Market, economy woes drive Brazil M&A activity to eight-year low
* Value of mergers plummets 55 pct in first half
* Credit Suisse, Itaú top value, number of deals
* M&A recovery expected if market turmoil decreases
SAO PAULO, July 2 (Reuters) - Mergers and acquisitions in Brazil continued to slide during the first half of the year as buyers, fretting over a sagging economy and escalating market turmoil, held back on some deals in the hope of getting better terms.
Companies announced $20.48 billion worth of deals in Brazil between January and June, down about 55 percent from a year earlier, according to a quarterly Thomson Reuters report on M&A activity. That is the lowest for the first half since $11.42 billion in deals were announced in 2005. The number of deals fell to 279 in 2013 from 453 in the first half of 2012, the report said.
As buyers press for lower prices, sellers are hesitant to give in, a mismatch that is preventing the completion of several deals.
Bankers shrugged off a prevailing view among many investors that erratic policy decisions, mounting state interference in some sectors and a slowing economy are hampering M&A deals in Brazil. Instead, they said the deterioration in global markets was the main culprit behind the slump.
"There are still reasons to believe the M&A market will improve in spite of the market woes," said Fernando Iunes, managing director for investment banking at Itaú BBA. "Buyers and sellers are taking longer to close a deal and adjust to changes in business conditions."
Large deals that were expected to close a few months ago, such as the sale of the local units of ThyssenKrupp AG and media group Vivendi SA, were put off when bids came in below the asking price. Others, such as plans by billionaire Eike Batista to sell stakes in some of his companies, have been subject to intense buyer scrutiny.
"While people are concerned with Brazil, the global outlook has brought about some noise, causing companies to hesitate," said José Olympio Pereira, chief executive of Credit Suisse Group's Brazilian unit, which topped the country's M&A rankings in the first half.
Both Iunes and Pereira said corporate takeovers should gain traction in coming months because of the need to consolidate market gains in some industries, the involvement of private-equity firms in local M&A and interest from global conglomerates in tapping Brazil's nearly 200 million consumers.
While the year-on-year comparison showed a slowdown, M&A activity surged 150 percent from the last six months of 2012, when Brazil's $2.2 trillion economy stagnated. Worries that the U.S. government will soon taper off years of economic stimulus, and slowing growth in China, also have investors and dealmakers cautious around the world.
"Greater market volatility has made it harder for bids and offers to converge," said Renato Ejnisman, head of investment banking at Bradesco BBI, the wholesale banking unit of Brazil's No. 2 private sector bank, Banco Bradesco SA.
The value of M&A transactions fell to a five-year low in 2012, as state intervention in the economy weighed down market sentiment. President Dilma Rousseff put pressure on banks and utilities to reduce rates and boost access to services, sparking uncertainty about returns in those sectors.
That highlighted some of the risks in Latin America's largest economy as the government used regulatory powers to strong-arm companies to invest more. Capital spending as a percentage of gross domestic product is nearing the lowest in two years, a trend Rousseff is scrambling to reverse.
For investment banks, which depend on giving merger advice for about half their revenue in Brazil, the government's renewed focus on fighting inflation is fanning optimism that state interference will decline.
But banks are likely to remain cautious, even if there is a sharp recovery in advisory work, Credit Suisse's Pereira said. Staff and capital levels are widely seen as adequate, meaning that any recovery is unlikely to lead massive hiring, or the deployment of additional resources or money into operations.
During the first half, Credit Suisse topped Brazil's M&A rankings on deal size, advising on takeovers worth $8.1 billion. The deals included Marfrig SA's $2.7 billion sale of a unit to meat packer JBS SA.
Foreign banks such as Credit Suisse Group AG, which worked on 10 deals in the first half, will likely gain ground as private equity and sovereign wealth funds look for advisors with global reach to help them with Brazilian deals.
Itaú BBA, a unit of Brazil's No. 1 private-sector lender Itaú Unibanco Holding SA, advised on most of the deals in the January-to-June period in Brazil, with 21, followed by local rival BTG Pactual Group, with 12.
Itaú BBA advised on buyout firm Southern Cross' 70 percent stake purchase of equipment producer Solaris Equipamentos in June and Itaú Unibanco's $1.37 billion purchase of Citigroup Inc's Uruguayan retail banking unit.
According to Bradesco BBI's Ejnisman, the scope of M&A activity will widen as the government resumes the sale of rights to drill for oil and operate airports and toll roads.
Strategic buyers, especially local players in the consumer goods and infrastructure sectors, are looking for takeover targets in a country where about 40 million people joined the middle class in the past decade, Itaú BBA's Iunes said.
(Editing by Todd Benson and Andre Grenon)