They say that Brazil comes to a halt on three occasions: Carnival, the World Cup and elections. It is no surprise therefore that the combined weight of these events in 2022 made for an unusual start to the year that followed.
A fraught election in October 2022 saw Workers’ Party leader Luiz Inácio Lula da Silva return to the presidency 13 years after he left office, ousting former president Jair Bolsonaro. Decided by the narrowest margin in decades, Lula’s inauguration was marred by an attempted insurrection when a sea of yellow and green-clad bolsonaristas stormed federal government buildings in Brasília.
Not only was President Lula inheriting a deeply polarised Brazil, he was also tasked with confronting a delicate economic situation at home and abroad.
‘2023 was a very challenging year. It started with the Americanas issue. Together with a bad economic climate and high interest rates, it caused the credit market to shrink,’ says Miriam Signor, project development and finance head at Lefosse.
A multibillion-dollar accounting scandal involving one of the country’s most established retailers, Americanas – and its subsequent implosion – alarmed many across corporate Brazil, raising deep concerns about systemic risks to the economy. Fearing that the fallout would envelop other domestic corporate borrowers, the local financial markets – already tested by rising borrowing costs and global instability – contracted, weakening prospects for Brazilian companies that were already struggling.
‘2023 was a difficult year for transactions,’ confirms Mattos Filho’s new managing partner, Pedro Whitaker de Souza Dias, who took over the leadership role from Roberto Quiroga in April 2024. ‘But the Brazilian market is so big that it never stops. Companies always end up having to adapt, even in times of crisis and uncertainty, and somehow find solutions. So even in a year with reduced M&A and capital markets activity, there were still opportunities, and our transactional areas continued to be routinely engaged by clients.’
Moving with the markets
On the equity capital markets side, after an IPO peak in 2021, Brazil has failed to attract a single market debut since Vittia Fertilizantes e Biologicos’ IPO in September that year. Confidence has been dented further by residual scepticism of Lula, who served 19 months of a sentence for corruption and money laundering before returning to politics after his sentence was annulled.
‘2023 was a very challenging year. It started with the Americanas issue. Together with a bad economic climate and high interest rates, it caused the credit market to shrink.’
Miriam Signor, Lefosse
‘Whenever there’s a change of government, the economy stagnates. People wait to see what kind of policy and which sectors are going to be prioritised,’ comments Signor.
While M&A transactional activity also fell, some sectors experienced a notable uptick: ‘Agribusiness, banking, transport, and technology were some of the sectors that saw most activity over the past year in Brazil,’ comments Luanna Perdiz de Jesus, a partner at Brasília-headquartered Perdiz de Jesus Advogados.
Some notable domestic deals still took place, including the R$12bn (£1.88bn) merger between BRMalls and Aliansce Sonae (BMA Advogados advised Aliansce Sonae, while Spinelli Advogados acted for BRMalls), but acquisitions by foreign buyers outstripped those by local purchasers, who cut back their M&A activity given the mismatch between valuations and high financing costs.
The infrastructure and energy sectors, long a safe bet for investors given the potential for stable, long-term returns, continued to drive much of the deal flow in the country, particularly those involving renewable assets.
‘The incumbent government has a clear focus on the environment and energy transition, which is aligned with international policies and sends out a very positive message to foreign investors,’ says Signor.
A radical change in Brazil’s environmental policy looks set to define the current administration. After suffering significant budget and staffing cuts under Bolsonaro, Brazil’s environmental agency IBAMA is experiencing something of a revival, pushing climate change, ESG and environmental compliance to the top of the domestic agenda.
Meanwhile, after benefiting from a particularly fruitful harvest in 2023, the agribusiness sector is responsible for a growing slice of the M&A pie: ‘Agribusiness has always taken up a very large share of GDP but traditionally a very small share of deals, but that is slowly changing,’ says Whitaker de Souza Dias.
Machado Meyer chief executive Tito Andrade agrees, adding that non-transactional practices, including tax, dispute resolution and crisis management, have also shown ‘capacity for growth’. Recently enacted tax reform is intended to tidy up Brazil’s tax system and overhaul its consumption tax system in the hopes of fostering growth.
Elsewhere, a backlog of around 78 million lawsuits is challenging the country’s legal system and the firms that work in it. Brazil’s courts are implementing various AI tools with the aim of reducing this mountain of pending cases.
‘Nowadays we have courts that use this technology to analyse pleadings and even suggest a decision. This certainly impacts the lawyer’s work when drafting a petition and developing a line of argument,’ says Perdiz de Jesus, who adds that ‘companies are increasingly looking to use artificial intelligence in their own legal departments’.
Courts and in-house teams are not the only ones turning to new technology and processes. Brazilian law firms are facing challenges that, in the words of Andrade, ‘require adaptability, innovation and a strategic approach. This implies not only adopting new tools and systems, but also rethinking processes and strategies to remain competitive and efficient in the market, and training professionals who are capable of navigating this new world.’
Talent spotting
While activity levels over the last few years may have been slightly sluggish, Brazilian law firms have demonstrated real dynamism in a post-pandemic world. Splashy lateral moves are expected to persist, as full-service firms look to strengthen practice areas that are likely to be key drivers of business.
Lefosse has arguably been the hungriest, recently recruiting notable industry experts, and at times whole teams, for its compliance, restructuring, life sciences, and competition teams. Indeed, Signor joined Lefosse in April 2022 from competitor Stocche Forbes Advogados.
‘Nowadays we have courts that use technology to analyse pleadings and even suggest a decision. This certainly impacts the lawyer’s work when drafting a petition and developing a line of argument.’
Luanna Perdiz de Jesus, Perdiz de Jesus Advogados
Talent is not solely concentrated in heavyweights like Lefosse though.
Brazil’s legal market is becoming more and more pluralised, with smaller players increasingly spinning off from well-established firms to create new outfits. Noteworthy recent examples include HRSA Sociedade de Advogados, which was established in 2022 by a team of former Huck, Otranto, Camargo Advogados’ lawyers and Gandelman & Costa Dias Advogados, which was founded by Marcelo Gandelman and Rafael da Costa Dias (formerly at Souto Correa Advogados) in May 2023. Boutique player Xavier Gagliardi Inglez Verona Schaffer, was founded the same month by a quintet of highly regarded litigators: Celso Xavier, Marcelo Inglez de Souza, Rafael Gagliardi, Daniel Kaufman Schaffer and Carlo Verona, all of whom came from Demarest Advogados.
This trend echoes the story of Mattos Filho, which over three decades has grown to become one of the largest and most successful full-service law firms in Latin America.
‘Today the Brazilian legal market is bigger and more sophisticated,’ says Whitaker de Souza Dias. He argues that the firm’s ‘diversification in terms of practices, professionals and clients’ shields it from competition, as well as wider market shocks.
Looking ahead
Looking to the future, while dealmakers are still cautious, a brighter picture is forming on Faria Lima, Brazil’s Wall Street. Defying the odds, Brazil’s GDP grew by around 3% in 2023, triple what analysts were predicting when the new government took office. Inflation has slowed down, interest rates have gradually fallen, and the Brazilian real is steadily recovering after years of volatility. Perhaps unsurprisingly, lawyers are reluctant to comment directly on the political tumult of the past 15 months but Lula’s internationalism signals the reemergence of a respectable Brazil on the world stage, something which is ultimately good for business. LB