With elections approaching, fiscal adjustments still uncertain, and geopolitics showing no signs of letting up, the Brazilian capital market is practically closed to new transactions.
The only transactions likely to go through are follow-on offerings and block trades, but only under very specific circumstances. IPOs are out of the question, according to Bradesco BBI executives.
“The market is starting to look less at the relationship between interest rates and inflation and more at the relationship between interest rates and fiscal policy. This is beginning to directly affect the yield curve and, consequently, also affects the capital market,” said André Moor , head of investment banking at Bradesco BBI, in a meeting with journalists on Wednesday, July 8.
According to him, what should happen are "opportunistic" operations. New follow-on offerings will only be possible for well-positioned and resilient companies, with infrastructure companies emerging as the main candidates, such as Engie and ISA Energia .
Block trades should occur in companies whose "price makes sense" or where there is a need to provide liquidity for an investor's exit, as happened with Espaçolaser.
This situation opens the way for the recomposition of shareholder bases. According to George Costa e Silva, head of ECM at Bradesco BBI, those who have been taking advantage of this movement are strategic investors, who are occupying the space of private equity funds, which today have less investment capacity. An example is Grupo Muffato, which last year bought 10% of Assaí .
"The valuation became so depressed that these investors began to see value in this type of operation," he said.
IPOs , on the other hand, could return next year, depending on how the fiscal issue is addressed by the next government. The expectation is that the reopening of the market will be driven by large operations from companies with more predictable cash flow.
If this scenario is confirmed, the expectation is for a "second wave," made up of smaller companies with accelerated growth.
Just as in the capital markets, the infrastructure segment also leads in M&A transactions. In other sectors, deals have a more tactical character, with high interest rates being the main trigger for transactions.
“Private equity capital has become much more expensive, and therefore we have been working on more structured solutions, such as reverse IPOs, mergers, and other alternatives that allow companies to get through this period until interest rates fall again and the electoral scenario becomes clearer,” said Danilo Borges, head of M&A and financial sponsors at Bradesco BBI.
Below are the main points of the conversation:
EXPECTED SCENARIO
Moor – We always knew it would be a very volatile year because of the elections. Our main conviction was that there would be a surge of enthusiasm at the beginning of the year, driven by expectations of falling interest rates, a global trend of dollar depreciation, and typical election cycle behavior. Our second conviction was that the second half of the year would be more volatile. The correction in the US market would bring volatility to the yield curve, the capital market, and decision-making processes involving M&A and ECM. Our guidance was to take advantage of the first half of the year to execute transactions, because the environment would become more complex afterward. The main course correction was the war. It caused a significant change in the slope of the yield curve. The market window existed and was exploited, but it began to close as we entered an environment of higher interest rates.
FISCAL IS NOW THE FOCUS
Moor – Now we're entering the dynamic we anticipated for the second half of the year. The market is starting to focus less on the relationship between interest rates and inflation and more on the relationship between interest rates and fiscal policy. This is beginning to directly affect the yield curve. Consequently, it also affects the capital market and M&A transactions. Even if there is a change of government, it's not possible to say that the scenario will automatically improve. The plans of the potential candidates are not yet clearly known, and the market will need to assess whether the proposals will be structural or just specific measures to mitigate the perception of fiscal deterioration.
SCENARIO FOR OPPORTUNISTIC BLOCK TRADES AND FOLLOW-ONS
Moor – Given this scenario, we are focused on blocks and highly opportunistic offerings. We see a pipeline of operations being built. When we talk about opportunistic operations, we are talking about companies with high market value, in good operational moments, or resilient companies. These are companies that already have a positive market perception and can sustain an offering even in a more challenging environment. In blocks, these are companies whose price makes sense — or, in some cases, precisely because the price has ceased to make sense for those who need to sell. There are situations where the controlling shareholder needs to generate liquidity. In these cases, the asset goes to market regardless of the moment. This type of opportunity is starting to appear more frequently.
BUYERS MOVED
Costa e Silva – The buyer has changed. Today there is less private equity and more strategic investors. Instead of buying small positions just to follow the market, some are building significant stakes — from 10% to 15% — and are influencing the company's governance, management, and strategy. Valuation has become so depressed that these investors have begun to see value in this type of activity. Naturally, there are still exceptions, such as Advent in Natura , but the predominant trend is different.
IPO ONLY IN 2027 (WITH TAX REVIEW)
Costa e Silva – We are beginning a new phase of recovery. This year has already been better than 2025. We carried out six follow-on offerings and one IPO (of Compass ). It's worth remembering that there hadn't been an IPO since 2021. We still have two more follow-on offerings planned. If these operations are completed, we will reach eight follow-on offerings. My expectation is that 2027 will be better than 2026, which, in turn, has already been superior to the years of stagnation we observed in 2024 and 2025. Naturally, the speed of this recovery will depend on the trajectory of interest rates, the decisions of the next government, and the conduct of fiscal policy.
Moor – Everything depends on fiscal adjustment. Whether conducted by the current government or the next, it will be necessary to convince the market that there will be a change in behavior. Nobody expects a major structural or administrative reform, or a significant cut in spending all at once. What the market wants is a credible signal that the government has recognized the fiscal limit and will adopt a different trajectory.
TWO WAVES
Costa e Silva – The first IPOs should be large operations. We are talking about companies linked to the financial system, energy, infrastructure, or other sectors with highly predictable cash generation. We are talking about offerings between US$300 million and US$500 million — something close to R$3 billion. In this first wave, we are talking about a few names, perhaps between five and ten companies that currently have sufficient size, governance, and structure to carry out an IPO. Then comes what we internally call "wave two." These are smaller, growing companies belonging to the most diverse sectors of the economy. We recently held a conference and identified about 25 potential IPO candidates.
RETURN OF OLD ACQUAINTANCES
Costa e Silva – Foreign investors have returned, but now alternate between periods of entry and exit. It's important to remember that a large part of those US$70 billion from the beginning of the year entered through ETFs. But in the offerings we also saw active flow and global names that hadn't appeared in Brazil for some time. We saw investors like Amundi, Invesco, and specialized funds like Utilico. In addition to them, the large traditional investors who never left Brazil, such as Fidelity and BlackRock, remain present. They continue to analyze opportunities. Some have already placed orders, others are still evaluating new positions. Even with part of the flow returning to the United States, they remained present. Essentially, they are the same investors: those who never left Brazil, only reduced their exposure, and those who returned since the end of last year.
In the capital markets and in M&A, infrastructure reigns.
Moor – Investors continue to seek diversification in emerging markets, but with a focus on safer assets. We are mainly talking about infrastructure. These are assets with long-term contracts, predictable revenues, and are often indexed to inflation or the dollar.
Borges – That's what we see in M&As as well. Within the infrastructure sector, activity remains quite strong. We launched a highway process that was a success, with several interested parties. In energy transmission, there's practically one deal after another. The same thing happens in data centers. In the rest, the deals are very tactical. Private equity capital has become much more expensive, and therefore we have been working on more structured solutions, such as reverse IPOs, mergers, and other alternatives that allow companies to get through this period until interest rates fall again and the electoral scenario becomes clearer.
