Latam’s leftward swing to influence deal trend

As Brazil goes through its presidential election, Latin American bankers anticipate a decline in M&A and equity deals to intensify until the end of the year, potentially adding to a larger leftward shift throughout the region.

The $6.9 billion privatisation of Eletrobras, a Brazilian power holding company, was the largest share offering in Latin America this year. The sale of the oil field Albacora Leste by state-controlled Petroleo Brasileiro SA, or Petrobras, to Petro Rio SA for $2.2 billion was one of the largest M&A transactions.

According to Ricardo Lacerda, founder and CEO of investment bank BR Advisory Partners, if socialist former president Luiz Inacio Lula da Silva, who is now leading the polls, is elected in October, he is predicted to substantially halt privatisations and divestments of state assets.

Following leftist presidential triumphs in Chile and Colombia, his election would be one of a string of leftist victories throughout the region. Brazil’s Workers’ Party governments from 2003 to 2016 replaced privatisations with fewer auctions to run infrastructure like roads and airports.

So-called “national champions”—companies that got subsidised loans, such as meatpacker JBS SA—made significant agreements to form international conglomerates. However, Lacerda noted that given political and financial restrictions, a return to this approach is doubtful.

Mergers and acquisitions fell 36% in Latin America in the first half, to $48.3 billion, as stock market volatility, higher interest rates and inflation hit companies’ valuations and made financing more expensive.