Global and regional uncertainty failed to mute M&A activity in Chile, Peru and Colombia in February as the outlook for overall deal-making in Latin America becomes increasingly hazy.

Key segments were natural resources and infrastructure, Chilean financial advisors Hudson Bankers said in a report.

“Latin America has always had unique and strategically essential natural resources for the development of the global economy where the interest of international investors has been constant. February's M&A transactions provide evidence of this,” the report said, highlighting the key role the industry – along with infrastructure – has in supporting capital flows in the region. 

Among deals with disclosed values in the month was Mitsubishi Materials’s announcement that it would buy from Mantos Copper, for US$263mn, a 30% stake in Chile's MantoVerde copper mine to secure more concentrates for its smelters.

Under the deal, funds will be used to help expand facilities and build a concentrator. 

Another major extractive industry development was Orica Mining Services’ US$203mn purchase of Peruvian explosives firm Exsa from local conglomerate Breca.

While the coronavirus outbreak has weakened copper consumption in major buyer China and dented prices, over the long-term expected growth in electric vehicles and clean energy initiatives should help support demand for the commodity.

Chris Berry, energy metals strategist at New York-based consultancy House Mountain Partners, told BNamericas recently that an uptick in M&A could be in the cards, depending on how the price and demand scenario plays out.

“If commodity pricing stays lower for longer and consumer demand doesn't resurface, you will see a number of exploration, development and producing mining companies merge to survive or go out of business,” Berry said. “The tough times ahead should help to create a more disciplined and capital-efficient mining sector, which is a good result from the current crisis.”

On the infrastructure front, among developments was the completion of the sale, by Brookfield Americas Infrastructure Holdings Chile, of 33% of the parent of Chilean highway concessionaires Vespucio Norte and Túnel San Cristóbal. The buyers were Chilean infrastructure fund manager AGF CMB and global infrastructure fund Ardian France.

In Colombia, February saw the completion of private equity player Advent International’s sale of 22% of pipeline operator and state oil firm Ecopetrol subsidiary Oleoducto Central to global investment manager I Squared Capital.   

In terms of the regional M&A outlook, it has clouded over in recent weeks following the spread of the coronavirus. Prior to this, deal-making forecasts were already dampened, with the region's underperforming economy, impacted by uncertainty and trade tension fallout, a factor.

“It is still too early to determine the impact that the coronavirus pandemic will have on deal-making in Latin America, but the ensuing currency depreciation across the region will surely push valuations lower and could result in some sellers choosing not to sell,” Carlos Martínez, senior Latin America correspondent at research company Mergermarket, told BNamericas earlier in the week.

Across Latin America, reported deal value over the first two months was down 46.2% to around US$7.7bn, compared with the same period of 2019, according to research firm Transactional Track Record (TTR). The number of deals stood at 262, down 34.7%.

In Chile, the third biggest M&A market in Latin America, deal value and volume were down 47% and 38%, respectively, year-on-year in January-February.

The fifth-biggest market, Peru, saw deal value and volume drop 60% and 43%, respectively, while in No. 6 market Colombia, a contraction of 91% and 66% was recorded.

For Latin America and the global economy, the second quarter is forecast to see a steep decline in economic activity amid an expected peak in infections. The economy is forecast to pick up in the second half of the year, although no 2008-style stimulus package is expected from China, rating agency S&P said in a webcast, adding that key priorities of the Asian giant are financial stability and combating coronavirus.

Source: Business News Americas / BN Americas - Chile