Brazilian Software Giant Totvs Will Keep Betting on M&A for Growth in 2024, CEO Says

Despite Brazil’s high-interest rate environment, acquisitions are important to bring in talent and strengthen the company’s position in the market, Dennis Herszkowicz said in an interview

Sede da Totvs, uma das principais empresas de tecnologia do país
December 11, 2023 | 12:19 PM

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Bloomberg Línea — After confirming five acquisitions in the final months of 2023, the Brazilian software giante Totvs will be looking to keep up the pace of M&A deals to boost growth in 2024, CEO Dennis Herszkowicz said in a recent interview with Bloomberg Línea.

The CEO emphasized the ongoing importance of M&A operations for Totvs’ development, especially in the country’s ongoing environment of high interest rates, which is making transactions more challenging.

In October, Totvs finalized the acquisition of the IP franchise for R$137.6 million, and on November 30th, announced the purchase of 100% of Ahgora, an HRtech startup focused on electronic time and attendance management, for R$380 million. With these two acquisitions, the company’s total mergers and acquisitions in 2023 reach five, totaling more than R$500 million disbursed, including mergers with franchises and the purchase of its subsidiary RD Station, which acquired Exact Sales.

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According to the executive, the environment of high interest rates makes the market more challenging for operations, but they still remain important as a way to bring talent and strengthen the company’s position in the market. “It has become a bit more difficult for companies. What was once a market with a lot of liquidity, where any company had unrestricted access to capital, is not the case today,” said Herszkowicz.


Totvs shares had accumulated a 24.6% increase in 2023 until Wednesday (6) and have reached year-high levels in recent sessions. The stocks have recovered from a 3.5% decline in 2022, and this year’s performance is above the Ibovespa index by 14.5% in the same period.

Before Ahgora, Totvs had already made acquisitions in the HR area, including the acquisition of Feedz in 2022, a startup specialized in subscription-based solutions focused on engagement, performance, and organizational climate. In a report dated November 30th, analysts from BTG Pactual pointed out cross-selling opportunities with Totvs’ management segment. Ahgora has an annual recurring revenue of R$ 84 million (2% of Totvs’ management revenue), and its net revenues grew at a compound annual growth rate (CAGR) of 45% from 2019 to 2022.

According to BTG’s report, Totvs is the leading HR software provider in Brazil, processing payroll for 10 million people. Ahgora’s software serves 1.8 million people (representing 18% of Totvs’ customer base). “The cross-selling opportunities appear significant as Totvs can offer its 40 thousand management customers the complementary solutions that Ahgora brings (e.g., facial recognition-based electronic timekeeping),” say BTG analysts. This intra-vertical cross-selling is the strategy Totvs has effectively executed over time.

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But there is also a perspective to sell the solution to other segments. “The new 1.8 million users the company will incorporate represent an addressable market for the Techfin segment (primarily the payroll-deductible loan product),” the report states.

Partnership with Itaú: Herszkowicz also addressed the joint venture with Itaú, emphasizing Totvs’ satisfaction with this recent partnership with Techfin, offering personalized financial services through Totvs’ systems. In the results for the third quarter of 2023, the Techfin operation had a credit origination of R$ 2.9 billion (a 16% increase quarter over quarter, surpassing analysts’ expectations), primarily due to strong performance in agribusiness, according to Itaú BBA analysts. Net revenue (net of financing costs) was R$ 97.8 million due to stronger credit origination, lower financing costs, and an increase (11 days) in the average credit term.

“As this is a business with strong operational leverage, the contribution margin was R$ 64.5 million (+33% year over year),” said Itaú BBA in a report.

According to Itaú BBA, the interest margin on loans was very high (4.9%), much better than in the third quarter of 2022, which drove revenues (and results). In the third quarter, Totvs’ EBITDA margin as a whole reached nearly 44%, ‘indicating financial health,’ according to Herszkowicz. While addressing future prospects, he expressed confidence in the ongoing dynamics despite a challenging market.


