The current economic scenario, marked by exchange rate instability, presents both challenges and opportunities for mergers and acquisitions (M&A). The depreciation of the local currency can increase the interest of foreign investors due to the lower prices of Brazilian assets, but it also elevates financial risks, requiring strategic planning.
Exchange rate risks in M&A operations
Exchange rate fluctuations directly impact asset pricing and investment returns, potentially leading to unexpected costs or affecting projected profitability. This scenario demands the implementation of foreign exchange protection strategies to mitigate potential losses due to currency volatility, such as currency hedging.
Currency hedging involves using financial derivative instruments, such as futures contracts, options, or swaps, to lock in an exchange rate or guarantee a minimum/maximum price. This approach provides greater predictability by protecting cash flows and profit margins against currency fluctuations.
Large companies often adopt hedging as a practice for managing currency risks. Examples include Petrobras, which protects its operations exposed to the oil and dollar markets; Ambev, which uses hedging to minimize the impacts of importing raw materials in foreign currencies; and Vale, which deals with commodity price fluctuations and exchange rate variations.
Although effective, hedging can be costly, making a careful feasibility analysis essential before implementing the strategy, considering the cost-benefit ratio for each specific operation.
Additionally, measures like robust due diligence and structuring payments adjusted to exchange rate fluctuations help reduce uncertainties. Tools such as currency swap operations—contracts for exchanging financial risks between economic agents, such as companies, investors, and the government—and forward contracts provide additional protection mechanisms.
Attractiveness to foreign investors
The depreciation of the Brazilian real increases the appeal of Brazilian assets for international investors. Exporting sectors or those with high growth potential stand out in this scenario, as they can generate more resilient returns in external markets.
However, exchange rate instability requires detailed projections to ensure that investment returns are not compromised by future fluctuations.
Evolution of the exchange rate and future challenges
With projections of rising interest rates and inflation, there are indications that exchange rate volatility may remain high, restricting the ability of local companies to engage in M&A transactions. This emphasizes the need for robust financial and legal strategies to navigate this challenging environment.
BNS Law offers comprehensive support in structuring contracts adapted to exchange rate uncertainties, detailed financial projections, and hedging strategies. Additionally, BNS Law ensures compliance with Brazilian legislation, enabling companies and foreign investors to explore opportunities in the Brazilian market with greater security.