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Mergers and Acquisitions Update – 2012

Posted on the 08 January 2013 by Angelicolaw @AngelicoLaw

Just months ago, we commented on Brazil’s recent decrease in M&A activity in this blog post.  Now that 2012 has officially come to a close, it is possible to have a complete picture of Brazil’s M&A landscape.  Unfortunately, the picture isn’t as pretty as some would have hoped.

According to a January 3, 2013 Reuter’s article by Guillermo Parra-Bernal and Aluísio Alves, the results are in and they aren’t pretty.  In 2012, M&A activity was at a three year low, just barely above the numbers from 2009.  ”Companies announced $71.036 billion worth of deals in the country last year, down 11.9 percent from 2011.”

While deal figures worldwide are also down (9.8 percent from 2011), there has been an unrelenting sense of optimism among foreign investors who are looking to Brazil.  We frequently hear that Brazil is different.  While the US and European countries are knee deep in the economic downturn, Brazil is growing.  This certainly could be true.  The Brazilian Central Bank has predicted that the country’s GDP will grow 3.3 percent in 2013; yet even this figure is lower than was previously expected.

Certainly the next few years will be years of growth for Brazil.  However, the question remains: how much growth will there be?  In preparation for the 2014 World Cup and 2016 Olympic Games, the Brazilian government is looking to rapidly increase the country’s infrastructure, particularly systems of domestic transportation.  Obviously, such growth requires significant investment, both domestic and international.

Last month the Brazilian government announced that it would open an international bid to companies interested in operating a high-speed train between São Paulo and Rio de Janeiro, the country’s two largest cities.  The investment – approximately $3.7 billion.  While many people had hoped that this particular project would have been complete by next year, the government is only going to open the bid in 2014, making many wonder if it’s not a bit too late.

But there is some other good news.  Despite the numbers, large M&A transactions do continue to occur in Brazil.  Take, for example, UnitedHealth Group Inc.’s $4.9 billion acquisition of Brazil’s Amil Participações SA, or PepsiCo Inc.’s purchase of Grupo Mabel.  While it’s easy to analyze the statistics, we cannot forget about the big picture.  Brazil is the largest economy in Latin America and one of the largest economies worldwide.  For any truly global business, it is a market that simply cannot be ignored.

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