Brazil M&A activity seen gaining steam by year's end
* Market woes, slowdown spark caution in Brazil M&A
* Private equity seen spurring more deals this year
* Deal volumes rise 7.1 percent to $44.706 billion
By Guillermo Parra-Bernal and Aluisio Alves
SAO PAULO, July 2 (Reuters) - Mergers and acquisitions activity in Brazil is likely to gain steam by year's end when the benefits of measures to revive growth will be more visible for companies and private equity firms seeking takeovers in Latin America's largest economy.
Multinational and homegrown companies betting on Brazil may take advantage of lower valuations caused by an economic slowdown and declining prospects for profitability to step up acquisitions, according to five bankers interviewed by Reuters.
Likewise, private equity firms that last year raised a record $6.3 billion for their Brazil investments postponed many of their planned purchases of retail, consumer goods and infrastructure firms as the outlook for the economy turned blurry, the bankers said.
"All this uncertainty, the changes in valuations, is basically making it harder for bids and offers to converge," said Renato Ejnisman, who heads the investment-banking division of Bradesco BBI, the wholesale banking unit of Banco Bradesco , Brazil's second-largest private sector bank.
"We hope that in the coming months, that divergence eases as conditions improve globally and locally," he added.
Brazil's economy slowed abruptly in the first half of this year and is unlikely to rebound strongly before year-end. While the slowdown has had little impact on Brazil's bustling job market, it has hampered manufacturing and lessened incentives for companies to merge by lowering earnings expectations for the near future.
Economic growth came in at 1.9 percent in the 12 months through the end of March, the slowest pace of expansion in three years. Inflation, which only a few months ago slightly surpassed the central bank's official target for the year, is rapidly converging to the target's mid-point -- a sign that economic activity is stagnating.
The volume of M&A transactions in Brazil rose in the first half of the year despite the economic downturn, still-high risk aversion and market turmoil that have all put the brakes on investment plans.
Companies announced about $44.706 billion worth of deals in Brazil in the first half, up 7.1 percent from a year earlier, a Thomson Reuters quarterly report on M&A trends showed on Monday. The number of deals rose sharply to 417 from 364 in the same period of 2011.
Brazil, which surpassed Britain last year to become the world's sixth-biggest economy, is still luring a large number of sophisticated investors, said Fabio Mourão, head of Brazil mergers and acquisitions for Credit Suisse Group in Sao Paulo.
More companies from United States and specialized investors from Asia and the Middle East are also setting their sites on Brazilian companies now that Brazil's currency, the real, has lost some ground against the U.S. dollar, he added.
"I certainly expect 2012 to be stronger than 2011 on the M&A front -- there are a handful of good transactions in the pipeline," Mourão said in an interview.
Recent changes in antitrust laws helped spur the number of announced M&A deals since April, bankers said. Under changes passed by legislators this year, antitrust regulators must issue a preliminary approval before the plans can be announced.
Foreign and local banks continue to bet on investment banking as a stable source of earnings despite Brazil's weaker economic performance and a possible slump in fees. Fees in Brazil will probably fall below the $800 million earned by banks last year, according to estimates by leading investment bankers.
"The outlook might not be as promising as it was a year or two ago, but the opportunities are there and despite the greater caution, I don't see activity or fees slowing too dramatically," said Jorio Salgado, managing director for M&A at BR Partners, a local investment banking boutique.
OUTSTANDING TRACK RECORD
For the fifth straight quarter, local investment banks trumped their global rivals for the most lucrative deals. Unlike their counterparts in other emerging market nations, Brazilian banks are besting their foreign rivals at funding deals, forging stronger client ties and setting up distribution networks similar to those of global banks.
Four local banks made it to the top-10 rankings, showing the degree to which confidence in Brazil remains robust even as risk-taking wanes in the face of Europe's debt crisis. Despite a decline in the average value of transactions this year, foreign and local firms see Brazil as a long-growth destination.
Brazilian companies are focusing on the domestic market after three years of aggressive overseas expansion. According to central bank data, local companies spent $2 billion abroad in acquisitions in the first five months of the year, compared with $13.8 billion in the same period in 2011 and a combined $45 billion in 2009 and 2010.
"Brazil continues to be a market with enormous potential," Roberto Barbuti, Bank of America Merrill Lynch's co-head of Brazil investment banking, said in an interview.
Itau BBA, the investment banking unit of banking giant Itau Unibanco Holding, led Thomson Reuters' M&A rankings in the first half in terms of value of deals, after advising on $20.04 billion worth of transactions in the first six months.
BTG Pactual, the investment-banking powerhouse controlled by billionaire financier Andre Esteves, led rankings in number of deals after advising on 38 transactions.
Both Itau BBA and BTG Pactual want to replicate their success at home by expanding in Latin America. BTG agreed to buy Colombia's Bolsa y Renta last month, while Itau BBA began wholesale banking operations there recently.
Credit Suisse ranked second, with $16.74 billion worth of M&A advisory work. Bradesco BBI and BR Partners ranked 4th and 10th in terms of deal size, respectively.
The following is Thomson Reuters' ranking for announced M&A deals for Brazil in the first half: ================================================================ FINANCIAL ADVISER VALUE RANK NUMBER OF MARKET
OF DEALS 2012 2011 2012 DEALS SHARE ================================================================ Itau BBA $20.82 bln 1 1 31 44.8 pct Credit Suisse $16.74 bln 2 4 20 37.5 pct Citigroup GB&M $15.53 bln 3 16 7 34.7 pct Bradesco BBI $11.29 bln 4 6 25 25.3 pct BTG Pactual $11.24 bln 5 5 38 25.1 pct Goldman Sachs $9.77 bln 6 2 4 21.8 pct Bank of America $9.26 bln 7 7 6 20.7 pct Rothschild & Co $8.68 bln 8 9 6 19.4 pct JPMorgan Chase $7.78 bln 9 18 7 17.4 pct BR Partners $7.16 bln 10 20 6 16.0 pct ================================================================ INDUSTRY TOTAL $44.706 bln 417 ================================================================ (Editing by Todd Benson and Andrew Hay)
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