Brazil: Political Uncertainty May Slow 2H 2018 Brazilian M&A Performance

As the election in Brazil approaches, political uncertainty may slow investment activity in the second half of 2018. Questions about who will lead the country has led many investors to delay closings until post-election in October.

Besides the election, a number of unexpected socioeconomic events have affected Brazil's gross domestic product (GDP), which grew at a slower pace than expected for the first half of the year. GDP for 2018 was initially predicted at 2.3% but is now closer to 1.5%, according to a Central Bank report. The change is attributed to the truckers' strike in May, higher than expected inflation, continuing high unemployment rate (at 12.3%, according to IBGE), a persistent fiscal deficit and high government debt (at 77% of GDP, according to the Central Bank) and the interruption of the voting in Congress.

Despite these factors, M&A activity in Brazil has gained momentum. In the first half of 2018, M&A activity grew 18% compared to the same period in 2017, with 471 transactions announced and a total value of R$ 101 billion (US$ 28 billion), according to Fusões & Aquisições. Driving this are lower interest rates (the basic rate is at a record low of 6.5% per year) and a depreciated Real against the Dollar (a trend observed worldwide, where the Dollar has strengthened). As a result, Brazilian assets are very attractive propositions in terms of purchase price and many buyout opportunities are being explored. But in the second half of the year, business in general is awaiting the outcome of the election before making important decisions – a behavior that is holding back M&A transactions.

The deal flow would have been even more robust if there were no disagreement between buyers and sellers, particularly on target company valuations (driven mainly by different points of view on short and mid-term perspectives and projected risk). Sellers are asking higher prices, expecting the same value as those seen prior to Brazil's recent economic crisis. However, buyers are not in a position to pay.

According to Transactional Track Record, technology was the most active sector in the first half of 2018, followed by financial services. The same report concludes that transactions involving venture capital funds increased 23% compared to the first half of 2017, showing an increased appetite for riskier assets even in a less-than-favorable economy.

Private equity investment remains strong, with fund managers expecting to raise between US$ 3.5 billion and US$ 3.7 billion in 2018 for their funds in Brazil, which Valor Econômico reports as the highest level since 2014. Although the domestic environment for raising capital is challenging, international investors continue to have an appetite for Brazilian investments.

Despite growth in some sectors, Brazil is below target investment rates. According to IBGE, Brazil has investment rates of about 15% of GDP, where it should be targeting 20%. A well-structured and ambitious program of privatization and concessions is one way to attract investments, strengthen growth and reduce unemployment. Brazil's investment needs will likely be funded privately, as the government is unable to satisfy the demand for funds.

Capital markets will also play a decisive role in Brazilian investment and development. According to an Accenture Strategy study, a stable growth scenario of 2% to 3% per year and an active capital market could bring Brazil an additional R$ 300 billion in funds and infrastructure investments from 2018 to 2022. This could generate an additional 1.7 million jobs and increase average per capita income about 12% in a period of four years.

Looking further ahead, M&A activity will likely increase over the next few years as investments are made to improve Brazil's infrastructure deficits in healthcare and education (mainly in K–12, EdTechs and corporate training). In healthcare, which is overall still regional and fragmented, there are many opportunities for consolidation.

Renewable energy and real estate may continue to be M&A hot spots. Brazil's natural resources, specifically wind power, and the increasing demand for energy have heightened interest in the sector. Low property prices, in addition to favorable foreign exchange rates and low local interest rates, have created opportunities for real estate investors.

Investments in the country will likely be maintained by investors who are already acquainted with Brazil's intricate deal environment and economy. According to a report published by Saint Paul Escola de Negócios and the Brazilian Institute of Finance Executives, CFO levels of confidence remain high (at 130 points) after sinking to levels below 100 points in the first and second quarters of 2016. The report notes that companies are holding on to investments but have market confidence and cash for expansion and M&A activity when the right opportunities arise.

Driving near- and long-term activity in Brazil will continue to be speculation over the political outcome. The market expect that the next president will succeed in gaining approval on important structural reforms (priority should be the pension reform), reducing the government's fiscal deficit and creating a sustainable framework for increased economic activity and investments.

Political Uncertainty May Slow 2H 2018 Brazilian M&A Performance.pdf (0.1) MB

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions