M&A: MOTIVATORS AND PROSPECTS FOR 2019

Despite recent political and economic instability, Brazil has increasingly become the target of the interests of local and foreign investors when it comes to Mergers and Acquisitions (M&A). Reflecting the 2008 Global Crisis, as well as the troubled second term of the Dilma Roussef administration, the M&A market in Brazil grew by only 5% between 2007 and 2016. Already in 2017, the year following the impeachment, the number of transactions reached a record 830 deals, according to KPMG. In 2018, with 967 transactions completed, the M&A market reached a new historical record, an increase of 16.5% compared to 2017. It was the second consecutive year of growth. Despite the difficult recent years for the economy in Brazil, what has kept this market warm is a positive outlook regarding the ability of the Bolsonaro Government to approve structural reforms, such as that of Social Security. This scenario has created a more favorable environment for business, with lower interest rates, better growth prospects, and controlled inflation. Win Market-share exploring new regions and customer profiles, consolidating a market and acquiring new technologies are some of the motivators behind a company's decision to opt for the inorganic growth strategy and allocate resources to the acquisition of others Players. Among the main motivators, those listed below stand out:

• Geographic Expansion: within the Geographic Expansion strategy, companies invest in the acquisition of assets that already operate in a certain market, with developed client portfolios and products. As an example, we can cite the acquisition of Number One by Holding Wiser Education. Wiser, with the objective of expanding its operations in the state of Minas Gerais and increasing its level of penetration among young people, invested in the acquisition of the Company.
• Vertical Integration: in the case of Vertical Integration, the main motivator is the consolidation of the supply chain. It generally occurs between companies that operate in the same sector, but at different stages of the production chain. By acquiring a strategic supplier, the acquiring company eliminates the former counterparty's profit margin and guarantees access to raw materials, at a lower price, in an integrated and more efficient chain. Motivated by these factors, in 2008 Fiat acquired the Tritec Motors engine plant in Paraná.
• Consolidation: The consolidation strategy is widely used by funds from Private Equity. Briefly, it consists of the acquisition of Players that operate in pulverized and unprofessional markets, with the objective of generating economies of scale through synergy gains. As an example of this model, we can cite the actions of Pátria Investimentos through Grupo Opty. Founded in 2016 after the merger of the fund and some ophthalmologists, the Group has been consolidating ophthalmic clinics and hospitals and is currently the largest ophthalmology group in Latin America.
• Technology Acquisition: one of the main factors that motivate a business is the way in which the product developed by the purchaser complements the activity of the purchaser and the way in which this creates synergies for the business. As an example, we can cite the acquisition of ADSprev by Sinqia, a company focused on the development of software for the Financial Market. ADSprev, which has been in the market for over 30 years, is a developer of IT solutions exclusively for the management of Closed Supplementary Pension Entities.
• Labor Acquisition: another relevant motivational factor for M&A transactions is the acquisition of labor. According to research Capital Confidence Barometer From EY, 67% of executives consider the acquisition of qualified labor as a strategic factor in the Mergers and Acquisitions business. As an example, we can cite the acquisition of Booz Allen Hamilton (today, Strategy&) by PwC in 2014. Over 300 Partners were “incorporated” into the business.

In 2018, EY conducted a global survey of more than 2,000 executives from 45 different countries about their expectations regarding the M&A market. Of the total, 90% expect a higher volume of transactions in 2019. At the local level, 88% of executives also expect a higher volume of operations this year. For PwC, in an interview with Jornal Valor Econômico in January, transaction volume is expected to grow by 15% in 2019. Of the various motivators behind M&A transactions, they all have one thing in common: value generation through the gain of synergies. The objective is that, at the end of each operation, the value of the combination of assets is greater than the sum of their parts. For this reason, it is important to carry out an in-depth analysis of Targets and have good Advisors during the process.ARTICLE WRITTEN BY THOMAZ FONSECA — ASSOCIATE FROM FC PARTNERSGo to our site: http://www.fcpartners.com.br