There can only be one leader
Energy – renewable and traditional, retail, minerals, commodities, aviation...Brazil sets record on the record of mergers. These are companies with the Highlander syndrome, wanting to cut off competitors’ heads or gobble them up. No sector is safe and this includes new and emerging areas in this emerging giant, including renewable, cleantech and it, as everyone scrambles for scale to become the leader and get the higher margins and security that come with it.
THERE CAN ONLY BE ONE! "Cries the warrior Victor Kruger (Clancy Brown) to attack Connor Macleod (Christopher Lambert), the film Highlander, the warrior immortal, 1986. The two form part of a race of immortals, which for some mysterious reason feel an irrepressible desire to seek, attack and destroy each other. The only way is decapitating the opponent. And the game (and movie) is only over when there was only one left.
The merger and acquisitions fervor in Brazil and some of the latest friendly and hostile takeover attempts paint a very similar scenario.
Companies also do not die of natural causes. In the Brazil of today, it seems that in the majority of occasions, when a rival approaches and after an uphill battle, strikes a blow to rival separating the head from the body. Like in the movie, the winner of the battle comes out stronger, more able and willing for the next fight. The only difference is that the Highlander corporation goes around with one head but commanding two, three, sometimes several bodies. Ah, yes, and the severed head usually survives richer than before, no longer having to meet the needs of that foreign body. (In some cases, however, a double body remains with two heads for some time.)
The sun that the Spanish want to bring
The board of Isolux, a Spanish company in the area of infrastructure and concessions, has decided to invest R$ 6 billion in Brazil later this year, much of which will be through joint ventures and acquisitions. The amount represents 40% of all that the company intends to spend in the world. This investment will be applied to the construction and development transmission lines and photovoltaic power plants. The company generated revenues of € 3.2 billion and is present in 30 countries.
Infrastructure, minerals, IT and other sectors.
The retail market has recently had several struggles. The warrior Ricardo Eletro cut the head off of Insinuante, forming a body called Sales Machine. The warrior Magazine Luiza seized in June Lojas de Baú – and came out stronger than Ricardo, getting ready for the battle with the duo-Casas Bahia – Ponto Frio (under the command of another merger guerilla, the Pao de Açucar). But behold, Ricardo beheaded Shopping Eletro in July, and returned to leap frog the warrior Luiza.
In the aviation market, TAM and Gol emulate Kruger and the likes of Macleod. TAM battles (amicably) with Trip, and Gol in turn beheads Webjet this past month. In food sector, Perdigao digested Sadia, JBS wormed into Bertin. These are only some of the examples of a phenomenon that affects numerous companies in countless industries in Brazil. Everyone thinks he is Highlander.
To understand why there are so many battles taking place now, we must go back to another war. It was In the middle of the 1940’s, in the first moments after the Second World War when television began to work again, after years of interruption due to the conflict. It was the trigger for a period of expansion of communications, which culminated in the advent of the Internet in the 1980’s, and its constant development to today’s current omnipresence.
This is a time characterized by the flow of information with almost no barriers. "In these years, there was a dramatic fall costs of information, "says Claudio Felisoni of Angelo, economist, chairman of the Provar, the core of a group specializing in retail distribution founded by professors of the prestigious USP, and Ibevar, the institute of executives of same market. With so much information circulating free, products and services were very easier to be copied. That is why many have no competitive differences and are now so alike. This means that one cannot charge too much for any given product or service. Increase the price a little, and then comes someone willing to sell at your old price. Keep your old price, and soon someone will come by selling less.
Innovate or Acquire, Grow or Die
There are only two exits to seek higher profits: the first is to innovate. Create something that no one else knows or can do, or improve the process to have more efficiency. The problem is that innovations are also quickly copied. And that is why so many businesses are calling for second way out – acquire, gain scale, get the biggest market share quickly, a position where margins are higher. Nobody is safe from this phenomenon and even new sectors like renewable energies and cleantech are not safe. In the first semester of the year, the number of mergers and acquisitions reached 379 in Brazil, a record, according to KPMG. And the report only counted only businesses of large size, which were recorded in the media.
Brazil has an extra reason for this galloping of mergers: the proliferation of the Internet has coincided with the effects of the Real Plan. Accounting for inflation, it was possible to "see the real value" of the products as Felisoni says, "and establish relative prices." The increased consumption and helps you understand the need for higher turnover, which feeds the wheel of mergers and acquisitions.
In trade, the phenomenon is even more radical. The e-commerce brings instantly price of anything for the consumer. Therefore, the profit margin in retail is the lowest of the economic activities. According to The Valor 1000, the net margin (profit Net on net) of retail was 2.3 in 2009 - the lowest among 26 activities analyzed, except for the sugar industry and alcohol, which that year had an unusual period large losses.
Civil aviation has also margins especially low. Likewise, access to information gave visibility to certain practices. Gol, for example, the tropicalized model low cost successful in other countries and TAM led to review the strategy, as recalled by André Castellini consultant, Bain & Company. In aviation, and this model, you need volume to negotiate the price of fuel, aircraft and Spare parts, especially with few suppliers, although the advent of bio-jet fuels threatens to fragment the market in the short term. Aside from historical and structural factors, there those term to explain the large number purchase of companies in Brazil. "The country offers less risk, more predictable and allows for long-term vision, "said Luis Augusto Dead, KPMG partner in charge of mergers and acquisitions. The force of the business in 2011 becomes discounted even more significant if the effects of international crisis in the comparison with 2010 and the rest of the global economy.
"In 2009, business plummeted by cause of the crisis, "says Dead. In 2010, many operations were shelved. Already, the numbers of 2011 do not carry this compensation on businesses, he said, reflecting the confidence in the economy Brazil. Both the participation of foreigners was decisive in purchases to get the record the first half. The number of operations acquisition of Brazilian companies by foreign grew 23% in relation to the same period 2010. On the other hand, fell 16% the number of Foreign purchases by Brazil. And to Brazilian purchases by Brazil increased 9%. A sign that life in Brazil is better, of course, assuming no one gets a shot at our heads.
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