Financial M&A deals in Latin America fell 33% year over year in the fourth quarter of 2021 and may continue to dip in 2022.
The number of operations totaled 26 versus 39 in the last quarter of 2020, down from 29 in the third quarter of 2021, data compiled by S&P Global Market Intelligence shows.
Deal-making in 2022 is likely to be derailed as Brazil heads for political uncertainty with a presidential election pitting incumbent Jair Bolsonaro against ex-President Luiz Inácio Lula da Silva. In a recent poll by research firm Ipespe, Lula was leading at 44% to Bolsonaro's 24%.
In 2021, the deal pipeline was relatively steady, and full-year data for M&A transactions in the region amounted to 105, down 10.3% from 117 in 2020.
"M&A in our region should likely take a significant setback this year," said Guilherme Machado, a bank director with S&P Global Ratings.
Brazil saw 11 deals in the financial sector during the fourth quarter of 2021, accounting for almost half of all M&A transactions in Latin America during the three-month period. Insurance continued to have a busy M&A pipeline, with seven different deals accounting for 27% of all financial transactions in the period and three of the top five deals by disclosed deal value taking place in the sector.
In the fourth quarter of 2021, Allianz Brasil Seguradora SA bought Sompo Saúde Seguros SA for more than $41 million, according to Market Intelligence records. Also in Brazil, Spice Private Equity AG bought Argo Seguros Brasil SA for nearly $30 million. In the Caribbean, Trinidad & Tobago Insurance Ltd. acquired Colonial Fire and General Insurance Co. Ltd. for $44.25 million, the second-largest deal in the quarter.
Bradesco accelerates into digital banking
The Brazilian digital banking ecosystem remained attractive with the highest valued transaction in the quarter carried out by Banco Bradesco SA. Its subsidiary Bradescard Elo Participações SA acquired Banco do Brasil SA's 49.99% stake in Banco Digio SA, a digital lender, for $113 million.
Following the deal, Bradesco will indirectly hold 100% of Banco Digio, the bank said in a statement. Bradesco said Digio has approximately 2 million credit cards and offers checking accounts and personal credit. Its credit portfolio is in the order of 2.5 billion reais, and Bradesco noted that the deal was "aligned with the strategy of investing in digital businesses."
Bradesco's acquisition comes as big Brazilian banks are pursuing digitization strategies to compete with the entrance of new digital players, such as Nu Holdings Ltd. Bradesco already owns a digital bank of its own, Next, which was created in 2017 and had 7 million customers at the end of the third quarter.
Big banking deals in 2021
Among the biggest transactions in 2021, Spanish group Banco Santander SA raised its bet on the Mexican market, pouring $650 million to expand its stake in Banco Santander México SA Institución de Banca Múltiple Grupo Financiero Santa.
Last month, the Spanish giant announced that it increased its stockholdings to 96.2%, as Latin American subsidiaries become increasingly important in the holding group's strategy.
Another major deal was Banco BTG Pactual SA's buyout of state-run Caixa Econômica Federal's stake in Banco Pan SA. BTG paid $647 million for the stake as it incorporates banking products into its traditional investment offering. BTG made the acquisition through its subsidiary Banco Sistema SA, a Curitiba-based bank formerly known as Banco Bamerindus do Brasil SA, acquired 26.8% of Banco Pan's share capital.
Similarly, Canadian group The Bank of Nova Scotia said it reached a deal to increase its ownership of Chilean subsidiary Scotiabank Chile SA to 83% by acquiring an additional 7% stake from the Said family. The transaction had a reported value of $406 million, Market Intelligence records show.
In the third quarter, the asset management industry shook the M&A market as Patria Investments Ltd. acquired Moneda Asset Management SA in Chile. The deal was priced at $445 million and was the largest in the three-month period.
As of Jan. 14, US$1 was equivalent to 5.55 Brazilian reais.