By Mauricio Schutt | July 2023
In 2023 the investment opportunities for M&A in Brazil are both like and unlike the world’s other leading economies today. The same can be said about its economic advantages.
As the world’s 10th largest economy, Brazil has a healthy GDP of two trillion US dollars, a diversified market with more than 200 million consumers, multiple industries with a highly developed business services sector, vast mineral wealth, and a keen eye on foreign expansion.
It’s also a global power in the agribusiness sector and one of the world’s top-two exporters of agriculture in general. What’s more, Brazil is a democracy with a western-like culture that values both freedom and diversity, and it conveniently serves as a near-shoring or friendly-shoring for other western economies.
Yet, Brazil is not without its challenges nor its unique differences. The Brazilian government could have addressed several important issues at a much faster pace, but decades of tradition that favor a privileged few over the population as a whole are almost impossible to change overnight.
In the last five years, however, important reforms were approved regarding the social security system, employment contract relationships, and central bank autonomy. Furthermore, in 2023 the Brazilian Congress should approve tax system reform to both simplify it and to make it more comparable to other developed economies.
The good news is that Brazil’s ambivalent mix of economic advantages and disadvantages can offer M&A investment opportunities which aren’t available in other leading economic markets.
GDP per capita here is only 20-25% that of other developed countries. As the largest economy in Latin America, Brazil also offers a strong consumer market potential, a sophisticated financial market, internationally recognized expertise in several industries, and Brazilian unicorns, among other attractive advantages.
As a result, if your investment strategy and risk assessment are both on target, M&A in Brazil has many benefits to offer this year.
Scope Surpasses Scale
According to a 2023 report on M&A in Brazil by Bain Consulting, scope deals—whereby businesses change their target markets in a new way or enter a different sector of some kind—continue to grow significantly. So much, in fact, they’re noticeably outpacing the growth of scale-related deals, which basically focus on expanding operations that already exist.
Scope deals have steadily hiked their share of the total transaction market, increasing from 5% of Brazil’s total deal value in 2019, to 9% in 2020, and then to 21% in both 2021 and 2022. Conversely, the total percentage of scale deals has declined accordingly.
I think this is a particularly valid indicator of how strong the demand for long-term investment in Brazil actually is. By its very nature, growth in scope-based transactions corroborates the perception of Brazil as a country that merits long-term commitments.
Investments into new sectors, new markets, new products and new growth and expansion all underscore a company’s belief in the viability, not only of its own ability to succeed, but in the strength of the chosen economy in and of itself.
Inflation here has been in control since 1995. Currency fluctuation is far less risky, largely due to an enormous trade balance and $US350 billion in reserves; and labor reforms approved in 2018 have significantly reduced labor litigation.
Together, all of these factors continue to build Brazil’s reputation as an increasingly attractive investment location on a global scale—for the world’s $multi-billion giants and mid-sized companies alike.
Mauricio Schutt is a Partner in Pactor Finanças Corporativas, an M&A and consulting services firm focused on the Brazilian market. For more information on M&A in Brazil, contact him at email@example.com.