Brazilian M&A and investment banking firms already used platforms like Zoom and Teams to help surmount logistic challenges in a continent-sized country, making it easier to switch to digital deal making as such tools became increasingly used in the broader economy. As in other sectors, the crisis helped amplify existing trends. Operational dynamics remained practically the same, the biggest difficulty was not being able to get stakeholders together in person to aid in decision making and negotiations. A challenge in Brazil where face-to-face meetings are highly valued. And yet the common, and time-consuming, aerial bate-voltas (day trips) to São Paulo and other business centers were quickly swapped for videoconferences and digital contract signings helped overcome the traditional, often Byzantine, processes at local registry offices. WhatsApp groups were also formed to connect stakeholders, and negotiations were even conducted via video on the beach to help get deals over the line. Few deals were seemingly cancelled due to financing concerns. Local and international private equity firms are sitting on record dry power levels. Even Boeing’s cancelled $4.3billion purchase of Embraer did not explicitly cite Covid-19. Brazilian strategics and large cap companies were also, in part due to the 2016 recession, better positioned to withstand financial stress and continue to make acquisitions.
First wave of transactions consisted of follow-on offerings providing “rescue capital”, before pivoting to incremental capital in order to expand investments and “go shopping”, especially in the e-commerce, tech, finance, health, agribusiness and logistics sectors, which had outperformed roader segments. Surprisingly, there has yet not been a significant uptick in distressed asset transactions. Historic low benchmark interest rates of 2%, combined with the liquidity generated by extensive fiscal support and monetary injections boosted fundraising through initial and follow-on share offerings. Indeed, Brazilian capital markets stormed back in the second quarter, powered by domestic investors seeking alternatives to historically low fixed income yields and betting on an accelerated economic recovery. Medium-term M&A outlook is broadly positive and supported by improving macroeconomic fundamentals. Historically the crises of 2008-9 and 2015-16 were followed by an uptick in deal-making in following years. The government should also return to its privatization agenda and infrastructure investment as focus shifts to the 2022 presidential election which could enhance deal making. Even sectors more impacted by the pandemic, such as entertainment, tourism and restaurants may give rise to M&A opportunities, as seen in the R$50billion mega merger between car rental companies Localiza and Unidas in September. Biggest current challenge is not the pandemic but the slow pace of tax and administrative reforms. Nonetheless, we saw a record number of M&A transactions in 2020.