Private equity deal volume in Brazil seen to decline further in 2024

Private equity and venture capital deal volume in Brazil is expected to decline further in 2024 due to the exodus of foreign investors and the shift into special situations investing.

From Jan. 1 to Sept. 12, 112 private equity and venture capital-backed deals were announced, roughly 56% of the 199 deals recorded in all of 2023, according to S&P Global Market Intelligence data.

The number of private equity deals in the country has declined annually since peaking at 370 in 2021.

Total deal value reached $2.14 billion year to date through Sept. 13, on track to match the $2.56 billion in all of 2023, but still a quarter of the $10.04 billion high in 2021.

Private equity and venture capital investments plunged in Brazil as foreign investors pulled out of the country, and local investors focused on special situation investments, said Ricardo Kanitz, founding partner at São Paulo-based Spectra Investimentos Ltda.

"Great capital allocators to Brazilian alternatives has shifted over time. Twenty years ago, it was mostly foreign investors, mostly Americans, then it shifted to local investors, and then high net worth individuals in Brazil," Kanitz said in an interview. "These high net income families began to dominate the space and have been investing heavily in special situations managers."

Spectra said in a report there was a reduction in the allocation of both foreign institutional investors and Brazilian pension funds to private equity due to corruption scandals involving a few local pension funds in the late 2010s, as well as the devaluation of the Brazilian real.

Special situations investing — investing in mostly public companies in special situations such as mergers, acquisitions, bankruptcy, litigation and shareholder activism, with the expectation of profiting from the potential rise in valuation presented by the event — has been growing in Brazil. According to Spectra data, dry powder in the asset class ballooned to 13.7 billion Brazilian reais in 2023 from 2.0 billion reais in 2016. The number of special situations managers in the country also grew to 45 in 2024 from 21 in 2019.

"We're not seeing excited managers. They are very super scared. Interest rates have been high in Brazil for the last few years, same as everywhere else. The high-net-worth families that were the main investors are not allocating that much money to alternatives. The Americans are not coming here again," Kanitz said.

– Download a spreadsheet with data in this story. – Read about global private equity entries in August. – Explore more private equity coverage.

Nevertheless, Brazil remains the most active private equity market in Latin America and the Caribbean. Of the 84,119 private companies in the country as of November 2023, 2,849, or 3.39% of the total were backed by private equity or venture capital, one of the highest penetration rates in the region.

The proportion of the number of private equity and venture capital-backed deals in the overall number of deals is rising. Year-to-date through Sept. 12, 24.9% of all the announced transactions were backed by private equity, compared with 20% for the entire 2023.

Biggest deals

In the largest transaction, Actis LLP unit Edify Empreendimentos E Participacoes SA acquired 743 kilometers of transmission lines from EDP - Energias do Brasil SA for $524.5 million.

The second-largest transaction was I Squared Capital Advisors LLC's $400 million investment in distributed energy generation company EBES Sistemas de Energia SA, or Órigo Energia.

On a per-sector basis, energy and utilities secured the most capital in 2024 at $524.5 million, boosted by the Actis deal. The industrial sector secured $477.7 million in private equity-backed investments during the period.

The technology, media and telecom sector recorded the highest number of private equity-backed deals in Brazil, at 41.

As of Sept. 18, US$1 was equivalent to 5.47 Brazilian reais.