SAO PAULO, 27 December (Reuters) – (This December 27 news story has been corrected to change Teodora Barone’s title in paragraph 17 to “Equity Capital Markets Head at UBS BB” instead of “UBS BB Executive Director”. )
After a sharp contraction in Latin America deals in 2022, bankers expect a slow recovery over the next year, led by mergers and acquisitions. IPOs may take longer to resume due to high global interest rates.
The volume of M&A deals in Latin America fell 35% this year to $86 billion, according to Refinitiv data.
Roderick Greenlees, global investment banking head at Itau Unibanco Holding SA (ITUB4.SA), said the total value of mergers and acquisitions, while lower than record 2021, was within historic range in previous years.
Bankers predict M&A volume in the region will grow by up to 20% over the next year as Latin America gains prominence among emerging markets. Many emerging market investors have already divested from Russia due to the war in Ukraine and are now reducing their exposure to China amid concerns about the impact of unpredictable COVID policies, tensions with Washington and the opaque finances of Chinese companies.
Latin America has a great opportunity to increase its share among emerging markets, said Nicolas Roca, co-head of Latam M&A at Citigroup.
“The volatility associated with the elections in the region is rather short-lived and will not affect this trend,” he said, citing the example of market improvement in Chile a year after leftist Gabriel Boric’s election.
Investors are also awaiting economic policy proposals from Brazil’s President-elect Luiz Inacio Lula da Silva, the latest leftist to be elected in the region after Colombia’s Gustavo Petro, Roca said. Lula takes office on January 1 and has announced that party stalwart Fernando Haddad will be his finance minister.
HEALTH, ENERGY
For the second year in a row, healthcare deals were among the largest in the region.
The acquisition of Brazilian insurer Sul America SA (SULA11.SA) by hospital chain Rede D’Or Sao Luiz SA (RDOR3.SA) for $3.1 billion in a stock deal underscored activity in the industry. Aliansce Sonae’s (ALSO3.SA) $2.1 billion acquisition of mall operator BR Malls began as an unsolicited offer, a sort of deal uncommon in Brazil recently.
Energy should continue to be a very active industry, particularly renewable energy and transmission equipment, said Daniel Bassan, CEO of UBS BB.
Fabio Medeiros, Morgan Stanley’s head of investment banking in Brazil, also sees potential consolidation among smaller oil companies, which have grown in recent years and acquired assets sold by state-owned oil company Petrobras (PETR4.SA). Lula is expected to halt the sale of state assets.
According to UBS BB’s Bassan, high interest rates and loan defaults are seen as motivating retail businesses, which have been growing slowly in recent months.
IPOS AT THE TOP
The return of IPOs in 2023 seems more difficult, sources said.
Stock offerings fell 61% this year in Latin America to $13.4 billion through Dec. 26, according to Refinitiv data. Brazilian investors put money into fixed income as interest rates hit 13.75%.
Although interest rates are also rising in other developed markets, Latin America is now back on the radar of international investors after they have pulled out of other major markets, said Teodora Barone, Head Equity Capital Markets at UBS BB.
The first IPO of the year should be the listing of energy assets owned by China’s Three Gorges companies in Brazil.
Plumbing companies could resume listing intentions if the Lula government complies with recent legislation regulating the industry and allowing a higher volume of private investment.
M&A League Table 2022 – Latin America
Source: Refinitive. YTD data through December 26th
Reporting by Tatiana Bautzer Editing by Peter Graff
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