Overview of M&A activity in Brazil in 2024 and the prospects for 2025

The mergers and acquisitions (M&A) market in Brazil in 2024 faced significant challenges, shaped by a complex macroeconomic environment and impactful regulatory changes. Factors such as tax reform and exchange rate volatility, particularly the appreciation of the US dollar, directly influenced M&A activity in the country. This article examines the main macroeconomic challenges, regulatory changes affecting the M&A market, provides an overview of the year’s activities and projects trends for 2025.

Macroeconomic Challenges in 2024

In 2024, Brazil faced a challenging macroeconomic scenario characterized by persistent inflation and rising interest rates, which impacted the cost of capital and, therefore, investment decisions. The high cost of capital discouraged productive investments, diverting resources toward lower-risk assets such as government bonds. The gross public debt reached 78.6% of GDP in October, up from 78.2% in the previous month (Reuters). This increase reflects fiscal concerns that affect the country’s risk perception.

Exchange rate volatility also played a crucial role. The US dollar surpassed the R$6.00 mark in November, reaching a historic high primarily due to negative market reactions to the Brazilian government’s proposed income tax reform (Reuters). The dollar’s appreciation negatively impacted companies with foreign currency liabilities but simultaneously heightened international investor interest in mergers and acquisitions, making Brazilian companies more attractive in terms of valuation.

However, the low price of Brazilian assets, resulting from the appreciation of the US dollar, was accompanied by significant risks tied to the macroeconomic and exchange rate environment. Macroeconomic risk stemmed from factors such as persistent inflation, high interest rates and a challenging fiscal environment, which increased economic volatility and complicated investment return forecasts. Additionally, currency risk arose from the possibility of further devaluation of the real or instability in the exchange rate, which could erode gains in foreign currency. This demands that investors carefully analyze the balance between potential returns and the uncertainties associated with investing in local assets.

Regulatory Changes and Impact on M&A

The approval of tax reform was a significant regulatory milestone. The proposal aims to simplify Brazil’s tax system by replacing taxes such as IPI, PIS, Cofins, ICMS and ISS with two new taxes: the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS), both forms ofVAT. For the financial and capital markets, the reform brings uncertainty, particularly due to the creation of specific regimes for financial services, which could alter tax rates and credit rules. These changes require companies and investors to reassess their M&A strategies, taking into account the new tax scenarios and their impacts on cash flow and company valuations.

2024 M&A Market Overview

The M&A market in Brazil showed significant fluctuations throughout 2024. In the second quarter, 426 transactions were recorded, representing a 17% increase compared to the same period in 2023 (KPMG). However, from January to September 2024, the Brazilian M&A market registered 1,169 transactions, marking a 25% decline compared to the same period in 2023. These transactions amounted to $29.7 billion, an 11% reduction compared to the previous year (Veja).

Sectors such as technology, consumer goods and retail led M&A activity. For instance, the consumer and retail sector recorded 36 mergers and acquisitions in the second quarter, a 19% increase compared to the same period in 2023 (Carta Capital). Additionally, the artificial intelligence (AI) segment stood out globally, with 245 transactions in the first quarter totaling $35.4 billion, a year-on-year increase of 168% (Estadão).

Outlook for 2025

A gradual recovery of the M&A market in Brazil is expected in 2025. Macroeconomic stabilization, combined with the effective implementation of tax reform, could create a more predictable and investment-friendly environment. Tax simplification has the potential to attract foreign investors, strengthen the local currency and reduce exchange-rate volatility.

Strategic sectors such as technology, healthcare and renewable energy are likely to remain key destinations for capital, supported by global trends like digitalization, an aging population and the energy transition. These areas offer strong growth opportunities in a global economic context that prioritizes innovation, sustainability and efficiency. However, the recovery of the M&A market will depend significantly on the government’s ability to implement responsible fiscal policies and control the growth of public debt, which is currently a major concern for investors.

Without effective fiscal management, investor confidence could weaken, raising the cost of capital and reducing appetite for new transactions. Thus, the interplay between macroeconomic stability, structural reforms and solid fiscal policies will be critical to establishing a favorable environment for mergers and acquisitions in Brazil in 2025.