Middle market growth creates new business opportunities in Brazil

Brazil is currently experiencing a period that may seem paradoxical. It still faces economic difficulties as a result of the health crisis, as do many other countries around the globe; however, its capital market is thriving, with high liquidity, a large number of IPOs and strong valuations of companies already listed. Eduardo Luque, partner at IRKO Group, comments


n 2020, there were 28 initial public offerings in the country, the highest number since 2007, when there were 64 of such operations. This accelerating trend has continued in 2021 – 24 IPOs were carried out by May 2021. In addition, there are at least 34 other companies in line to make their debut on the stock market.

There is, however, an important difference between the type of company that went public 14 years ago and that of today: those of the 2020 generation are smaller and operate in more diverse sectors. What explains the entry of companies in the middle market to the Brazilian stock exchange?

Eduardo Luque, partner, IRKO Group

First, we have record-low interest rates, favouring investments in stocks, to the detriment of fixed income. In addition, challenging macroeconomic conditions have reduced the role of public and private banks in financing companies, making them eager to raise funds in the stock market. Finally, there is the growth of the country's investor base: in 2018, there were 800,000; in 2021, they add up to more than 3.5 million.

Furthermore, companies that are not listed on the stock exchange have been carrying out debt issuance operations to raise funds, allowing them to finance themselves without issuing shares on the market – taking into account the general liquidity conditions for investments.

This wave of more capitalised companies has led to a record year for mergers and acquisitions in the Brazilian market. In the first five months of the year, there were 693 transactions, according to TTR, which also considers operations without advisory. The number represents growth over the same period both in 2020 (37%) and 2019 (20%).

And although the operations that draw the most attention are the big ones, the largest volume of M&As in Brazil is concentrated in the medium-sized companies’ segment. In addition to having more liquidity nowadays, these companies are attracting more interest in the market.

This scenario creates many opportunities for professional services accounting firms operating in the Brazilian market, as it opens up a range of contract possibilities beyond the large companies in this segment – among which, those known as the Big Four.

Services such as consulting, auditing, advisory services for M&As and IPOs, debt issuance and fundraising are among those that have seen an increase in demand in recent months.

We also see, in the IRKO Group, a growth in demand for BPO services, of around 35%, since the second half of 2020. This movement is explained by the need for entrepreneurs and managers to focus on their core business, with all their attention directed to projects aiming at expanding and diversifying its businesses.

IRKO has been preparing for this movement for years. Our group was founded in 1957 by a team of partners that included my father, José Luque, who is still with us in the company. I joined IRKO in 2016, after a 27-year career in a Big Four firm.

With around 450 employees, we have built a solid reputation as a professional services accounting company for almost 65 years, operating primarily in the Outsourcing market. At 60, in line with our innovative DNA, we launched an aggressive expansion plan for the next 60 years.

Firstly, we developed our own digital solutions and software, in addition to acquiring two fintechs, allowing for an evolution of our business model. Thus, in line with what has been happening for decades in more mature markets, our professionals have been adopting a more consulting profile, offering our clients strategic insights to help them grow.

In 2017, we created our consulting and auditing firm, Irkonsult, strengthened in the following years by the acquisition of the companies MAP and Hirashima Consultores e Auditores Independentes. Today, they operate in an integrated manner, under the single IRKO Hirashima brand, in the areas of auditing, M&A, risk advisory, tax and accounting consulting services.

Now we want to consolidate IRKO's prominent position in the Brazilian market through global partnerships and domestic expansion. This will be done while preserving the character of a boutique company, with direct involvement of the partners in all projects – a differential of our services. Our goal, however, is to offer a performance in line with the largest companies in the world.

We see, in our day-to-day, an evolution of what is required of professionals in our sector. There are new governance practices, different technologies and an always challenging business environment. Therefore, we seek to offer the best and most up-to-date training opportunities for our employees. And as part of that strategy, we decided in 2021 to offer all IRKO Hirashima employees training for the Association of Chartered Certified Accountants qualification – the equivalent of the CPA certification in the US.

With all this, IRKO is prepared to meet the renewed demand for professional services in Brazil, no matter the size of the client and its next strategic objective. Moreover, we will continue to do our part in contributing to a mature and prosperous business environment in Brazil.