Tax reform is usually analyzed through three classic lenses: tax collection, competitiveness, and simplification. However, there is a less obvious effect that is already beginning to influence decisions in the mergers and acquisitions (M&A) market: asset repricing.
In transactions of this nature, valuation is essentially a projection of a company’s future cash-generation capacity. The greater the predictability of revenues, costs, and tax burden, the more accurately value can be assigned to a business. Tax reform changes precisely this degree of predictability.
Although the transition framework has been defined, significant uncertainties remain regarding the effective impact of the new model across different sectors. The final rate of the dual VAT system, the dynamics of tax credit utilization, and companies’ ability to pass costs on to customers still depend on supplementary regulations and market participants’ adaptation. As a result, the effects of the reform have not yet been fully incorporated into valuation models.
At this point, the market is able to identify trends, but it still cannot accurately measure the magnitude of their impacts.
Some segments are expected to benefit. Manufacturing, distribution, and businesses with longer production chains should capture gains from the system’s full non-cumulative tax framework.
The possibility of more broadly offsetting tax credits on inputs, energy, logistics, and warehousing is likely to reduce distortions and increase tax efficiency, with positive effects on margins.
Conversely, the services sector appears to be under the greatest pressure. Many of these companies—especially those operating under Brazil’s presumed-profit tax regime—currently pay PIS/Cofins under a cumulative system and ISS at comparatively low rates, a combination that results in a tax burden lower than that estimated under the new regime.
Although differentiated treatment will apply to certain activities, the overall trend is toward a significant increase in taxation, with a direct impact on margins and cash generation.Two additional points also deserve attention: the gradual elimination of ICMS tax incentives through 2033, which may affect the competitiveness of companies that rely on these benefits, and the introduction of split payments, which will change companies’ working-capital dynamics and is likely to be reflected in their valuations.
The central point is that these effects are not yet fully reflected in asset prices. Given the uncertainty, investors have been reluctant to make more aggressive adjustments to their valuations.
This gap between perception and pricing creates a window of opportunity. In the short term, business owners in sectors that may be more affected could achieve higher valuations than those likely to prevail once the effects of the reform become clearer and are fully priced in by the market.
In summary, there is already a consensus regarding the direction of the reform’s effects—who is likely to gain and who is likely to lose competitiveness. What is still missing is the translation of these expectations into numbers. It is within this gap that significant M&A opportunities emerge: for some assets, delaying decisions may mean capturing greater value; for others, moving earlier may be critical to preserving value.
Vitor Lourencini is Vice President at M&A boutique Acorn Advisory. He holds an Engineering degree from the University of São Paulo (USP) and specializes in Private Equity and M&A, with experience across different sectors and asset classes.
