April 2, 2018 / 8:06 PM / 4 months ago

Brazilians back in the M&A game as rates fall, economy rebounds

SAO PAULO, April 2 (Reuters) - Brazilian companies are driving big deals after several quarters on the sidelines, as record-low lowest interest rates and a rebounding economy ease financing for local acquirers, according to bankers and lawyers in the country.

The dynamic contrasts with recent years, when Brazilian conglomerates under pressure from corruption probes and excessive debt sold assets mainly to foreign strategic investors and global buyout firms.

In the paper and pulp sector, for instance, Netherlands-based Paper Excellence BV outbid Brazilian rivals last year, offering $4.7 billion for Eldorado Brasil Celulose SA.

Last month, however, Paper Excellence lost out on the $14.6 billion acquisition of Fibria Celulose SA, which went to Brazilian rival Suzano Papel e Celulose SA in the largest emerging-market deal of the quarter.

Paper Excellence offered a higher price per share and payment in cash, but did not have financing for the whole deal arranged. Fibria’s controlling shareholders opted for lower, but fully-financed Suzano bid.

“Foreign buyers took on good opportunities to buy cheap assets when local companies needed to restructure, but now the situation is different,” said Roderick Greenlees, head of investment banking at Itaú BBA SA.

Itaú BBA topped the Thomson Reuters mergers and acquisitions advisory ranking in number of announced deals in the first quarter, while Bank of America Merrill Lynch ranked first by value of the transactions.

Marco Gonçalves, a former Banco BTG Pactual SA partner who last year founded Riza Capital, said lower interest rates may help firms grow faster through acquisitions and investments. He forecast that transaction volume will grow this year from $61 billion of mergers and acquisitions in 2017.

In the first quarter, however, the value of deals fell 40 percent from a year earlier to $17.61 billion, according to Thomson Reuters data.

Although Brazilian rivals are in better shape now, a stream of deals led by foreigners is expected to be announced during the second quarter.

Boeing Co is still in talks with Brazil’s Embraer SA about a potential commercial aviation tie-up.

A gas pipeline owned by state-owned oil company Petroleo Brasileiro SA may receive binding proposals this month from consortia led by French energy group Engie SA , Australia’s Macquarie Bank Ltd and United Arab Emirates sovereign wealth fund Mubadala Development Co.

Volatility before Brazilian presidential elections in October may affect capital markets transactions such as initial public offerings, but bankers expect a limited impact on M&A.

“We are seeing a long-term view on the economic recovery, no matter what the election result is,” said Hans Lin, head of investment banking at Bank of America Merrill Lynch.

M&A activity is expected to continue in infrastructure and energy, but now industries such as retail and consumer goods may have more transactions as the Brazil emerges from its harshest recession in decades, the bankers said. (Reporting by Tatiana Bautzer and Carolina Mandl)

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