Brazil: M&A Deals Heat Up

The surge in takeover activity is further evidence of the country's huge potential as an economic powerhouse

By Frank Aquila

Recently, the world was surprised when Rio de Janeiro was picked to host the 2016 Olympics, beating out Chicago, Madrid, and Tokyo. Following Brazil's selection as the venue for soccer's 2014 World Cup, one might easily conclude that Brazil is simply an ideal locale for global sporting events. But these selections, although made by international sporting authorities, are more reflective of Brazil's growing economic muscle than its considerable athletic prowess.

Brazil's economic promise is of much greater long-term, global significance than its selection to host a few international sporting events. Indeed, Brazil is a potential economic powerhouse. The country's growth, strong capital markets and recent cross-border M&A activity all attest to it. While Brazil's economic potential has been widely recognized in business circles for decades, many have questioned whether that potential would ever be realized.

To be sure, Brazil has been on shaky ground in the past. The country faced economic collapse as recently as 2002, when it had to borrow $30 billion from the International Monetary Fund (IMF) just to avoid default on its sovereign debt.

Dominant World Economies

But for all the short-term woes, its long-term potential was never in question. Serious recognition of Brazil's economic prospects came in 2001 when Goldman Sachs global economist Jim O'Neill coined the term BRIC (Brazil, Russia, India and China) for countries he identified as emerging markets likely to be among the world's dominant economies by 2050. While China and India generally receive greater attention and have sustained higher rates of economic growth this decade, Brazil is an economic force to be reckoned with. Since it is the only BRIC in the Americas, Brazil deserves our close attention.

Brazil is clearly starting to take its rightful place on the global economic stage. Its sovereign debt, so close to default earlier in the decade, has been rated investment grade by Standard & Poor's, Fitch, and Moody's. Indeed, Brazil's recent commitment to purchase $10 billion in IMF bonds is an amazing accomplishment for a nation which had to be bailed out by the IMF less than a decade ago. Brazil's commitment to help fund the IMF is a clear sign that it has the financial firepower—and the willingness to use it.

Indications of Brazilian economic prowess are plentiful. For example, the largest initial public offering so far in 2009 has been the $8 billion IPO of Banco Santander Brasil (BSBR), the Brazilian subsidiary of Spain's Banco Santander (STD), confirming the strength and potential of the Brazil's capital and financial markets. While the nation's selection as host of the 2016 Olympics is significant, developments such as this should be drawing even greater attention.

Brazil has tremendous opportunities to continue to grow its economy and increase the standard of living of its people. The country is already self-sufficient in energy, and huge petroleum reserves have recently been discovered offshore—dwarfing other recent discoveries elsewhere in the world. The latest Brazilian offshore field could ultimately yield up to 50,000 barrels of oil per day. And Brazil has the potential to feed much of the world's growing population since it has so much of its land devoted to agriculture. Agriculture in Brazil means more than simply growing food for consumption. Increasingly, Brazilian agricultural production is being devoted to ethanol, the world's leading bio-fuel.

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