Brazilian water M&A market springs to life
Published on by Edyta Bednorz, Global Water Intelligence - Brand Marketing Executive in Business
Authorities in the country are looking to push out two of their largest desalination projects to date. They are likely To attract attention from a wide range of investors.
The largest water operators in Brazil's private sector look best placed to take advantage of the flood of M&A opportunities which have come onto the Brazilian market this year. Their ability to move nimbly in their home market is likely to give them an advantage over non-Brazilian companies, despite the fact that the assets on the block offer a rare chance for foreign players to enter the market by acquiring operators with established reference bases. CAB Ambiental, which serves a population of 6.5 million in the states of São Paulo, Mato Grosso, Paraná, Santa Catarina and Alagoas, is the most significant acquisition opportunity. Despite having entertained the idea of an IPO for CAB Ambiental as recently as last year, majority stakeholder Grupo Galvão - which is facing investigations in connection with the ongoing Petrobras scandal - is now understood to be negotiating the sale of its 66% stake in the company to Brazilian equity fund GP Investments.
GS Inima, which generated revenues of BRL168 million ($62.5 million) from its Brazilian water busuiness in 2014, was once a prospective buyer of CAB, but has now found itself up for sale. Interestingly, the selling shareholder, GS Engineering & Construction, is now believed to be entertaining separate offers for GS Inima's five Brazilian wastewater concessions, in an attempt to derive incremental value by investigating an alternative to selling the global business as a complete package. Meanwhile, construction group OAS - which is "going through a difficult situation with compliance issues," according to one source approached by GWI - is looking to sell OAS Soluções Ambientais, which would mark the group's exit from the water business. With revenues of BRL90 million ($33.5 million) in 2014, the company has two concessions in Brazil, and a third supplying water to the Peruvian capital, Lima. At the smaller end of the scale, Grupo Bertín is negotiating the sale of its Águas de Itu concession in Saõ Paulo state. The business recently took a financial hit after being obliged to invest BRL30 million ($11 million) to bring water from the Mombaça river to combat drought in the region. Águas do Brasil, Odebrecht Ambiental and Aegea Saneamento are all considered potential buyers for these assets, according to sources in the private sector. "We think we are in good shape to look at all the acquisitions because we have good liquidity," an Aegea source confided to GWI. This "could also be the best time for non-Brazilian companies to enter the Brazilian water market," according to Banco do Brasil analyst Renato Hallgren. "It is a good opportunity for international companies, [but] the timing will be difficult for them compared to Brazilian companies," added another private sector commentator. Hallgren hails the current batch of M&A opportunities as the start of a trend. "The Brazilian water sector will see plenty of M&A deals in the next two to three years, and from 2017/2018 we will see some of them go to the stock market," he predicts.