, and Cosan taking over Vale’s capital.

Another public operation is being sewn up: the American company Equifax is targeting the credit bureau Boa Vista.

For specialists, other transactions that target listed companies should be announced, including companies that have lost a lot of market value.

This situation has already been seen in cases like the purchase of Méliuz by BV and Mosaico by Banco Pan, considering two recent transactions.

But not all of the investments have been completed. The Arab fund Mubadala tried to buy Burger King in Brazil, but the offer did not please the shareholders.

The list of bets of companies traded on the stock exchange can go through mergers and acquisitions processes is wider.

It is largely made up of companies that went public in recent years but have lost a lot of market value since the IPO (initial stock offering).

The e-commerce company Westwing was proactive and hired XP about a year ago to look for a buyer.

Among other companies that start to be analyzed are Mobly, Oncoclínicas, and Universidade Cruzeiro do Sul, which since the IPO, have devalued 60%, 75%, and 85%, respectively.

Sought, Mobly said it is not involved “in any acquisition process by third parties or in conversations to acquire other companies. The other companies declined to comment.

For the global head of investment banking at Itaú BBA, Roderick Greenlees, this type of transaction is a trend in Brazil, mainly because, after a few years of intense activity in the local capital market and dozens of share offerings, many companies began to have pulverized capital.

This factor opened space for transactions of this kind, as is seen in larger numbers in more mature markets, such as the United States.

“There is this tendency for companies with pulverized capital, without a controller, to become the object of M&As,” comments the BBA executive.

According to him, this type of proposal can also attract a new interested party, as was the case with Linx, which initially received an offer from Totvs but closed the deal with Stone.

Bruno Amaral, partner responsible for the M&A area of BTG Pactual, says that this type of operation also reflects the maturation of the Brazilian market and can happen not only in periods of a slump but also when the market is more optimistic.

“We also see a greater appetite from funds for transactions of this type,” he says.

According to the BTG executive, a listed company can become an M&A target also after a substantial decline in market value.

“When the market value becomes disconnected from the intrinsic value of the company, by definition, the company becomes a target.”

Amaral, from BTG, says that for a company already listed, shares become an important bargaining chip during an M&A, especially because it is possible to make a hybrid design for the payment, contemplating a cash disbursement and another with shares.

“At a time when the market is at its lowest point, it may make more sense to receive shares in the M&A, be a shareholder, and participate in future upside,” he says.

Another factor, comments the head of Bradesco BBI’s investment bank, Felipe Thut, is that operations with share swaps can facilitate M&A transactions between two companies that have lost value on the stock exchange.

“In a down period, many companies don’t want to sell because of the price, but this process is facilitated with stock swaps. No company feels harmed.

The co-responsible for the M&A area in Latin America at Citi, Antonio Coutinho, explains that one of the advantages of operations involving companies with shares listed on the stock exchange, compared to those of privately-held companies, is the fact that there is a price reference to guide the operations.

“In the private market, the price reference is still outdated, and time will correct it,” he says.

The price issue may make this business more common for private equity funds, comments the head of the M&A area at Bank of America, Diogo Aragão. This, according to him, has the potential to make the market more active.

However, he highlights that the market needs to be less volatile for it to have traction. “We need a little more refreshment, with less macro and fiscal noise.”

But there are counterpoints to this type of transaction. Gustavo Miranda, responsible for the investment banking area at Santander Brazil, confirms that several companies are listed at beautiful prices and that, in theory, they should attract more interest from funds.

However, according to him, the complexity of executing delistings and the low liquidity of many stocks make it challenging to assemble relevant positions at current market prices.

“We realize that there is interest for the assets at current price levels, but the complexity of execution has hindered the viability of this type of operation,” he says.

The head of the capital markets area of Credit Suisse in Brazil, Leonardo Cabral, believes, on the other hand, that this movement will not come from private equity funds because he has observed a greater focus of these investors in private companies.

“Buying companies already listed will make more sense in consolidations,” he says.

With information from Valor