Cash flow for Brazilian M&A deals slows amid market woes

Cash flow for Brazilian M&A deals slows amid market woes

About 1,130 M&A transactions were recorded in Brazil in January-June this year for a total value of R$158 billion (US$29.2 billion), according to the latest data compiled by the Transactional Track Record (TTR).

The number of deals, including private equity, venture capital and asset acquisitions, rose 2% year-on-year, but the reported value dropped 44.3%, confirming the lower investor interest seen in recent months, particularly among investors. international.

In private equity, TTR reported that 44 Brazilian transactions were completed in the first half of the year, down 38% year-on-year to a reported value of 10.8 billion reais.

The scenario was similar in Mexico and Chile, among other countries in the region, which also registered a decline in volumes and business values ​​in recent months.

In the case of Mexico, the value of monitored businesses in January-June dropped 32.3%, while in Chile the drop was 22.9%, according to TTR. Chile also recorded 20.8% fewer transactions in the period.

The internet, software and IT services sector continued to be the busiest, with a total of 217 transactions registered in Brazil by the end of June. However, that was a 40% drop from the same period in 2021, according to TTR.

With investors more risk-averse, companies are reviewing their plans.

Like other players in the industry, Desktop, one of Brazil’s largest internet service providers (ISP), believes the window has closed for a subsequent equity offering, after raising more than 715 million reais in an IPO. in July last year.

Despite this, the ISP maintains its acquisition strategy and believes that the retraction represents an “accommodation” in the market.

However, times are a little tougher for startups.

According to the Inside Venture Capital report by the Distrito innovation platform, in partnership with Bexs Bank, Brazilian early-stage technology companies raised US$2.92 billion in 327 transactions in the first half of the year, down from US$5. .26 billion and 416 deals in the same period of 2021.

The decline was most pronounced in the second quarter, both in volume and value, according to the report.

In the month of June alone, US$343 million was raised by Brazilian startups in 45 investment rounds, compared to a record US$2.14 billion in 76 rounds in 2021, according to the Distrito study.

CVC

But while startups see investors as less willing to shell out their money, especially foreigners, more Brazilian companies are betting on creating vehicles to invest in them.

A preliminary study by the Brazilian association of private equity and venture capital (Abvcap) shows that 13 companies listed on the Ibovespa created investment funds CVC – corporate venture capital (corporate venture capital funds, in Portuguese) in the first half of 2022, compared to just eight created in the year 2021 .

Among them are companies such as Telefônica Brasil, which in April announced the creation of Vivo Ventures, with R$320 million intended for investments in startups, and mining giant Vale, which in June announced a US$100 million CVC fund to startups, both in Brazil and abroad.

Pulp giant Suzano was also active, with its CVC arm announcing $70 million for investments, mostly in green technologies.

Although the investments of these new Brazilian CVC funds have not yet materialized, the contrast with the international CVC is notable.

TTR recorded 375 VC investment rounds in the first six months of the year in Brazil, a 15% increase in the number of deals, moving 17 billion reais in capital.

However, transactions involving foreign private equity and VC funds in Brazilian companies fell by 23% in the same period.

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