KPMG Corporate Finance in Brazil await the fall-out of the scandal and financial disarray of two of the country’s largest state controlled companies in the knowledge the sell-off will kickstart new international interest in Brazil. As a result the firm is optimistically preparing for an increase in new business coming their way over the next 6 to 12 months.
Let’s face it, Brazil isn’t the first country you would deliberately chose to work in these days were you known for your expertise in the global corporate finance markets.
As the world watches fascinated, the financial fall-out caused by government interference and price freezing of Electrobras has recently resulted in a ‘sore but not too painful ‘ slap on the wrist for politicians by the country’s watchdog. Meanwhile, amid all the controversy, international investment in Brazil continues to fall sharply. Too sharply – bond issuing in the country is at its lowest level in 13 years.
The main culprit in the economic disarray, according to many in the know, is that other huge government controlled state industry, the oil company Petrobras. Its name has resonated in recent months with front page newsworthy allegations of price fixing, bribes and political handouts.
Like ripples in a pond the controversy and ensuing financial mess of some of Brazil’s biggest nationally owned industries has made its mark on smaller supplier companies, garages, motorists etc throughout the country. But it’s not just the domestic markets who have been hit (it was a Norwegian holding company who asked the Brazilian watchdog to investigate the governmental majority shareholder’s involvement in voting for the price freeze at Electrobras).
The Brazilian economy – ‘then and now’
Not surprisingly the unwelcome worldwide media attention has taken its toll on the country’s economy – which was already in a bad way (the country had been battling inflation for the past two years). Worse is to come though.
Analysts reckon this year the economy will shrink between 1.5 to two per cent – making it the biggest drop in the Brazilian economy for more than quarter of a century. Back then (in 1990) the GDP had fallen by four per cent and inflation was the highest ever at 2,938 per cent. But, true to form, the country recovered and the following years up to the millennium became known as the ‘reform decade.’ Then, just like now, the focus for recovery is lying squarely on government policies and the politicians implementing them.
KPMG – the way forward for Brazil
Back to 2015 and KPMG Corporate Finance in Brazil’s lead partner David Bunce remains confidently optimistic of his adopted country’s ability to recover. Like many of his colleagues, he’s preparing himself to weather a few storms, but at the same time enjoying the victory of clinching yet another major deal to be proud of.
“We have advised on a number of relevant transactions in the last few months,” he said. “For instance, in July we closed a private equity investment by Patria Group into Dânica, Brazil´s largest player in thermal isolation material.
“Our specialization in agribusiness continues to attract strong market attention, and we’re pleased to have concluded two important re-financing deals in this segment, Grupo Farias and Araporã, within the past 12 months.
“Other important M&A deals include a JV in shopper marketing between Omnicom and a local player and, in the education sector, the sale of Bennett University.”
The reason KPMG Corporate Finance continues to succeed in such a depressed market is down to its legacy. This is a company which has been operating consistently as a financial advisor in Brazil since 1990. Since that time it has assisted on more than 150 transactions in both M&A and debt capital sectors.
Not only that, but the wider operations of KPMG in Brazil today provide access to a wide range of business owners throughout the country – around 4,000 individuals in 25 offices, no less.
In addition to finance, other sectors KPMG Brazil specialises in include health care, Oil and Gas, Automotive, Energy and Natural Resources, Life Sciences and Retail.
Fallout from Electrobras and Petrobras
Meanwhile, what about the ruckus over state-ownership – an issue which is only set to get even messier over the coming months:
“The full effects of the Petrobras scandal and others such as Electrobras, are still emerging and will continue to do for some time,” added Bunce, who has also served on the Boards of Directors of KPMG International and KPMG Americas and specialises in financial services.
“Certainly, the predominance of the major local construction, engineering and public concession operating groups in the Brazil market will be much reduced going forward.
“Sale of a number of business out of these groups will certainly happen once the overall scenario stabilizes, making the appearance of new foreign entrants very likely. This will certainly prove to be a generator of M&A business over the next six to 18 months. Petrobras itself will also sell some non-core businesses.”
Meanwhile, when it comes to corporate debt and emerging markets Brazil (like Russia) is no longer a major player. Instead the field is led by countries such as
India, Mexico, Malaysia, and the United Arab Emirates (UAE) who issued around 54 per cent of bonds last year.
KPMG’s financial services offering
- KPMG Brazil’s Financial Services sector provides audit, tax and advisory services for banking, insurance, property and investment management. In terms of performance, the company focuses on providing clients with what they describe as ‘solid and consistent earnings in a range of indicators’. Their focus is on managing costs and getting the most out of business and operating models.
- When it comes to growth, the company believes size and expansion is still important in comparison to scale and because of this have build up an excellent M&A team. They also seek to encourage and advise on product development, cross-selling and customer retention as strategies to always be considered.
- Governance is also important and KPMG Brazil insists on providing strong internal controls and thorough risk management plans.
Is 2015 going to prove the toughest 12 months for Brazil’s financial markets – or just the first in a number of belt-tightening years? Bunce and KPMG Brazil have their own way of dealing with it all. The firm are already BWM’s Corporate Finance Advisory Firm of the Year (Brazil- 2015).
Explained Bunce: “In our corporate finance business we will focus on some of the various sectors in the Brazilian economy which are passing through restructuring,” he said. “This will allow us to detect M&A, financing and refinancing opportunities.”
“Based on our current book, we expect both our revenues and number of closed deals to show significant expansion over the next 12 months in comparison to the equivalent prior period.”
So things are on the ‘up’ then, according to KPMG. Hopefully the Brazilian government will feel similarly buoyed as time goes on.