Giulia Keese Montanhesi
Lawyer at Marcos Martins Advogados
According to the Monthly Bulletin of the Brazilian Association of Financial and Capital Market Entities (Anbima), released on November 10, 2020, October was a standout month for the Brazilian IPO (initial public offering) market. A total of 16 companies went public, an increase of 88.88% compared to the same month last year.
In addition to raising R$35.3 billion for the capital market, the volume of share offerings and the number of IPOs have grown since 2019 and are a strong indication of the market’s recovery.
Preponderant factors in this reality are the exceptional performance of the technology and financial sectors , as well as the interest rate, due to the considerable drop in the Selic rate. These market conditions have attracted many investors to the Stock Exchange in search of profitability and better performing assets.
Although these figures represent good indications, the uncertainties of the current context lead us to be cautious when considering bold operations, such as the debut of companies on the stock exchange.
We must not lose sight of the fact that in recent weeks there have been several reports of initial offerings being interrupted or withdrawn. As reported on 11/11/2020, “the residential subdivision company Alphaville interrupted the operation for the second time, citing an unfavorable market environment.” [1]
A few days earlier, Eztec, the BRZ construction company and the Le Biscuit chain withdrew from listing their shares on B3 and in October, the telecommunications company Triple Play and the São Paulo real estate developer One Innovation also withdrew, along with several others.
The effects of the Covid-19 pandemic, as well as the political and economic issues of recent months, have caused high volatility in the Brazilian markets and have been important and even decisive factors for the 20 companies that have withdrawn their operations this year.
It is also important to note that some companies opted to sell their shares at the floor of the indicative range (for example: the construction company Melnick and the retailer Grupo Mateus) or even concluded the operation at lower prices (such as the construction companies Lavvi, Plano & Plano and Cury and the pharmacy chain Pague Menos).
With this in mind, it is essential to understand the real impact of the current context not only for the company’s business, but also for its investors and shareholders, during the process and planning of the offer.
Below are the guidelines and precautions recommended by our team in operations of this nature, in order to provide a safe performance for everyone involved:
- It is not enough for the company to perform well during the crisis and build its operation on these premises. The reflection of the context on the buyers (investors) that the company is seeking to attract must be carefully analyzed, since this consideration will have a direct impact on the pricing of the shares and the operation as a whole;
- Before filing any lawsuit, it is important to “put your house in order”, undergo an audit and check that the company is operating and has the necessary licenses in accordance with the law;
- Have an effective compliance program. This type of measure can increase the company’s value and bring more confidence to investors;
- Timing is essential so that the company gets its “window of opportunity”, doesn’t suffer from an imminent withdrawal or interruption of the operation and consequently doesn’t suffer losses and loss of credibility in the eyes of the market and investors. Periods of political transition or deep structural reforms can generate volatility and uncertainty that is detrimental to the operation and should be avoided;
- Compliance with the formalities of the regulatory bodies is essential for the success of any operation, especially in times of scarce resources and slowness in granting registrations and authorizations. Failures in protocols and non-compliance with the formalities laid down by the CVM are becoming increasingly common and must be taken into account in order to ensure the success of offers as part of their planning;
- Evaluating foreign investments in the company’s segment and the allocation of resources on the Brazilian stock exchange are extra cautionary measures that make all the difference, as well as a complete analysis of how the company stands up to the competition in this pre-IPO crisis period;
In addition to these issues, it is essential to carry out the entire process with the assistance of a specialized, multidisciplinary team to assess commercial, economic and legal issues.
Marcos Martins Advogados makes its specialists available for any advice, questions or clarifications on the subject, in order to carry out the entry of companies onto the stock exchange in a safe and successful manner.
[1] https://economia.uol.com.br/noticias/reuters/2020/11/11/alphaville-interrompe-ipo-pela-2-vez.htm
