When IPOs leave the stage, M&A takes the lead

Caption: The relentless fight between going public and finding a strategic partner through an acquisition

In recent years, Brazil has faced a macroeconomic environment marked by political instability, persistent inflation and, above all, high interest rates. This scenario has put the brakes on one of the most important liquidity engines for listed companies: initial public offerings (IPOs). The IPO window, which in previous cycles was a natural option for companies seeking growth capital or an exit for their investors, has practically closed.

This is not unique to Brazil: in several emerging markets and even in more mature ones, a high cost of capital has reduced institutional investors' appetite for new issues. In Brazil, however, where debt has historically been more expensive, prolonged high rates have made the valuation equation even harder: multiples fell, growth projections were repriced and, as a result, going public became less attractive.

Similar international examples

• India: despite the global high-rate environment, India's IPO and equity capital markets (ECM) showed signs of life and recent growth, with strong demand for local issues while other Asian markets stagnated.

• Europe: international reports (such as EY's) show that IPO volumes in these markets fell in the first half of 2024, citing macroeconomic uncertainty, inflation, volatility and high interest rates as the main causes.

M&A data in Brazil: 2024 vs. pre-pandemic years

Here are some figures that help put it in perspective:

• In 2024, Brazil recorded 1,476 M&A transactions announced and closed, with R$ 367.6 billion mobilized by these deals, according to a report from the Fusões e Aquisições blog. As for IPOs, not a single new company went public on B3.

• Before the pandemic, in 2019, there were 1,037 M&A transactions announced and closed, with R$ 365 billion mobilized, according to the same blog. The number of IPOs and follow-ons reached 42 transactions, raising R$ 90.1 billion, according to B3 and ANBIMA.

Why a well-built valuation matters in tough times

In a scenario like today's — high rates, inflation, high regulatory risk and volatile expectations — a well-structured valuation is no longer just an academic or accounting exercise: it becomes a key negotiating tool. Some critical points:

1. Transparency and credibility: when the valuation is clear about its assumptions (discount rate, growth scenarios, sensitivity to macro variables such as FX, rates and inflation), it reduces information asymmetry and builds trust between buyer, seller and investors.

2. Scenario definition: a single "base case" is not enough; in uncertain environments it is essential to present realistic alternative scenarios (pessimistic and optimistic) to show how robust or fragile the results are. This helps negotiate earn-outs, adjustment clauses or performance terms.

3. Adjusted metrics: instead of relying only on market multiples that may be distorted, use discounted cash flows and adjust for local macroeconomic risk, financing cost differentials and so on.

4. Adaptive deal structure: a clearly built valuation enables better negotiation of mechanisms such as earn-outs, revision clauses, staggered payments and minority stakes. It helps the seller defend certain expectations and gives the buyer protection tools.

5. Readiness for deeper due diligence: in tough times, buyers will ask for more evidence, documentation, conservative projections and an execution track record. A weak or poorly supported valuation can be used as leverage to cut the price or change the terms.

Final thoughts

The shortage of IPOs in Brazil, driven by high interest rates, persistent inflation, fiscal risk and volatility, is forcing a reshaping of the corporate financing ecosystem. M&A, which was already a natural alternative, now takes center stage. But not as an "automatic savior": it requires preparation, strategic partners, valuation discipline and flexibility in negotiations.

Owners who realize this sooner tend to gain an edge: by adjusting their valuation expectations, seeking strategic minority partners, assessing financing alternatives outside the stock exchange, or investing in governance to make their company more attractive for M&A — or for when IPOs return.

In other words: the referee — the macro environment — may be favoring M&A over IPOs for now, but those who are well prepared, with good advice, a solid financial structure and a realistic valuation, can turn this adverse moment into an opportunity for growth or a rewarding exit.