Political leaders and financial changes drive progress before 2026 elections.

Brazil is poised for a significant resurgence in merger and acquisition (M&A) activity, fueled by a confluence of political reshuffling, fiscal policy changes, and evolving market sentiments. The upcoming 2026 presidential race sets the stage for a surge of corporate restructuring and strategic transactions, especially in government-controlled sectors, driven by newfound policy certainty and investor confidence. Let’s explore the driving forces and prospects for this potential M&A boom.

Political Dynamics: Charting a New Path through Coalition BuildingThe aftermath of the 2024 local elections exposed a fractured political landscape in Brazil, with the centrist coalition known as Centrao seizing control of 73% of municipalities and positioning itself as a pivotal player in future presidential races. This coalition’s dominance will compel candidates to prioritize fiscal responsibility and privatization, creating opportunities for the sale of state assets. On the other hand, the right-wing Bolsonarismo movement has splintered into more moderate and radical factions, with figures like São Paulo’s Governor Tarcísio de Freitas seeking a centrist reformist identity. The left-wing Workers’ Party (PT) faces internal challenges, marked by diminishing influence and leadership turbulence.

This political flux introduces a dual-sided scenario of risk and potential. A pro-business victory in the 2026 election, whether through candidates like Tarcísio or a reformed Centrao-backed contender, could accelerate the privatization of key sectors such as infrastructure, energy, and mining. Even a PT-led administration would likely need to enact fiscal reforms to address debt concerns, potentially opening up avenues for M&A activities within state-owned enterprises (SOEs) like Eletrobras and Petrobras.

Fiscal Reforms: Streamlining Taxes and Corporate RestructuringThe implementation of a tax reform package in 2025, which introduced the IBS/CBS/IS tax system, has reshaped Brazil’s tax landscape. By simplifying the complex tax code, the reform reduces compliance burdens for businesses and SOEs. A cap of 34% on corporate taxes ensures that companies are not overwhelmed by combined income and dividend tax obligations, while the adoption of the destination-based IBS aligns Brazil with global trade norms. For SOEs, these changes create a conducive environment for shedding debt-heavy assets and attracting foreign investment.

The dividend tax on non-residents at 10% may deter some foreign investors, but the overall corporate tax relief and push for privatizations could outweigh this deterrent. Post-privatization, companies like Eletrobras are exhibiting increased flexibility, as evidenced by board compositions blending public and private interests. Simultaneously, fiscal adjustments like spending caps on healthcare and pensions are alleviating the government’s financial load, freeing up resources for strategic M&A transactions.

Goldman Sachs’ Interest Rate Projections: Paving the Way for Equity Market GrowthForecasts from Goldman Sachs reveal a pivotal shift in Brazil’s interest rate trajectory. The Selic rate, which reached 15% in June 2025, is anticipated to decline to 14.5% by the end of the year and further down to 10% by 2027. This descent in borrowing costs for businesses could facilitate M&A financing, contingent on political stability and fiscal discipline.

The lowering rates are reshaping the behavior of retail investors. With traditional fixed-income assets losing appeal, equities are gaining favor, with equity allocations projected to rise from 10% to 25% by 2025. Fintech platforms like Easynvest and XP are democratizing equity market access, directing significant capital flows into stocks. By 2030, an estimated R$91 billion ($17 billion) could be invested in Brazilian equities, benefitting sectors conducive to M&A activities.

Sector-Specific Opportunities: Identifying Growth AvenuesInfrastructure: The government’s ambitious R$750 billion privatization plan targets various sectors such as toll roads, ports, and airports, presenting opportunities for private equity acquisitions in companies like Econort and Porto de Santos.

Energy & Mining: Brazil’s rich rare earth reserves and renewable energy potential are drawing global attention, with significant Chinese investments in mining amounting to R$27 billion. Additionally, wind and solar projects in the Northeast region present consolidation possibilities.

Financials: Banks like Itaú Unibanco stand to gain from lower interest rates and increased consumer demand. Their robust balance sheets enable them to pursue acquisitions of smaller competitors or emerging fintech companies.

Tech & E-commerce: Disruptors like Nubank and Loggi are reshaping traditional sectors, offering potential for accelerated M&A activities as digital transformation gains momentum.

Risks and Factors to ConsiderElection Volatility: A PT victory could delay privatizations, while a fragmented Congress could impede reform efforts.

Currency Risks: Oscillations in the Brazilian real, influenced by global dollar movements and U.S. trade policies affecting exports like steel and ethanol, introduce volatility to the market.

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