It’s turning into banner year for transactions in Mexico’s internet and technology sectors, with booming activity that stands in stark contrast to the M&A doldrums dogging nearly everyone else.

In its most recent assessment of M&A, private equity, venture capital and asset acquisition transactions in Mexico, research firm Transactional Track Record (TTR) recorded 40 internet-related transactions between January and October, a 48% increase from the same period of 2018.

Non-internet focused technology business in Mexico, likewise, saw 31 deals in the period, a hefty annual 63% surge.

By contrast, the second most active sector this year, financial and insurance, recorded 32 deals in the 10-month period, a 40% decline, while the fourth largest, real estate, saw the number of deals drop 45% to 24 so far this year. 

“It has been a great year for the technology sector in Mexico… [this] should continue until the end of 2019,” said Marcela Chacón, TTR research and business intelligence analyst for Latin America, in remarks provided to BNamericas.

As Chacón explained, “The increase in startups in the technology sector, especially in strategic areas of Latin America such as Mexico and Brazil, which are the countries that have shown significant investment flows in 2019 in the region, has promoted a dynamic trend in the sector.”

“In the case of Mexico, there is renewed interest from strategic investors and private equity funds in finding opportunities in the sector to acquire companies and generate organic growth in the region,” she added.

Foreign interest has been key to the increased internet/tech activity with inbound deals in the sectors jumping 45% to 29 this year.

Chacón added, “According to TTR, there's a growing interest of US investors in the market of technology companies in Mexico, being the main buyers in this sector.”

The firm reported that inbound acquisitions to Mexico from the US have also increased, up 7.84% to 55 from January to October. 

VC BOOM

Mexico is emerging as a regional leader in the fintech industry, both thanks to its top-of-class regulatory framework and the potential digital marketplace in Mexico carried by an estimated 70mn mobile phones in operation. 

It is little surprise then that venture capital activity is going full tilt. TTR recorded 69 VC deals in Mexico from January to October with a combined value of US$1.30bn. This represents a 23% increase in the number of transactions and a whopping 166% leap in mobilized capital over the same period of 2018.

Private equity, conversely, has taken a dive in 2019, with Mexico generating only 13 transactions in the first 10 months of this year, down 54%, where the total equity capital moved in the deals so far came in at only US$67mn, 97% less than that reported in deals the year before.

MEXICO'S SOFT YEAR

Investment activity in general has been muted in 2019 with GDP growth estimates now hovering around 0.1% and 0.2%, as Mexico moves through a tough period of political transition against the backdrop of the global economic deceleration. 

TTR reports that Mexico produced 240 M&A transactions from January to October, 93 of which reported deal values amounting to US$13.6bn. This reflects 19% fewer deals over all and a 2.3% dip in reported deal value.

Activity could be on the mend if October is any indication, with the month producing 20 M&A deals for a total of US$2.96bn.

This is due in large part to the roughly US$2.3bn deal to acquire Mexican highway operator Red de Carreteras de Occidente (ROC).

In that deal, Spain’s Abertis Infrastructuras and Singapore-based GIC agreed with Goldman Sachs Infrastructure Partners (GSIP) to acquire GSIP's 70% stake in RCO. 

Abertis is set to acquire a 50.1% interest in RCO and GIC will buy the remaining 19.9% and retain operational and financial control on the asset. The transaction, which is subject to customary regulatory approvals, should be completed in 1H20.

Source: Business News Americas / BN Americas - Chile