TTR DealMaker Q&A with Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados Partner Moacir Zilbovicius
Moacir’s practice focuses on M&A transactions and general corporate matters with emphasis on publicly-held companies. He represents business conglomerates, domestic and foreign, from different economic sectors. Moacir served as the head of the Legal Department of the Brazilian Securities Commission (CVM). He worked as a foreign associate in the New York office of Cleary, Gottlieb, Steen & Hamilton. He is a member of the Advisory Board of Fundação Antonio e Helena Zerrener (co-controlling shareholders of Ambev).
TTR: How would you assess the performance of the M&A market in Brazil in the first quarter of 2019?
The results of the presidential and congress elections last October gave the market a more optimistic scenario for M&A activities in the first quarter of 2019. In my view, although the expectations were not fully met (and in fact there was a decrease in transactions volume and aggregate value this first quarter with respect to 2018), the market was and it is still very active, especially considering the number of ongoing discussions and movements we have seen taking place.
TTR: What are your expectations for the Brazilian M&A market for the remaining of the year? Which scenarios or trends can already be identified?
The expectations for the remaining of the year are mostly positive – the outlook for M&A transactions will certainly be enhanced by the approval and implementation of reforms proposed by the new President elected, especially the pension system reform, which is currently under discussion in the Congress and is our biggest domestic headwind.
With respect to scenarios or trends that can already be identified, it is possible to say that an important driver for M&A activity in Brazil will be the announced infrastructure agenda, which is one of the main priorities for the Brazilian Government for this and the following years and aims to attract the private sector to fill infrastructure gaps. The main sectors announced to be privatized/awarded to the private sector include airports, ports, energy, railroads and roads, mining, as well as banking and related services.
TTR: The Real Estate sector has been among the most actives in Brazil since last year, and has remained stable in 2019, whereas Technology and Financial and Insurance have dropped 15% and 25%, respectively, on the 1Q19. What do you make of these trends and how do you expect these sectors to perform in the coming months and why?
The real estate sector followed the lead of Brazil’s economy (and its modest GDP growth in the prior two years) and experienced a small improvement recently. I believe though that this is still not the ideal scenario for the sector considering all of its potential and opportunities. It is common knowledge that the cost of credit in Brazil is expensive but in my opinion the real estate sector (and this is true for virtually all others) will benefit from the implementation of the proposed reforms and when that occur I have great expectations for the sector given the prospect of the combination of attractive real property prices, less expensive credit and banks willing to approve financing. Furthermore, key strategic real estate players already established in Brazil as well as private equity firms are expected to keep investing in infrastructure projects that, in general, will also demand real estate investments.
Also driven by the implementation of the pension reform and the consequent strengthening of Brazil’s fundamentals, Technology and Financial and Insurance (and I would also add Retail to the list) sectors are expected to increase their activities, as the M&A market in general.
TTR: Which transactions would you highlight in terms of importance and complexity this year, whether you have acted directly or with the participation of Mattos Filho?
Fortunately, our M&A practice remain busy and growing. For this year’s transactions, we would highlight the sale of Nextel Brasil’s equity interest to América Móvil (Claro). Mattos Filho (together with Jones Day) assisted NII Holdings with the structuring and implementation of the transaction, as well as advice on tax and regulatory matters (CADE and Anatel). From Claro’s perspective, the closing of this transaction will increase its market share, mainly in the cities of São Paulo and Rio de Janeiro, which will certainly add some complexity for the deal to be approved by regulatory agencies in Brazil (CADE and Anatel). This deal is true a cross-border transaction and will result in the departure of the former giant telecom titan NII from Brazil, which is ending its global activities. Nextel Brazil was NII’s last operational subsidiary, being a complex and high-profile target.
We also advised Raia Drogasil S.A., Brazil’s largest pharmacy retail chain, in connection with the acquisition of 100% of the capital stock of Drogaria Onofre Ltda., one of the most recognized companies in the Brazilian retail pharmacy segment and a national leader in e-commerce, owned by subsidiaries of CVS Health Corporation.
Finally, I should also mention that we have been actively involved in most of the auctions for the concession projects that took place this year. In that regard, we advised Raízen, part of “Nordeste Consortium”, which has won the auction held by the Brazilian Federal Government for the Port Terminal AI-01, located in the Port of Cabedelo, in the state of Paraíba. We also advised two of the bidders for the Northeast Block (Recife (PE), Maceió (AL), Aracaju (SE), Juazeiro do Norte (CE), João Pessoa (PB), and Campina Grande (PB)) at the airports auction carried out by the Brazilian government, and one of the bidders for the auction of railroad “Trecho ferroviário Porto Nacional/TO a Estrela D’Oeste/SP”, which Rumo has won.