In 2023, political and economic uncertainties on a global scale resulted in a drop in mergers and acquisitions (M&A) transactions in Brazil. According to the report Brazil – Annual Report 2023, published by TTR Data, we had a total of 2,008 M&A transactions compared to 2,387 transactions completed in 2022, which represents a drop of 22.02%.
Economic and political factors can have a profound influence on M&A transactions, especially in markets where the capital structure is incipient, such as Brazil. Among the main aspects that have an impact on new M&A transactions, the following are worth mentioning:
- Economic scenario: both the national and international economic situation and market forecasts tend to influence the availability of capital in the market, investors’ risk appetite and even the valuation of companies. A favorable economic scenario, by default, tends to heat up M&A activities.
- Political stability: political stability – or instability – directly influences M&A operations. Jurisdictions considered unstable, such as Brazil, can transmit uncertainty and risk to investors, reducing both the availability of capital in the market and their appetite for risk.
- Professionalization: as sectors of the economy professionalize in order to improve their operational efficiency, they begin to seek access to resources in the market, which tends to generate new opportunities for M&A operations.
Despite the worsening geopolitical tensions on the world stage and the fact that countries like the UK, Germany and Japan are in technical recession, Brazilian investments in national assets grew by 14% in 2023 and reached R$5.7 trillion, according to the Brazilian Association of Financial and Capital Market Entities (Anbima).
In this vein, despite global macroeconomic instability and especially in Brazil, where there are still sensitive issues in progress, such as tax reform and improving the fiscal deficit, the market is betting on a warming trend in M&A activities. Considering the operations that went public in the first four months of the year, it is possible to conclude that sectors such as technology, health, biotechnology and renewable energies should dominate M&A operations this year.
The technology sector will be one of the most promising, especially with regard to companies offering artificial intelligence (AI), which is growing exponentially with the use of tools such as ChatGPT.
On the other hand, given that the Covid-19 pandemic has accelerated the process of innovation in the health and biotechnology sectors, these should also be on the agenda for mergers and acquisitions. Market conditions have forced investors to re-evaluate their investment strategies and, in this sense, the trend is for new business opportunities to continue to emerge.
The renewable energy sector, in turn, should become a very attractive target for M&A activities, due to the advancement of the ESG agenda and the growing awareness of climate change and sustainability.
In any case, those seeking to take advantage of the warming trend in the market to carry out M&A transactions, whether sell-side or buy-side, are advised to: ensure the company’s operational efficiency, by increasing the profitability of the business; improving the capital structure; and optimizing the allocation of resources, among others; and carry out prior due diligence, with a view to maximizing the valuation of companies intending to receive investments, issue debt or expand operations.
In certain cases, it may be necessary to carry out corporate reorganization operations in order to improve the organization’s level of corporate governance and thus increase the company’s attractiveness to potential investors or buyers.
Finally, it should be noted that any M&A operation, debt issue, capital expenditure (Capex) and/or similar procedures require specialized legal advice at all stages: from the preparatory acts of the operation to the strategic negotiations and drafting of contracts, as well as other definitive instruments of the operation and/or any post-closing measures.
Firms specializing in M&A operations are essential to provide all the support and guidance necessary for the parties to the deal to carry out the operation correctly and within the legal constraints, thus maximizing their security and potential profits to be made.
