Cross-border M&A: LatAm companies go deal hunting
Brazil highly attractive to developed market investors; South-south trend overstated
Two high-profile proposed deals between Portugal and its former colony have revealed some of the new characteristics of Brazilian M&A. First, Petrobras’s (albeit abortive) attempt to purchase Italian oil company Eni’s 33.34% stake in Portugal’s Galp Energia demonstrates that Brazilian companies are increasingly reversing the trend of Asian, European and US firms buying Latin American corporates, in particular in the energy and natural resources sectors.
The appreciation of local currencies, increased corporate cashflows and support from strong financial institutional investors have led M&A bankers in the region to report an increase in the number of Latin American companies looking to buy targets in North America and Europe.
The second deal, Portugal Telecom’s R$8.32 billion ($5 billion) purchase of 22.4% of Brazilian telecom operator Oi, shows the levels of valuations for Brazilian assets. It also points to the evolution of inbound M&A away from its previous almost myopic focus on commodity companies and the continuing strategic importance that companies based in developed markets place on Brazil and Latin America for revenue growth.
Petrobras’s attempt to buy the stake in Galp Energia reportedly floundered on valuation but many analysts believe the Brazilian oil firm might be acknowledging that it has enough challenges domestically (Petrobras: Fuel’s gold, Euromoney, March 2011).