Expert states that lack of preparation by medium-sized companies causes loss of valuation, halts negotiations and even makes agreements unfeasible in Brazil
Brazil is going through one of the hottest periods in the mergers and acquisitions (M&A) market in Latin America, but many medium-sized companies continue to leave money on the table. Although the country had a turnover of US$37 billion between January and September this year in more than 1,300 operations, a large part of the business could yield higher values if the companies were prepared.
The analysis is by strategic consultant Rodrigo Baraldi, a lawyer with more than 20 years of experience in M&As and responsible for advising operations totaling R$10.2 billion. He states that companies with revenues between R$20 million and R$150 million — the so-called middle market — are those that suffer the most loss of value due to the lack of a minimum structure before negotiations begin.
According to Baraldi, many entrepreneurs enter a sales process after receiving a good proposal, but without any preparation. When it starts due diligence (detailed audit), problems arise that reduce the valuation, increase taxes or even make the agreement unfeasible. “It is common for business owners to discover, during the audit, that they will pay much more tax than they should or that they will receive large discounts for contingencies that could have been resolved earlier”, he says.
The three factors that bring down an agreement
Baraldi points out three elements that, together, are responsible for halting negotiations or causing millionaire losses:
- Ego do dono: when the expectation of value does not correspond to the company’s reality.
- Breach of trust: reports and numbers that do not match what was told to the buyer.
- Culture shock: profound differences between the companies involved.
“It’s not just the numbers that kill an M&A. Ego, trust and culture have a direct impact on closing the transaction”, he says.
18 months to prepare a company
To maximize the value of the sale, Baraldi states that the ideal is to prepare the company over 18 months. The process involves:
- Tax adjustments;
- Organization of internal processes;
- Definition of financial indicators;
- Creation of management metrics;
- Solid governance to support due diligence.
He cites a recent case in which he helped a company increase its valuation from R$68 million to R$92 million. The company had R$15 million in tax contingencies and unadjusted liabilities. After restructuring governance, finances and tax planning, contingencies dropped to R$1 million — and the negotiation progressed with greater returns for the owner.
For Baraldi, the key to improving the performance of the Brazilian market in M&As is simple: preparation. “M&A is not a property sale. It is complex, involves interests on both sides and requires alignment. The sooner the entrepreneur prepares, the greater the chance of appreciation and robust agreements”, he states.
