Brazil M&A deals to recover after 27 pct drop in Q1

* Goldman Sachs leads M&A advisory rank in first quarter

* Announced deals tumble 27 pct y/y, Thomson Reuters says

* Private equity-sponsored deals seen fueling recovery

By Guillermo Parra-Bernal and Aluisio Alves

SAO PAULO, April 5 (Reuters) – Mergers and acquisitions
activity in Brazil will gain traction after a 27 percent drop
in the first quarter, as a private equity frenzy and a strong
local bond market fuel takeovers in the energy, consumer and
commodities sectors, bankers said on Tuesday.

About $18.55 billion worth of M&A deals were announced last
quarter, compared with $25.38 billion a year earlier, according
to Thomson Reuters data. In all, 142 deals were unveiled, 8.4
percent less than the 153 in the same period in 2010.

Goldman Sachs (GS.N: Quote, Profile, Research), the world’s most profitable
securities firm, topped the ranking in Brazil after advising
three deals worth $10.37 billion, the data showed. Spain’s
Banco Santander (SAN.MC: Quote, Profile, Research) and local powerhouse Itau Unibanco
(ITUB4.SA: Quote, Profile, Research) followed, with $10.1 billion and $6.42 billion worth
of deals, respectively.

The steep decline in M&A activity, which bankers blamed on
their decision to bring forward announcements from the fourth
quarter, will be reversed in coming months as power, sugar and
ethanol and consumer companies look to add scale and financial
muscle by joining forces with rivals.

“We are currently seeing a huge level of interest in
Brazil, which we expect to continue for the rest of the year,”
Daniel Wainstein, head of investment banking in Brazil at
Goldman Sachs, said in an interview.

Corporate tie-ups, he said, could gain momentum as millions
of Brazilians join the middle class, the country’s macro
economic fundamentals remain solid and companies have greater
access to diverse sources of capital.

The need for domestic consolidation and a strong currency,
which makes foreign takeover targets cheaper when measured in
Brazilian reais (BRBY: Quote, Profile, Research), will also propel M&A transactions.

Foreign and local investors are confident that Brazil will
fend off a recent pick-up in risk aversion and offset
perceptions that local valuations are rich.

“Relative to other regions, like Europe, Brazil is El
Dorado,” Flavio Valadao, head of M&A for Santander in Sao
Paulo, said, referring to the mythical “Lost City of Gold” that
symbolizes an elusive, as-yet unfound bonanza.

“Companies that want to position themselves in Brazil won’t
miss this chance just because of isolated events” like concern
over debt crises in Europe or a recent rise in Brazil’s
inflation rate, he added.

GLOBAL REACH

The more emerging market companies expand, the bigger is
their need to seek M&A advisory with banks with global reach
like Goldman Sachs. The New York-based powerhouse acted as an
advisor in three of the four largest combinations announced in
the period, the data showed.

Possible deals include Banco do Brasil’s (BBAS3.SA: Quote, Profile, Research)
expected takeover of a small U.S. regional lender that may be
announced this week. Late on Monday, retailer Lojas Renner said
it agreed to buy rival Camicado for an undisclosed sum.

The largest, Telefonica’s March 25 merger of its mobile
phone carrier Vivo (VIVO4.SA: Quote, Profile, Research) into its fixed-line unit Telesp
(TLPP4.SA: Quote, Profile, Research), was valued at $5.52 billion. Spain’s Iberdrola
(IBE.MC: Quote, Profile, Research) $2.4 billion takeover of Brazilian energy distributor
Elektro (EKTR4.SA: Quote, Profile, Research) was ranked as the quarter’s No. 2 deal.

Wainstein, whose division last year poached seven senior
M&A dealmakers from rivals including Citigroup, said part of
that recovery will be propelled by an appetite from private
equity firms for Brazilian assets.

Last year, three of every four Latin American private
equity-led deals took place in Brazil, industry group LAVCA
said. Among those, the Carlyle Group [CYL.UL] completed two
purchases worth a combined $1.7 billion, and the Blackstone
Group (BX.N: Quote, Profile, Research) bought a stake in local fund Patria
Investimentos.

“Private equity will continue to play an increasingly
active role in the M&A market, particularly as leverage becomes
more attractive with lower interest rates,” he noted.

Jean-Marc Etlin, who oversees mergers and acquisitions for
Itau Unibanco’s Itau BBA unit, expects red-hot dealmaking in
biofuels, infrastructure and logistics — traditionally areas
where buyout firms act.

Santander’s Valadao expects a surge in food and beverages
and consumer goods mergers throughout the rest of the year.

“Businesses are avidly looking for expansion opportunities,
via acquisitions, via organic growth,” said Luiz Muniz,
managing director for Rothschild & Co. in Brazil.
(Editing by Raymond Colitt and Maureen Bavdek)

Brazil M&A deals to recover after 27 pct drop in Q1