Latam's leftward shift expected to further affect deal flow

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By Tatiana Bautzer SAO PAULO, July 5 (Reuters) - Latin American bankers expect a drop in M&A and equity deals to intensify through the end of the year as Brazil goes through its presidential election, potentially adding to a broader leftward shift throughout the region. Latin America's largest share offering this year was the $6.9 billion privatization of Brazilian power holding company Centrais Eletricas Brasileiras, known as Eletrobras. Among the largest M&A deals was the $2.2 billion sale of oil field Albacora Leste by state-controlled Petroleo Brasileiro SA, or Petrobras, to Petro Rio SA . Should leftist former President Luiz Inacio Lula da Silva, who is ahead in the polls, be elected in October, he is expected to largely discontinue privatizations and divestments of state assets, said Ricardo Lacerda, founder and CEO of investment bank BR Advisory Partners. His victory would be among a wave of leftwing wins throughout the region, after leftist presidential victories in Colombia and Chile. During the 2003 to 2016 Workers' Party governments in Brazil, privatizations were replaced by a smaller number of auctions to operate infrastructure such as airports or roads. So-called 'national champions' - companies such as meatpacker JBS SA that received subsidized credit - made large deals to create multinational conglomerates. But Lacerda said a return to this policy is unlikely, considering political and budgetary constraints. 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. "The new scenario led investors to look for 'old plays' in traditional industries such as healthcare, real estate, energy and financials," said Bruno Amaral, head of M&A in Brazil at investment bank Banco BTG Pactual. The largest deal was the $3 billion acquisition of insurer Sul America by hospital chain Rede D'Or Sao Luiz . Canada's Brookfield Asset Management bought 12 commercial buildings from BR Properties SA $1.1 billion). As international companies deal with global volatility, new foreign investors are not expected to enter Brazil this year, said Iraja Guimaraes, co-founder at advisory firm Olimpia Partners. The third quarter is expected to begin very active, with investors trying to complete pending transactions before August vacations. Activity is expected to fall after September and resume in November after the presidential elections runoff, said Luiz Muniz, head for Latin America at Rothschild & Co, the M&A ranking leader this year. BEAR MARKET DEALS The stock market rout and the drop in startup valuations are leading to new deals. "Some tech companies need to continue funding growth and opt for M&A instead of going through difficult funding rounds," said Diogo Aragao, head of M&A in Brazil for Bank of America. He cited the 1.8 billion-real ($338 million) acquisition of data analytics company Neoway by stock exchange operator B3 SA Brasil Bolsa Balcao. Another motivation is the sharp drop in share value this year, as buyers find valuations more attractive than in years past. A $2 billion deal between mall operators BR MAlls Participacoes and Aliansce Sonae Shopping Centers began with an unsolicited offer but evolved into an agreement. Medical labs company Fleury SA agreed to buy Instituto Hermes Pardini in a cash and stock deal as their shares were down almost 20% this year. Itau BBA's investment banking head Roderick Greenlees expects to see more of these transactions. "We also see more private equity funds investing in public companies due to depressed valuations," Greenlees added. Equity offerings are down 34% in Brazil, the only country in the region that had these transactions, and 51% in Latin America, to $10.2 billion. The full amount was raised in offerings by listed companies, including Eneva SA and Salvador-based oil and gas producer PetroReconcavo SA , with no IPOs. Latin America M&A League Table* Financial Advisor Deal Value ($ Number of million) deals Rothschild & Co 10,539 16 Banco BTG Pactual SA 8,716 39 Scotiabank 4,406 8 Morgan Stanley 4,376 8 Itau Unibanco 3,932 18 Citi 3,846 6 JPMorgan 3,496 8 Oaklins 3,393 4 Vinci Partners 3,300 6 BofA Securities Inc 3,260 6 Total 49,077 755 *Any Latin American involvement Source: Refinitiv ($1 = 5.34 reais) (Reporting by Tatiana Bautzer)

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