Latin Finance - March 2008 - 36

Brazil m&a Consolidation Wave Not Broken by John Rumsey &A bankers claim their Brazil pipeline is as strong as it was in 2007. Ricardo Lacerda, head of investment banking at Citi in São Paulo, believes economic growth and rising consumer power means 2008 could even be better than last year. That would extend a trend. There was $60 billion in according to the National deals in 2007, a 40% increase over 2006 Association of Institutions of once the giant $17.2 billion Vale-Inco deal Credit, Financing and is excluded, he points out. Investment. Last year’s US Brazilian companies are set to household personal credit was continue to lead again in initiating 96%, according to the transactions this year, accounting for Woodstock Institute. some 60%-70% of acquisitions, says Raul Brazilian corporates have Beer, partner and head of corporate not relied heavily on equity finance at PricewaterhouseCoopers in markets to fund M&A, says São Paulo. Multinationals are responsible Lacerda. He points out that for the remaining 30%-40%, he adds. Brazil’s M&A activity is still Brazilian firms will continue to be puny compared to developed active overseas too, although there will be markets. He compares M&A concentration in a small number of large volume to total market deals, he says. They still have access to capitalization and GDP. In the affordable financing, making them truly UK, M&A represents 21% and competitive with foreign rivals. Vale’s 36%, respectively, while in possible acquisition of Anglo-Swiss Brazil this is a much more mining concern Xstrata for some $90 manageable 6% and 3%, billion would trounce all of last year’s respectively. M&A activity put together. Vale has In addition, Brazilian conditional financing lined up despite companies remain underdire global conditions, but the initial $76 leveraged compared to billion bid was reportedly rejected by the international norms, says target in February. Beer. His firm has been Bestriding the globe: Vale is leading the Brazilian M&A push Optimism may seem surprising given advising a wide range of the onset of a global economic slowdown, clients and none has with most economists having already trimmed forecasts for GDP withdrawn from a proposed deal. And for those companies that growth in Brazil to some 4.0%-4.5%. Credit markets are frozen are cash-rich from a recent trip to the IPO market, the uncertain and there is a distinct possibility that commodities, a mainstay of environment presents an opportunity to pick up targets cheap. the Brazilian economy, will come off the boil. Brazilian bankers Still, if conditions do not improve, as the year wears on do not fear major fallout locally for two reasons, one macro transactions will be trickier to finance, leading to creative tie-ups economic and the other capital markets related. between commercial banks, hedge funds and private equity On the macro side, Brazil is strong in hot areas like sponsors to keep the market well oiled. agribusiness and commodities. Fragmented industries have started and will continue consolidating. And the domestic Small Deals Repelled consumer is just beginning to flex his muscles. Admittedly the For SMEs that do need to raise cash to acquire, conditions are latter is based on rapidly-growing credit, but this is piffling in hostile. Daniel Goldberg, managing director and head of M&A for international terms. Credit represents just 35% of GDP in Brazil, Brazil at Morgan Stanley, sees both more expensive financing and M Brazilian M&A bankers are unflappably optimistic in spite of a crisis in global markets. With consolidation penetrating ever more sectors, M&A appears on track. 36 LATINFINANCE March 2008

Latin Finance - March 2008

Table of Contents for the Digital Edition of Latin Finance - March 2008