Brazil flies between M&A, foreign capital and innovation

Feb 7, 2020

Between significant mergers and acquisitions, Brazil proves to be an excellent solution for bringing together foreign capital and for M&A.

Read the article signed by Economy to find out the latest financial news from Brazil and to know the opinion of Graziano Messana. Find out more about mergers and acquisitions in Brazil here.


Living in an emerging market like Brazil means participating jointly in very rapid transformation phenomena and economic cycles that alternate with speeds sometimes unpredictable despite the large size.

The balance sheet of this brief analysis, to the detriment of those who think that Brazil will struggle to catch up accumulated during the last economic crisis, sees a robust Brazilian ability to attract foreign capital, carry out mergers and acquisitions and modernize.

Concerning the attraction of capital, we must remember the programme of significant privatizations, together with a new apparatus of anti-corruption and compliance rules, which encouraged foreign investors. This has led Brazil to second place in the FDI ranking, Foreign Direct Investment.

The data are related to a study just released by the UNCATD (United Nations Conference on Trade and Development) and show how Brazil was able to attract 75 billion dollars of foreign direct investment, an increase of 26% compared to 2018. At the same time, I remember, China was unable to attract investment, and India had more modest growth.

A significant transaction was the sale of a large distribution company of GAS (THE TAG) purchased by a consortium of investors led by Engie, but other privatizations already announced in 2020 such as Eletrobras, the largest electric utility in Latin America, or Telebras, will attract further foreign direct investments for the current year giving continuity to this trend.

Beyond privatization, preliminary greenfield investment data announced in the country support this perspective, particularly in the renewable energy sectors and the automotive industry.

As a result, Brazil liked foreign investors more than other BRICS.

Speaking instead of mergers and acquisitions, we recalled the significant investments of ENEL, which became the first local operator in Brazil, or FCA’s announcement of the potential investment of 4 billion euros to be realized in Brazil soon.

But to get an overview, it is worth analyzing a bit the M&A sector and all the operations that took place in Brazil to relate it to the first considerations on foreign direct investment.

Already in the last two years, there had been a boom in mergers and acquisitions, drawing on the record figures of 830 transactions carried out in 2017 and 967 transactions in 2018. The year 2019 closes with a further historical record with several transactions realized equal to 1,231.

Incidentally, this figure shows the increase in confidence on the part of domestic workers and the improvement in economic conditions in the country, given that a substantial part of these is carried out by Brazilian players. Worth mentioning, and not the subject of this analysis, however, the most relevant IPO perfected by a Brazilian company happened in 2019: XP Investimentos, a financial services platform was valued at about 20 billion dollars and listed on Nasdaq (for technical reasons).

In these 1,231 M&A operations (of which 750 are carried out in the state of Sao Paulo) significant mergers are intercepted in sectors such as aeronautics (Embraer and Boing) or cosmetics (Nature and Avon), but the data examined in a KPMG study are useful to show the sectors that have created the most opportunities. They were computer science, with 293 transactions carried out, followed by hospitals and laboratories of clinical analysis, real estate, energy companies, and food products.

The share of international transactions is growing, in the specific case of 20%, and there are 374 transactions carried out by foreign players.

To close the picture of statistics, we see how 2019 has been an equally exciting year for the creation of Brazilian unicorns, companies with digital technologies that are valued, in conjunction with M&A operations or capital increases, at a value of more than one billion dollars.

If 2018 had generated 5 of these realities, 2019 also detached itself, creating as many cases of success and placing Brazil in third place in the world after the United States and China.

The companies are Ebanx (digital payments), Gympass (fitness), Loggi (logistics and delivery), QuintoAndar (real estate brokerage), and Wildlife (video game).

How do Italian companies behave in such a promising market as the Brazilian one? They are certainly not indifferent to the opportunities that the country offers. There is a huge market, although distant and complicated. The Guide on Brazil released at the end of 2019 by the Italian Embassy in Brazil contains a census that exposes 972 Italian companies with a subsidiary in the country. Taking away the large companies, almost all present, are often small and medium-sized enterprises that make room, both in the traditional and the most innovative sectors, fully embracing the phenomenon of digital transformation. Home automation and digital security are growing and it is no coincidence that the Italian NICE, which operates in this sector, is building a modern plant investing 20 million euros or that Planet Smart City has chosen Brazil to build 10 smart cities, of which 2 have already been launched. In the traditional sectors, Chiesi Pharmaceuticals has just opened new state-of-the-art installations and, in the design district of Sao Paulo is launching a new multi-brand of Italian design to serve the construction and interior architecture industry.

We need to take more advantage of the opportunities that the entry of big Italian players offers, the induced for Italian SMEs is very rich and certainly favoured in a period like this that is going through Brazil.

Graziano Messana

Managing Partner GM Venture

Graziano Messana

Managing Partner GM Venture

Original article in Italian.


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