BRAZIL: An Introduction to Corporate/M&A
2024 ‒ Landing M&A Activity Globally and in Brazil
Updated figures capturing most of 2024 reveal that 2024 accounted for a growth in global M&A deals at USD3.4 trillion (ION Analytics), representing an increase of 8% in comparison to 2023, driven mostly by declining interest rates in key markets such as the USAand certain state members of the EU. M&A players favoured deals with more obvious synergies and high growth potential, with the buy-side sporting liquidity as a result of the general availability of capital. In Brazil, according to the most updated figures, M&A transactions reported in 2024 amounted to BRL225.7 billion, representing a significant growth of 34% compared to 2023, with 531 deals closed. This means that although Brazil’s 2024 M&A activity is up in terms of aggregate value, the number of transactions is down by 63 deals when compared to 2023. Strategic and financial investors have executed fewer deals but with higher amounts involved, thus implying an increase in the average ticket of the deals (Valor Econômico newspaper). More specifically, highlights of 2024 in M&A activity include energy, real estate, oil and gas, technology and internet, food and beverage, financial services and infrastructure (TTR data). Domestic players account for the majority of the deals, while US-based companies were, by some margin, the most acquisitive in the inbound M&A transactions in Brazil.
2025 ‒ Brazilian Projected Macroeconomics
The Brazilian Gross Domestic Product (GDP) growth for 2025 is being projected at 2%, as per market indicators gathered by the Central Bank of Brazil – Bacen (Focus Market Bulletin – Market Expectations). Bacen has continuously managed to successfully control inflation, with the IGPM price index being projected at 4.87% for 2025. SELIC (policy rate) is projected at 15% for 2025, decreasing to 12% in 2026 and further to 10% in 2027. From a broader macroeconomic perspective, current high interest rates play a role in diverting the focus of investors with low appetite for risk from M&A to Brazil Treasury bonds. The projected decrease in the SELIC rate likely means that gradually more liquidity is expected to be injected into the economy. Although a decrease in the policy rate typically unlocks M&A activity, time will tell if those projections will fuel any increase in M&A activity in the mid- and long-terms. Foreign investors enjoy one of the all-time high devaluations of the Brazilian currency vis-à-vis US dollars, which implies further discounted prices but can also bring some concerns in the long run for returns targeted in hard currency, particularly for investors with a determined investment cycle. Tax reform implementation is evolving, with benefits to the business environment starting to be attainable in the mid- to long-terms. Political stability (no near-term presidential elections), a clear environment for government policies, and the rule of law will further improve Brazil’s perspective along the way.
Outlook of Brazil’s 2025 M&A Activity
Financial advisors in Brazil generally reported a consistent flow of deals in 2024, particularly with regard to middle-market transactions, although a myriad of challenges in execution have added to the typical timeframe. Thus, 2025 may experience a strong Q1 in terms of deal completion. Corporations and strategic investors facing organic revenue growth limitations will likely pursue inorganic growth through M&A given Brazil’s economy’s positive outlook, despite restrictive monetary policy. It is expected that the hot topics of M&A in 2024 will continue to perform in 2025, along with some subsectors bouncing back to the scene. Therefore, deals in energy (including renewables), infrastructure (across the broader perspective), technology, real estate, oil and gas, financial services and institutions, retail, food and beverage, health, pharma and education should be in high demand. Brazilian companies will continue to closely follow the market to seize any opportunity for IPOs or follow-ons, although it is unclear at this stage if 2025/2026 will do any better in relation to the low figures of 2024. Restructuring promises to be a source of distressed M&A and special situation deals (with no succession liabilities), as Brazilian companies will, at some point, have to navigate debt rolling or reprofiling with high interest rates and an unfavourable currency exchange ratio.