M&A Opportunities Persist in LatAm Despite Socio-Political Challenges, Experts Say

By Dominic Pasteiner

There will be dealmaking opportunities in Spanish-speaking Latin America this year despite socio-political challenges, according to panelists at Mergermarket’s 18 August live event Translating Macroeconomic Factors into M&A Activity.

Mexico: Digital economy will continue to drive dealmaking

Halfway through President Andres Manuel Lopez Obrador’s six-year presidency, investments in the digital economy are expected to continue to bolster economic growth and drive M&A activity, said Andres Nieto, leading partner in M&A, banking, financing, and capital markets at Mexico City-based law firm Creel Abogados.

This year, three Mexican startups —cryptocurrency exchange Bitso, mobile payments platform PayClip, and online investment platform Grupo Bursatil Mexicano— reached so-called unicorn status after commanding valuations of more than USD 1bn. They join online used-car marketplace Kavak, which achieved the status last year.

M&A activity in the country could also be driven by companies that took on short-term debt during the pandemic and could seek restructuring deals over the coming months, potentially leading to opportunities for equity investors, he said.

There should also be an uptick in the number of SPAC deals, although the local market for such vehicles still lacks maturity, Nieto said, adding that he is working on listing an agriculture-focused SPAC in Canada.

Mexico’s geographic proximity to the US, coupled with the United States-Mexico-Canada agreement, which replaced the North American Free Trade Agreement and was signed in 2019 but came into effect last year, is also expected to boost local M&A activity, he said.

Colombia: Deals pushed through ahead of elections

Next year’s presidential election is expected to have a mixed impact on local dealmaking, said Carlos Restrepo, M&A VP at Medellin-based Bancolombia.

On the one hand, some ongoing transactions will be postponed or suspended as contract negotiations and due diligence become more complex as the country prepares to vote in a new president, Restrepo said.

The country’s recent credit-rating downgrade to ‘junk’ by two of three major credit-rating agencies, coupled with the COVID-19 economic slowdown and currency volatility will also contribute to a “panorama of uncertainty” for investors, the banker said.

Dealmakers and corporate executives, however, are learning to operate within this reality, said Restrepo. Undervalued assets and long-term investment opportunities in sectors including energy and infrastructure will continue to attract “opportunistic” financial players, he said.

M&A transactions could also be rushed to be closed this year to avoid potential delays as the May 2022 presidential election draws near, Restrepo said.

Peru: M&A activity hit by political uncertainty

Peru is experiencing a “delicate” period of political upheaval which could affect dealmaking, said Lucas Araujo, M&A Director for Scotiabank Peru.

Late last month, Peru’s President Pedro Castillo took office after a bitter month-long legal contest by his opponent. Castillo, a former rural teacher, has proposed charging a new tax on profits and eliminating tax exemptions. And last week, the country’s foreign minister Hector Bejar resigned after only 19 days on the job after footage emerged in which he suggested that a Maoist rebel group that killed tens of thousands of Peruvians received support from the US Central Intelligence Agency.

Araujo noted that this week Peru’s Congress will vote to approve Castillo’s new cabinet.

Uncertainty surrounding the new administration could lead to the postponement or abandonment of strategic decisions regarding M&A and fresh investments, he said.

However, M&A activity will be driven by local strategic and financial investors seeking to diversify away from Peru by pursuing acquisitions in neighbouring markets like Chile and Colombia, Araujo said.

Next year, the backlog of postponed or delayed transactions could ease as the dust from the presidential election settles, leading to an uptick in activity, the banker noted.

Vaccination rates will also impact investors’ decision making, said Daniel Davila, regional director for Mexico at Datasite. Countries with the highest vaccination rates are expected to see increased levels of dealmaking going forward, he noted.

Uruguay and Chile have the highest vaccination rates in the region, with 71% and 69% people fully vaccinated, respectively, according to data compiled by the University of Oxford’s Our World in Data project. Mexico and Peru have fully vaccinated only 24% and 23%, respectively.

According to a poll during the live event, 56% of respondents said that there will be strong M&A growth in Latin America over the next 12 months and 52% believe international financial investors will be the most active group. Energy and technology are seen as the sectors that will see the most activity.