After a sharp decline in business deals between companies in Latin America in 2022, bankers expect a slow recovery next year, driven by mergers and acquisitions, but initial public offerings (IPOs) may take longer to resume due to the highs global interest rates.
The volume of M&A deals in Latin America are down 35% this year to $86 billion, according to Refinitiv data..
Roderick Greenlees, head of global investment banking at Itaú Unibanco Holding, said the total value of mergers and acquisitions, while down from the record year of 2021, was within the historic range of previous years.
Bankers expect it Mergers and acquisitions volumes will grow up to 20% in the region next year as Latin America becomes more relevant among emerging markets.
Already many emerging market investors they withdrew from Russia due to the war in Ukraine and are now reducing their exposure to Chinaworried about the impact of erratic policies in the face of Covid-19, tension with Washington and the opaque finances of Chinese companies.
Latin America has a great opportunity to increase its participation among emerging marketssaid Nicolás Roca, co-head of mergers and acquisitions for Latam at Citigroup.
“Election-related volatility in the region tends to be short-lived and will not affect this trend,” he said, citing the example of the market improving in Chile a year after the election of leftist Gabriel Boric.
Investors are also awaiting economic policy proposals from Brazil’s elected president Luiz Inácio Lula da Silva, the last elected leftist in the region after Colombia’s Gustavo Petro, Roca said. Lula will take office on January 1 and has announced that Fernando Haddad will be his finance minister.
health and energy
For the second year in a row, healthcare offerings were among the largest in the region. Rede D’Or Sao Luiz hospital chain’s purchase of Brazilian insurer Sul America highlighted for $3.1 billion in all-equity deal activity in the sector. Aliansce Sonae’s US$2.1 trillion acquisition of shopping center operator BR Malls it started as an unsolicited offer, something unusual in Brazil not long ago.
Energy is expected to remain a very active sector, particularly renewable energy and transmission assets, said Daniel Bassan, CEO of UBS BB.
Fabio Medeiros, head of investment banking at Morgan Stanley in Brazil, also sees potential consolidation among smaller oil companies that have grown in recent years, by acquiring assets sold by state-owned oil company Petrobras PETR4.SA. Lula should stop the sale of state assets.
IPO
The return of the initial public offerings in 2023 looks more difficult, the sources say. Equity offerings are down 61% in Latin America this year to $13.4 billion, according to Refinitiv data through Dec. 26. Brazilian investors poured money into fixed income assets as benchmark interest rates hit 13.75%.
While rates are also rising in other developed markets, Latin America is now back on the radar of international investors after they pulled out of other major markets, said Teodora Barone, chief executive officer of UBS BB.
The first IPO of the year is expected to be the listing of energy assets owned by China’s Three Gorges in Brazil.
Sanitation companies may resume their intentions to go public if Lula’s government upholds recent laws regulating the sector and allowing for a larger volume of private investment.
