M&A transactions hit a record in the first half of this year, according to surveys by PwC and Bain.
The volume of mergers and acquisitions (M&A) in Brazil was a record in the first six months of 2022. This movement may continue until the end of the year, according to a survey by PwC consultancy. And, according to a survey by Bain & Company, M&As can move US$ 4.7 trillion (R$ 24.5 trillion) until December.
While that represents a 20% decline from 2021’s $5.9 trillion, if confirmed, it will be the second-best year for trading on record. This estimate is based on the recovery of economic activity in recent months.
In the first quarter of 2022, the value of deals totaled $599 billion, down sharply from $970 billion in the fourth quarter of last year. The second quarter of this year saw a great recovery, with mergers and acquisitions moving US$ 702 billion in April and May.
However, volatility remains under the radar, due to rising interest rates in the United States and Europe, global inflation and supply chain problems, which have been exacerbated by the war in Ukraine and other geopolitical tensions.
With these turbulences, it is common for entrepreneurs and executives to be more conservative when negotiating. However, those surveyed by Bain recalled that the biggest deals are closed during periods of turmoil and stress. The survey reveals that companies that overcome recessions increase their Ebit (earnings before interest and taxes) by 14% in the 13 years after a slowdown.
It is possible to identify great opportunities for mergers and acquisitions, as companies around the world continue to show strong cash flows and balance sheets.
“As a result, companies looking to grow must review their M&A policies and consider this new landscape, so that executives have a clear view of all potential outcomes,” according to the Bain report. “Despite the turmoil, these are times when many sectors will be shaped for years to come.”
Technology leads M&As
With 807 transactions overall, the sector that leads mergers and acquisitions is technology, following a long-term trend. This sector has topped PwC’s research over the past ten years.
Next come services in general, with emphasis on financial and health companies, such as medical services and health plans. The sectors of education, agribusiness and food and beverages are also heated.
The panorama in Brazil
According to PwC, M&A operations in Brazil continue to be closed mostly between Brazilian companies. Despite the percentage of 2022 having dropped to 78% compared to 83% of 2021, national capital continues to represent more than three out of every four reais transacted. The justification is knowledge of the local market and the need for strategic movement by Brazilian companies, in addition to the search for operational efficiency and technological solutions.
The international investors that most invest in Brazil are US funds and companies. Next are European investors, focusing on sectors such as energy, industrial products, technology and others.
Following are companies from Asia, which are mainly looking for commodities, food, services and technology.
Why do companies do M&A?
According to PwC, companies undertake mergers and acquisitions for a variety of reasons. The main ones are to adopt strategies to generate value and make expansion projects viable, in addition to providing output for sellers.
In addition to these reasons, the justifications for a merger or acquisition can be:
- Realization of the personal investment of the partners
- Lack of business succession
- Financial difficulties
- Resolution of corporate disputes
- From the buyer’s point of view, the justifications are elimination of competition, increase in market share, incorporation of new technologies and increase in the portfolio of products and services, in addition to entry into new markets and synergy gains.
Text originally published by Forbes.