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M&A appetite is higher than ever

Global Capital Confidence Barometer | Brazil highlights | 16th edition

Economic optimism has Brazilian companies considering all options for growth

Although Brazil’s economy contracted for an eighth consecutive quarter — making the current economic downturn the country’s longest on record — Brazilian executives are feeling more optimistic than they did a year ago, according to this edition of EY’s Capital Confidence Barometer.

When it comes to market confidence in Brazil, the key is relative improvement. Even amid the recession, budget deficits and high unemployment, 61% of our Brazilian respondents say the local economy is improving — a vast increase from the 3% rate we recorded just 12 months ago.

Similarly, executives are feeling much more confident across domestic macroeconomic measures, with confidence in corporate earnings increasing to 42% (versus 13% a year ago) and 55% feeling more positive about credit availability (versus 9% in April 2016).

High volatility in currencies, commodities and other capital markets remains, as expected, the top risk Brazilian executives cite to their core business over the next 6 to 12 months.

However, government intervention in corporate decision-making is rising as a concern. Executives believe structural reforms, in the form of new laws and regulations, as well as public pronouncements by world leaders, could impede growth in the coming year.

Brazilian executives are not allowing these risks to impede deal intentions. Their M&A appetite is higher than ever: 84% of Brazilian companies say they are actively pursuing mergers and acquisitions in the next 12 months.

Executives are particularly optimistic about the availability of global acquisitions and the likelihood of closing deals. Closer to home, they also see improvements around the quality of domestic opportunities, as elevated valuations push new assets into the market.

Pipelines are also active, with 92% saying they have one to three deals in the works; and smaller, more tactical deals are prevalent, with a majority (69%) on the hunt for deals smaller than US$250m. Among companies pursuing deals, nearly half (43%) say future-proofing their business is the most important strategic driver of their acquisition activity.

In addition to M&A, Brazilian companies are turning to alliances and joint ventures, either to capitalize on a partner’s brand recognition or to gain faster access to innovation. The need for speed — in response to technology, changing patterns of demand, and demographic and economic trends — is compelling executives to consider a range of options.

Indeed, an adaptive mindset has been crucial to Brazilian companies in recent years given the country’s domestic challenges. As executives look at the year ahead, improving economic conditions and the need to adapt to fast-changing markets will push them toward deals that secure supply chains and offer greater market access. This, coupled with growing investor activism pressuring boards to consider inorganic options, should keep dealmaking robust in Brazil.
EY - Felipe Miglioli

Felipe Miglioli

Parthenon-EY | Strategy Services

Ernst & Young Assessoria
Empresarial Ltda.

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