Positive metrics, such as new sales quickly turning into additional revenues, reinforced expectations for a promising fourth quarter. With one-third of the listed companies on the stock exchange being Totvs clients and generating cash flow exceeding R$1 billion per year, Herszkowicz mentioned that consolidated revenue grew by 19%. The company now has over 70,000 clients.

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Dennis Herszkowicz, CEO da Totvsdfd

“Looking at market penetration, there is a lot of room to continue growing. As you standardize products, you reduce the need for very long implementations, introduce remote deployment elements, and reduce costs, thereby serving a group of smaller companies,” the executive said.

“A few years ago, we couldn’t usually sell a project to a client with an annual revenue much lower than R$ 15 million. Now, this opens up the market for us too.”


Stock Repurchase

Totvs also recently disclosed a share repurchase program of 18 million shares (3% of outstanding shares) effective until November 8, 2024. The buyback, which for the first time is not linked to compensation programs, was explained as a strategy to provide greater return to shareholders, according to Herszkowicz.

“We look at the stock value and understand that the value does not correlate with the operational and financial performance of the company,” he said. “We are very confident that the company’s performance over recent years and quarters justifies a higher market value for the company.”

Herszkowicz clarified that foreign investors’ caution towards Brazil isn’t solely due to the Selic rate but also global geopolitical factors. He emphasized that the country is in line with reducing interest rates, dispelling the notion that foreign investors are more cautious only due to the Brazilian rate, which would make Totvs more undervalued than its American counterparts.

“I don’t think foreign investors are more cautious because of interest rates; they are probably more cautious in a geopolitical economic scenario globally,” he stated.


Totvs isn’t the only Brazilian company pursuing this strategy. Stone announced an authorized share repurchase program, enabling the company to acquire up to R$1 billion in Class A common shares on Nasdaq. VTEX recently renewed its buyback program, valid until August 10, 2024, for up to US$20 million in Class A common shares.

“The decision on the timing and amount of repurchased shares, if any, will be at the discretion of our management, considering market conditions and other relevant factors. This announcement reflects our confidence in VTEX’s financial position and our commitment to delivering long-term value to our shareholders,” VTEX said in a statement to Bloomberg Linea.

A company might opt to repurchase its own shares as a sign of management’s confidence in the company’s future health and performance or to capitalize on market opportunities if the company’s shares are trading at a price considered below intrinsic value. Another possibility is enhancing capital management, as share buybacks can be an effective way to return money to shareholders, especially when the company has excess cash and doesn’t see attractive investment opportunities in its own business.



Dennis Herszkowicz, who was the CFO of Linx before its acquisition by Stone, became the CEO of Totvs in 2018, succeeding founder Laércio Cosentino. Herszkowicz emphasized the importance of respecting the founder’s role, stating that his goal as CEO is to excel in his position, not to replace the eternal role of founder Laércio Cosentino.

“An investor asked me if I would step into the founder’s shoes. I will never step into those shoes because the role of a founder is eternal. That role will always be his. My role is to try to be the best CEO this company has ever had, but nothing more than that,” Herszkowicz told Bloomberg Línea.

Similarly, Juliano Tubino, previously Vice President of Business Performance at Totvs, took over as CEO of RD Station in March of this year, replacing founder Eric Santos. Tubino noted the management transformation at the company, highlighting the transition to the second phase of the business strategy, characterized by integrating artificial intelligence into all operations, from CRM to conversation solutions.


“When there was a change in RD’s CEO, it was more than a leadership succession; it was the second phase of what we wanted to do with this business strategy... Next year, perhaps we will talk less about the term ‘Artificial Intelligence’ and more about AI, sales with AI, marketing with AI; it will be an embedded technology,” Tubino said.

Regarding the financial landscape, Herszkowicz emphasized the company’s strength, achieving a competitive NPS (Net Promoter Score), maintaining affordable prices, and focusing on the SMB segment (small and medium-sized businesses).

“The room for continued growth is vast,” he said.