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Bankers pin Brazil energy recovery hopes on buyout firms, valuations
2015-07-02
(Reuters) - Bankers dismayed by the small number of merger-and-acquisition closings in Brazil this year expect a turnaround, citing a weak local currency, cheaper assets and cash-flush buyout firms.

Dozens of deals stalled in the first six months of the year because of mounting economic and political turmoil. Still, advisory work remained rather intense in the period, forcing banks to deploy more staff than usual to handle otherwise normal transactions, bankers told Reuters on Wednesday.

Despite the still-murky outlook, government efforts to stabilize Latin America's largest economy are slowly reigniting investor confidence, bankers said. That, coupled with more attractive prices for takeover targets, should help transform their backlog of work into deal announcements.

"We already knew that this year wouldn't bring about any easy deals," said Alessandro Farkuh, head of M&A at Bradesco BBI. "Even with the outlook gradually improving, they're taking longer to close; we're spending more time and energy doing so."

In the year through June 30, companies announced $14.47 billion worth of M&A transactions in Brazil, the lowest in a decade, a Thomson Reuters deal intelligence report showed. The value of deals sank 39 percent from a year earlier, and 65 percent from the last six months of 2014.

Only 117 deals, worth $5.95 billion, were announced during the second quarter, as fallout from the nation's worst downturn in two decades and a graft scandal afflicting state-controlled oil producer Petróleo Brasileiro SA weighed on sentiment. That total was down from 139 deals announced in the first quarter, valued at about $8.5 billion.

Grupo BTG Pactual SA topped deal value rankings, after working on $7.53 billion worth of transactions in the period. Itaú BBA, the investment-banking unit of Itaú Unibanco Holding SA, topped the number of deal rankings with 17 transactions in the first six months.

PRICE CONVERGENCE

The allure of cheaper takeover targets will soon begin to outweigh risks for some buyers as the gap between bids and asking prices narrows, said Rodrigo Mello, managing director with Greenhill & Co in Brazil. Price convergence should take place as a declining Brazilian currency helps trim the value of local assets in U.S. dollar terms, he said.

Multinational companies and other strategic players are brushing caution aside and seeking greater exposure to Brazil, some in search of a specific asset, others to tap the country's need for infrastructure.
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