The mergers and acquisitions (M&A) market in Brazil is expected to recover and expand in 2023, supported by a combination of positive factors. The prospect of falling interest rates and, especially, the approval of the tax reform have boosted investor confidence and paved the way for an environment conducive to strategic M&A deals. Although the initial figures may seem a little challenging, a deeper analysis reveals a gradual and solid recovery path.
In the period from January to June 2023, 661 M&A transactions were registered in Brazil. Although this figure represents a drop of 11.8% compared to the same period last year, when 750 transactions were announced, it is important to note that the scenario was once more challenging, with a difference of almost 16% at the start of 2023. A more detailed analysis suggests a trend of continued recovery and an optimistic outlook for maintaining activity at the level of 1,600 transactions, the same as in 2022. These analyses were provided by Kroll, a company specializing in consulting services and market analysis. As such, the data shows that there are indeed significant challenges to be overcome in the M&A market in Brazil.
Regulatory considerations, tax complexity and cultural issues can impact negotiations and the successful conclusion of transactions. In this sense, the Brazilian regulatory system involving M&A is traditionally known for its complexity. Deals often involve multiple regulatory bodies, such as the Administrative Council for Economic Defense (CADE) and the Securities and Exchange Commission (CVM). In addition, regulatory approval is often a lengthy process, requiring careful analysis of the competitive and regulatory implications of the transaction. Not only that, but tax complexity is also a critical factor to consider in M&A transactions. This is because Brazil has an intricate and costly tax system, which can affect the planning and structuring of transactions, as well as the valuation of the companies involved.
Despite the challenges, the M&A market in Brazil presents significant opportunities for investors and companies. In this respect, the growing digitalization of the economy, the expansion of the middle class, the search for sustainability and openness to foreign investment are factors that will continue to drive M&A activity.
Currently, the mergers and acquisitions market is being led by the technology sector, which accounts for 17.5% of the total volume of transactions, closely followed by the Financial Institutions and Services sector, with 14.8%. The health sector contributes 6.1% of transactions, while consumer products, energy and logistics each account for 4.5% of announced transactions. Notably, the agribusiness sector has gained relevance, increasing its share from a historical 1.5% to 3.8% of announced transactions. Meanwhile, the retail sector, despite facing challenges, still maintains its importance, accounting for 4.8% of transactions.
Looking ahead, the recovery of the capital market also stands out as an influential factor in the M&A outlook for 2023. According to news published in Veja, 7 follow-ons were registered in the first half of the year, generating 9.2 billion reais. Although no IPOs have been carried out to date, experts predict the possibility of new IPOs on the stock exchange in the coming months. This trend is in line with investors' growing confidence in the Brazilian economy and business environment.
Thus, although the general climate is positive for M&A, the successful implementation of the fiscal framework and tax reform is an unknown that could significantly influence the scenario. The uncertainty surrounding these changes creates a certain amount of caution among investors. However, experts share the view that Brazil is overcoming the post-Covid-19 global recession earlier than many other countries, which is driving the consolidation of portfolio companies and the search for strategic opportunities.
In summary, the M&A market in Brazil is entering a period of recovery and expansion in 2023, supported by a number of positive factors, including the prospect of falling interest rates, the favorable macroeconomic scenario and the approval of fiscal and tax measures. Therefore, although the initial figures show a drop compared to the previous year, monthly and LTM analyses suggest a continuing recovery trend, indicating activity similar to that recorded in 2022. The recovery of the capital market also adds a positive element, paving the way for new investments. Finally, the implementation of fiscal and tax changes remains an unknown, but general confidence in the Brazilian market is driving optimism and the search for strategic M&A opportunities.
Ultimately, the M&A market in Brazil remains dynamic and full of opportunities, offering fertile ground for business growth, portfolio expansion and the generation of economic value. Success in this scenario requires a deep understanding of local nuances, as well as a forward-looking strategic vision.