No big M&A transactions are expected this year as wary investors seek to better assess the coronavirus-related impacts in Latin American economies and companies’ valuation.

According to a recent report by Mergermarkets, regional M&A activity fell 49.8% year-over-year by value in the first quarter to US$8.7bn - or 1.5% of the world’s total.

“Latin America has not seen the worst yet. The region was hit by COVID-19 later than other parts of the world and still saw activity decrease along with global trends. As the coronavirus spreads, the region could see further declines in M&A activity in the months ahead,” Mergermarket said.

Global M&A activity also dropped sharply to nearly US$564bn in 3,685 transactions in Q1, levels not seen since 2013, Mergermarket reported.

The deal value of Latin America domestic activity alone (US$3.2bn) was the lowest since the first quarter in 2002. Social unrest is also a factor. Chile’s Q1 activity, for example, plummeted 87%.

But even before the coronavirus pandemic hit Latin America, M&A activity slowed down because of stock market volatility and currency depreciation. 

In Brazil, the region's M&A leader, consultancy Transactional Track Record (TTR) reported transactions were down by 32%, to 156, in the first two months of 2020, with 21bn reais (US$4.07bn) in value. 

In the first quarter, 239 transactions were recorded involving Brazilian companies, a 26% drop year-over-year, interrupting an upward trend that started in 2018.

Transaction values were around 44.1bn reais (US$8.52bn), representing an increase of 18%. Brazil's deal of the quarter, according to TTR, was IHS Towers' 2bn-real acquisition of CSS, an infrastructure solutions provider.

Region-wide, first-quarter deal values declined 37.5% to around US$13.2bn, TTR reported.

NO BIG MONEY EXPECTED

Normally, most M&As in Latin America involve IT and finance companies.

In Q1, though, the Pharma, Medical, and Biotech (PMB) sector was the strongest by value, according to Mergermarket, with 11 deals worth US$1.2bn. Meanwhile, Energy, Mining and Utilities (EMU) dropped 66% while tech deals value remained flat.

The PMB spike was not related to COVID-19, but the pandemic could impact M&A activity not only in that sector but also in healthtech, telecomputing platforms and food delivery services, Mergermarket said.

Recently, BNamericas spoke to investors and analysts about venture capital deals and most observers believe multi-billion dollar transactions will be put on hold until the situation stabilizes. In the meantime, only less risky and minor investments would go through.

Investors want clarity, which - in the best case - could only be expected for the second quarter.

But TTR also reported that the number of VC investments in Brazil grew 6% in the first quarter.

VULTURES CIRCLING

A potential side effect of the decline in companies’ market value is an increasing interest of “vulture funds” in companies with financial difficulties.

Carlos Priolli, managing partner of judicial administrator Alvarez & Marsal, told Brazil's Folha de S. Paulo newspaper that his firm has been contacted by such players.

“Some funds have already approached us saying that they have resources in the billions. They have a lot of appetite, saying that they will make the result of the decade”, Priolli was quoted saying.

Source: Business News Americas / BN Americas - Chile