Survey: Half of Brazil’s companies intend to do mergers or acquisitions in next 12 months

RIO DE JANEIRO, BRAZIL – Mergers and acquisitions operations are viewed as promising by 86% of Brazilian companies’ entrepreneurs and executives, and 50.5% intend to complete some such transaction in the next 12 months.

This is shown in the survey “ABES/BR Angels/Solstic Advisors: perceptions about mergers and acquisitions in the current Brazilian market scenario,” conducted in a partnership between the Brazilian Association of Software Companies (ABES), BR Angels Smart Network, and Solstic Advisors, a company specialized in M&A (Mergers & Acquisitions) operations and fund raising.

BR Angels’ founder and CEO Orlando Cinta believes that startups have much to gain with the increase of mergers and acquisitions in Brazil. He believes that these are great opportunities for new entrepreneurs to quickly scale their businesses with other companies already established in their segments.

Among the interviewed executives, 13.3% said they had been involved in mergers or acquisitions in the past 2 years. Of these, 50% conducted transactions in the IT market, while 14.3% chose retail and another 14.3% the financial sector.

“Our survey shows an acceleration in M&A after the pandemic, which offers a promising scenario particularly for startups and businesses that provide innovative and complementary solutions in several markets,” Cinta explains.

The survey conducted in July 2021 with 105 senior executives shows that the most likely sectors to announce mergers or acquisitions in the coming months are technology (66%), e-commerce (5.7%) and logistics (5.7%). Most respondents (35.8%) intend to invest between R$1 million and R$ 5 million in this type of operation.

“Low interest rates worldwide and the high liquidity offered by central banks boosted stock exchanges and fueled the mergers and acquisitions scenario, mainly in 2020. This trend persists,” says Solctic Advisors’ founding partner and CEO Flávio Batel.

According to the survey, efforts focused on mergers and acquisitions should gain prominence over the next 24 months. To this end, 23.8% of respondents intend to implement a Corporate Venture program to invest in or acquire start-up external businesses.

However, there is still a long way to go. Currently, most companies participating in the survey (75.2%) lack a structured M&A area. Of the 24.8% with an area dedicated to this end, 10.5% have an external department, only 7.6% have an internal structure, and 2.9% have a structure dedicated to Corporate Ventures.

TECHNOLOGY ON THE RISE

With the acceleration of digital transformation as one of the impacts of the pandemic, 81.9% of respondents said they have taken some action to adapt their business to the new reality, which can improve the scenario for mergers and acquisitions, mainly in the IT sector.

The survey showed that 50.6% increased investments in the IT sector. Of these, 85.1% invested in software, such as SaaS and Cloud, as well as hardware and equipment purchases (40.2%) and services such as maintenance and installation (39.1%).

“Approaching technology businesses turned out to be doubly beneficial in this scenario. First, due to the promising moment of the segment in light of the digital transformation. Second, to supply the very need to have these resources at home. These are some of the reasons that should contribute to more M&A operations in the technology market in the coming months,” says ABES president Rodolfo Fücher.

When considering an M&A transaction, most respondents (63.8%) assess the business model of the company to be invested in or acquired. Issues such as scalability (52.4%), innovation (50.5%), financial health (43.8%), team and leadership (41%), valuation (33.3%), organizational culture (27.6%), and governance (25.7%) are also considered.

Among the reasons for considering the operation, the possibility of increasing market share comes first (42.9%). The incorporation of technologies (35.7%), the acceleration of digital transformation (21.4%), the inclusion of talents (21.4%), entering new markets and segments (21.4), and gaining competitiveness (14.3%) also weigh in the decision.