The eventual purchase of retail software provider Linx by IT services provider Totvs could lead to further deals in Brazil’s ERP and management software industry.

“Deals of this magnitude tend to trigger defensive and offensive reactions from other sector players, who see mergers and acquisitions as a way to remain competitive,” noted Eduardo Brasil, partner at law firm Fonseca Brasil Advogados.

Sao Paulo-based Totvs announced on 26 April that it entered into an agreement with financial technology solutions provider StoneCo regarding the potential acquisition of Linx during an exclusivity period. The resumption of negotiations came two months after Totvs announced its decision to exit Linx’s sale process.

Totvs has resumed negotiations after Stone lowered the asking price, local daily O Estado de Sao Paulo reported, citing unnamed sources. According to the report, Stone is now prepared to sell Linx for BRL 2.5bn-BRL 3bn (USD 440m-USD 528m), down from the BRL 6.7bn it was seeking last year — the same amount it paid for the business in 2021.

“Since the deal announcement, the potential for cross-selling between Linx and Stone has faced more challenges than expected and the software sales estimated by Stone have not materialized,” noted Gustavo Fumachi, director at financial boutique firm Focus Partners. “Linx and Totvs, on the other hand, have an interesting degree of product complementarity, especially in the retail segment, where they operate in different verticals,” he added.

The eventual purchase of Linx would provide Totvs with an undisputed leadership from a retail point of view, noted Marcelo Tommasi, head of M&A and valuations at Crowe Macro Brasil. Linx has a relevant presence in retail segments like textile, gas stations and drugstores, he pointed out, adding that although other sector players may resort to M&A to fight back there is not much alternative given Linx’s big size.

“It will be tough for those who don’t turn to acquisitions to compete with this new platform if a deal comes through,” Tommasi said. On top of that, Totvs and Linx could benefit from key synergies in areas like tech staff, cross-selling and distribution channels, he added.

At least one of the players who previously bid for Linx is already engaged in talks with potential targets to be better positioned when and if Totvs reaches an agreement with Stone, noted an M&A advisor representing the interested investor. The M&A advisor added that his client is looking for “a few companies” as a single target “would not offer the same capillarity and customer base as Linx would”.

Linx’s sale process gathered six non-binding offers in late 2024, O Estado de S. Paulo reported, citing unnamed sources familiar with the situation.

Besides Totvs, other parties interested in the retail software firm included Canada’s software company Constellation and Argentina’s e-commerce technology company MercadoLibre, as well as private equity firms GIC (Singapore) and Advent International (Boston, Massachusetts), the Portuguese-language paper said, without naming the sixth bidder.

Earlier this year, Israel-based global commerce enablement, payments and loyalty platform Nayax confirmed that it exited the sale process for Linx, Brazilian daily Valor Economico reported, citing a statement from the Israeli company.

Regulatory Implications

An eventual deal between Totvs and Linx would inevitably be reviewed by Brazil’s antitrust authority CADE as both companies meet the agency’s revenue thresholds, noted Tommasi of Crowe Macro Brasil.

Under Brazil’s regulations, mergers that must be filed with CADE are those involving at least one economic group with a gross annual turnover of at least BRL 750m in the year prior to the transaction, and another group with a gross annual turnover of at least BRL 75m in the year prior to the transaction.

“It’s natural that CADE’s commissioners take a close look at this deal, but I don’t think there would be enough [market] concentration to prevent the transaction,” Tommasi noted. “The retail segment has many verticals and there are many players in the industry,” he added.

Although Totvs and Linx have different focuses — with Totvs operating more broadly in multiple sectors and Linx focusing on retail — there is an overlap in offerings of management software and integrated financial solutions, said Fonseca Brasil Advogados’ Eduardo Brasil.

“Despite that, specific competition concerns should not be enough to jeopardize the approval of the deal. The precedent of the Stone/Linx case, analyzed and approved without restrictions by CADE, reinforces the expectation that the antitrust authority will adopt a similar stance if no concrete risks are identified,” Brasil noted.

Stone signed a definitive agreement to merge with Linx in August 2020, whereas the tribunal of CADE confirmed the unconditional approval of the deal in June 2021 — a much longer timeframe than the watchdog’s average merger review timeline of 35 days in 2021.