Latam M&A to Recover in 2023; IPOs could take longer

By Tatiana Bautzer

SAO PAULO (Reuters) – After a sharp drop in Latin American deals in 2022, bankers expect a slow recovery next year, led by M&A. High global interest rates may make it more difficult for IPOs to resume.

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, said the total value of M&A, although lower than the record year of 2021, was within historical range in the years before.

Bankers predict M&A volumes will grow up to 20% in the region next year as Latin America becomes more relevant among emerging markets. Many emerging market investors are now decreasing their exposure to China after the Ukraine war.

Latin America has a great opportunity to increase its share among emerging markets, said Latam M&A co-head at Citigroup Nicolas Roca.

He said that “the volatility associated with elections in the region tends not to be long-lived and won’t impact this trend.” He cited the example of market improvements in Chile one year after the election by leftist Gabriel Boric.

Investors are also waiting for economic policy proposals by Brazil’s President-elect LuizInacio Lulada Silva, the latest leftist elected after Gustavo Petro, Roca stated. Lula, who will assume office Jan. 1, has announced that Fernando Haddad, a loyal party member, will be his Finance Minister.

HEALTHCARE, ENERGY

Healthcare deals were among the top-selling in the region for the second consecutive year.

Rede D’Or Sao Luiz SA, a hospital chain, purchased Brazilian insurer Sul America SA for $3.1billion in a stock transaction. This deal highlights the activity in the sector. Aliansce Sonae acquired mall operator BR Malls for $2.1 billion. This was an unusual deal in Brazil.

Daniel Bassan, CEO at UBS BB, stated that energy should be a vibrant industry, particularly in renewable energy.

Fabio Medeiros (head of investment banking for Morgan Stanley in Brazil) sees potential consolidation among smaller companies that have grown over recent years, acquiring assets from the state-owned oil company Petrobras. Lula is expected not to stop divestitures state assets.

According to UBS BB’s Bassan, retail deals are driven by high interest rates and credit defaults. These retail deals have been steadily growing in the past months.

IPOS ON THE BACK BURNER

Sources claim that the return to initial public offerings (IPOs) in 2023 is likely to be more challenging.

According to Refinitiv data, December 26th, shares offerings in Latin America dropped 61% to $13.4 Billion. Brazilian investors have been investing money in fixed income assets since benchmark interest rates of 13.75%.

While rates are rising in some other developed markets as well, Latin America has returned to the radar of international investors, after having been displaced from large markets by UBS BB’s executive director Teodora Barrone.

The listing of energy assets in Brazil owned by China’s Three Gorges should mark the beginning of the year’s first IPO.

If the Lula government does not change recent laws that regulate this industry and allow private investment to increase its volume, then sanitation companies might be allowed to resume listing.

M&A League Table 2022- Latin America

Volume of financial advisors (US$ Million) Number of deals

Itau Unibanco 15,372 42

Banco BTG Pactual 13,911 71

Rothschild & Co 13,882 24

Banco Bradesco SA 13,146 58

Citi 10,605 14

Morgan Stanley 8,857 13

Lazard 7,404 17

JPMorgan 6,184 15

Santander CIB 5,996 35

Scotiabank 5,694 9

Total 88.026 1.354

Source: Refinitiv. Source: Refinitiv.

(Reporting and Editing by Tatiana Bautzer; Editing By Peter Graff