Osprey Capital’s Canadian M&A Market Update: Goldman Sachs – Global M&A: 2H marks a shift towards recovery – Corporate separations continue to grow at an outsized pace and remain a significant driver of M&A activity.
As Canadian businesses see increasing interest rates and uncertainty in economic forecasts, we will continue to gather and post insight into Canadian M&A market update from a variety of knowledgeable sources on our Linkedin page.
After a muted start to dealmaking in Q1 (-45% YoY), M&A activity steadily improved in Q2 as the macro environment stabilized and the financing markets opened, fueling increased momentum across industries and a kick-start to sponsor activity.
Most notable was the rise of large-scale M&A, with 10 announced deals $10bn+ in Q2 , as well as a meaningful sector shift from growth to old economy following a prolonged, post-Covid growth cycle. Across the Americas, the natural resources sector in particular picked up steam (+50% YoY), accounting for the largest contribution to overall volumes at 30%. Healthcare, technology, media and telecom (TMT) and industrials contributed a combined 48%.
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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 firstname.lastname@example.org.
Cross-border M&A fell to $1.57 trillion worldwide in 2022, down from an all-time high of $1.7 trillion in 2021, according to Pitchbook, a financial database. The number of international deals actually dropped to 9156, a total decline of 11%.
But from a broader perspective, it’s not particularly bad news. As a comparative trend, cross-border M&A transactions are still higher than they have been historically, in spite of the more recent—and potentially temporary—slowdown.
Current economic and political challenges have created a combination of factors that have fueled uncertainty, caution, and a bit of a “wait until the storm passes” attitude in the minds of buyers, sellers, and financial lenders worldwide.
Three trends particularly stand out:
- Steadily increasing interest rates, combined with decreased availability of debt in certain regions, had an overall tempering effect on dealmaking last year, and to some extent, it still does in 2023.
- Geopolitical events, most significantly the war in Ukraine, took a measurable toll on international transactions—and confidence.
- Concerns about the impact of inflation worldwide add even more fear and hesitancy when it comes to cross-border M&A decisions.
Despite the recent slowdown, long-term trends in cross-border M&A are clearly upward
Long-term growth in cross-border M&A is driven by two major buyer groups:
- Large corporations who continue to expand their businesses into foreign territories and find that M&A is a faster and more certain way to gain access to new markets, rather than going “greenfield”.
- Private equity firms also increasingly deploy international buy-and-build strategies to accelerate the value creation process, especially after having acquired a first-platform company in a given industry.
PE firms have learned that breaking into new markets and turning a national leader into an international player has a directly positive effect on valuation levels when selling the company.
New Challenges, New Opportunities
This is not to say, however, that everything is rosy in the international M&A arena, nor is it by any means simple.
International mergers and acquisitions are driven by various factors, like reducing competition, penetrating new markets, diversifying product lines or services, and gaining rights to intellectual property such as patents, trademarks, and copyrights.
As a result, international M&A often follows trade. Most cross-border transactions take place between countries that do a lot of business with each other. And from a mid-market perspective, I estimate roughly 1/3 of M&A transactions are cross-border in the sense that the buyer and seller come from different countries. This number is typically higher in smaller countries like The Netherlands that are more accustomed to working internationally than their larger counterparts, such as the United States.
Manufacturing, consumer, and professional services have historically been sectors with high volumes of cross-border M&A, but during the last decade, technology, media, and telecom (TMT) have shown the largest increase in the number of deals and value.
The bottom line is that cross-border M&A adds further challenges to the already complex process that characterizes dealmaking. Cross-border transactions bring additional risk and complexity due to differences in cultural, political, economic environment, law, tax rules, and accounting, not to mention disparities in corporate culture itself.
But there is another bottom line to also consider. International M&A can offer a level of financial rewards and business growth that cannot be achieved by regional or national deals alone. More and more, M&A opportunities for mid-market companies are becoming increasingly international.
Cross-border M&A growth is good news for mid-market buyers and sellers who are looking for more strategic deals, increased market share, and worldwide expansion and growth.
Martijn Peters is Founder and Managing Director of DEX international M&A, a Netherlands-based company specializing in structuring and managing M&A transactions. He has broad experience as an international deal maker and currently serves as President of Globalscope Partners.
Globalscope Partners holds Fall Conference, celebrates €17.5 Billion in M&A transactions, year-to-date
GLOBALSCOPE PARTNERS LTD. Gathered in Bangkok for their Fall 2022 International Conference, celebrating continued network growth and more than €17.5 Billion in transactions, year-to-date.
Globalscope Partners, a worldwide network of independent investment banking firms focused on M&A, was hosted for a four-day conference by member firm AWR Lloyd, Bangkok. AWR Lloyd has a 22-year track record providing M&A and strategy consulting services to clients across the Indo-Pacific region from the Middle East, through South and Southeast Asia.
During the event, members collaborated on more than 100 M&A opportunities in their cumulative worldwide pipelines, shared best practices for professional development, and held forums on trends and current industry landscapes from leading internal sector experts.
This Fall’s conference provided the Globalscope network an opportunity to strengthen connections with Southeast Asia, which inspires greater cross-border collaboration, trade, and investment. Guest speakers included Thailand’s former Finance Minister Korn Chatikavanij and Somruedee Chaimongkol, CEO of the Pan-Pacific energy group Banpu PCL. Each shared their insights on the conference theme of catalyzing the transformation of the region’s economies to greater sustainability.
Another conference highlight was the ‘Oscar’ Awards presented during the gala dinner. The following winners were recognized:
- Most Valuable Deal – IFBC, Switzerland
- Most Active Member – Carlsquare GmbH, Germany
- Flagship Award (Greatest Collaboration of Members) Atout Capital, France; DEX, the Netherlands; Common Ground Corporate Finance, Belgium
John R. Sloan, Globalscope President, welcomed the group to the semi-annual event. “These conferences provide our members the ability to leverage the strength of our network, accessing a global marketplace of potential investment partners that match their clients’ transaction opportunities.” said Sloan. “It also provides opportunities for individual member firms to learn new and better ways to enhance their services from fellow experts. This camaraderie and openness, drives us to each have tier-one professional services, delivering greater benefit to our clients.”
Globalscope celebrated continuing growth in its membership with Seedset Advisory, (Malaysia) being invited to join, as well as the approval of new member InCredMAPE, (India) a merger of previous member MAPE with InCredCapital.
Sector expertise within the network was expanded with the appointment of two new industry-sector heads, Consumer Co-Head: Cristina Bertolini, Pirola Corporate Finance, (Italy), and Business & Financial Services Co-Head: Martin Paev, SORTIS Invest, (Bulgaria). Additionally, because of an increase in mandates and the depth of diverse knowledge among member firms, a new Energy Transition group was created that provides, specialized transactional facilitation expertise targeting the Energy industry.
Alexander Wood, CEO of host firm AWR Lloyd, noted, “The independent firms represented here are different from the bulge bracket banks and mainstream consulting groups many have come to know. Globalscope is a family of elite smaller firms who share a culture of agility, discretion, creativity, and resourcefulness. Our service is personal, normally long-term, and tailored to each client’s unique requirements” he said. “Going forward, AWR Lloyd intends to take a leadership role in the Energy Transition sector at Globalscope with a focus on renewable energy, e-mobility, energy efficiency, climate tech and critical minerals,” concluded Wood.
The next Globalscope conference is schedule to take place in April 2023, in Buenos Aires, hosted by member firm FICUS Advisory.