Dealmaking in Brazil plummets due to economic woes

For Dennis Mills, chief executive of Major Events International, which helps foreign companies win contracts for the 2016 Rio de Janeiro Olympics, convincing companies to enter the Brazilian market is relatively easy.

But persuading those same companies to remain in Brazil after the games are over is a different matter altogether, he says.

"Rio procurement is trying to meet some challenging deadlines and therefore there are going to be opportunities for people with expertise," says Mr Mills. "There is interest in coming to Brazil in our market, but there is no doubt scepticism and concern for people who are not in our market."

Once the darling of the emerging markets, Brazil has fallen out of favour with investors over the past few years and faces one of its most difficult years yet in 2015. The economy, which grew 7.5 per cent in 2010, is expected to contract by more than 1 per cent this year, marking the country's worst recession in a quarter of a century. Meanwhile, inflation is stuck above 8 per cent, unemployment is rising, and the country is reeling from the effects of a vast corruption scandal at state-controlled oil company Petrobras.

The impact of Brazil's economic woes on dealmaking is already apparent. According to Dealogic, Brazil-targeted merger and acquisition transactions totalled $9.2bn in the first quarter of this year, down 27 per cent from $12.5bn in the first quarter of last year. It represented the lowest quarterly M&A volume for two years and was weaker than the rest of Latin America, where overall volumes fell 22 per cent from the previous year.

"There is so much uncertainty here in Brazil and many emerging markets, which is slowing down investment," says Mark Weinberger, global chairman and chief executive of professional services provider EY. While there are some headwinds that are beyond Brazil's control, such as slowing growth in China, investors will be watching Brazil closely to see how it deals with those problems it can control, he says.

"How the government deals with these [issues] will determine whether and when the confidence comes back for investors here," says Mr Weinberger, adding that the authorities' efforts to investigate the Petrobras scandal and the government's measures to plug its fiscal accounts were both positive moves.

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Private equity dealmakers in particular have continued to seek out opportunities in spite of the wider economic downturn, says Luiz Eugenio Figueiredo, vice-president of Brazil's private equity and venture capital association ABVCAP.

After a period of fundraising by Brazil's major private equity firms last year, merger and acquisition activity among buyout firms in the country may even surpass last year's $4.3bn worth of deals, according to the association.

"There are some sectors that are growing at rates disconnected from that of the economy - be it because of repressed demand or cyclical moves or regulatory changes," says Mr Figueiredo, adding that Brazil's current problems could even benefit his industry by capping asset prices and reducing competition. "It's a good moment for investments because the sources of funding for non-listed companies are very restricted," he says.

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