By Carolina Mandl and Tatiana Bautzer
SAO PAULO (Reuters) - Brazilian companies are striking mammoth share offerings and M&A deals, as Latin America's biggest economy recovers from the COVID pandemic with expected full-year GDP growth of 5%, potentially further lifting sectors from energy to healthcare.
M&A volume grew eightfold in the first half of 2021 from the same period a year earlier, to $56.8 billion, while share offerings totaled $15.3 billion, up 55%.
Bankers expect activity to remain buoyant during the second half, boosted by an optimistic economic outlook, with sectors such as retail and fintechs in the spotlight.
In the first half, healthcare operator Hapvida's $9.58 billion acquisition of Notre Dame Intermedica was the seventh largest deal in emerging markets, while state-controlled oil company Petrobras' $6.45 billion acquisition of deepwater oil fields Atapu and Sepia fields ranked thirteenth.
The privatization of Rio de Janeiro state water and sewage utility Cedae raised roughly $4 billion, luring Singapore's GIC, Canadian pension fund CPPIB and local holding company Itausa.
"There is a virtuous circle in place for deals: economic activity is picking up, benchmark interest rates are low and money is available," said Eduardo Miras, Brazil head of investment banking at Citi.
Brazil's largest share offering this year happened on the last day of June, with the sale of Petrobras' stake in fuel distributor Petrobras Distribuidora SA. Petroleo Brasileiro SA, as the seller is formally known, raised 11.36 billion reais ($2.3 billion).
Companies such as energy firm Raizen, a joint venture between Cosan (NYSE:CZZ) SA and Royal Dutch Shell (LON:RDSa) Plc, cement maker Intercement Brasil SA and oncology clinics chain Oncoclinicas plan to price multibillion-real IPOs in the coming weeks.
These deals are expected to lure deep-pocketed foreign investors, who shunned Brazilian share offerings earlier this year amid snowballing pandemic and political turmoil, taking the place of domestic investors who have grown more cautious.
"Foreign investors are no longer as worried about the pandemic as the pace of vaccination has picked up over the last few weeks," said Roderick Greenlees, head of investment banking at Itau BBA, which led the equities league table in the first half. He predicted share offerings will reach 160 billion reais this year, a 33% rise from 2020.
Foreign investors spent 65.1 million reais buying Brazilian companies' shares, net of outflows, in the first semester, according to stock exchange operator B3, compared with a net outflow of 62.8 billion reais in the year-ago period.
Still, domestic investors have grown more timid, as benchmark interest rates have risen to 4.25% from 2% in January. Equity funds have gotten 1.7 billion reais in net new money this year through May, dwarfed by net inflows of 94.1 billion reais for fixed income funds.
DEALS CYCLE
Strong capital markets activity is also increasing funds available for acquisitions, said Bruno Amaral, head of M&A at Banco BTG Pactual, which led the Brazil M&A league table in the first half.
Hard hit industries during the pandemic such as retail have been among the most active in deals in recent months as Brazil recovers and consumption rises, Amaral said.
"We are also seeing a lot of deals in the financial area, mainly fintechs taking on the large banks, and in healthcare," he added.
Warren Buffett's Berkshire Hathaway (NYSE:BRKa) Inc led a $750 million funding round in fast-growing fintech Nubank, while private equity firm Advent International invested $430 million in payments company Ebanx.
Below, the Brazil league tables for M&A advisory and ECM bookrunning during the first half
M&A - Brazilian Target (NYSE:TGT) Announced
Financial adviser Deals value ($ million) Number of deals
Banco BTG Pactual 20,962 31
JPMorgan (NYSE:JPM) 19,837 8
Itau Unibanco 17,009 18
BR Partners 15,235 8
Citi 14,499 7
XP (NASDAQ:XP) Investimentos 10,013 5
Santander (MC:SAN) 8,894 13
Banco Bradesco 8,823 17
BofA 6,934 4
Rothschild 6,725 10
TOTAL 57,295 494
Source - Refinitiv Deals Intelligence
ECM - Global Equity and Related - Brazil
Book Runner Proceeds ($ million) Number of issues
Itau Unibanco 2,622 34
Banco BTG Pactual 1,764 31
Morgan Stanley (NYSE:MS) 1,383 16
BofA Securities 1,274 13
XP Investimentos 1,217 18
JPMorgan 1,198 14
Santander 1,074 15
Banco Bradesco 1,057 17
Citi 914 11
Goldman Sachs (NYSE:GS) 858 8
TOTAL 15,336 46
Source - Refinitiv Deals Intelligence