Latin American M&A activity looks to have at least a modest recovery in key markets this year with investors looking to take advantage of opportunities during the recovery from the COVID-19, according to an analyst from Transactional Track Record (TTR).

TTR is expecting to see a moderate growth behavior in 2021 based on “factors such as the conclusion of important elections in several countries in the region such as Peru, Chile, Mexico and Argentina,” Marcela Chacón, the firm’s research and business intelligence analyst for Latin America, told BNamericas.

“At the regional level, especially in countries such as Brazil, Mexico, Chile and Colombia, there is renewed interest on the part of strategic investors and private equity funds in finding opportunities to acquire companies in Latin America, as seen in the fourth quarter of 2020, with a dynamic that has achieved 'prepandemic' values,” said Chacón.

Many transactions remain in standby due to the pandemic with investors looking to move them out if possible this year, and M&A could also emerge as other “big muscle” companies look to restructure or modify business strategies, she added.

In its 2020 report, TTR said the Latin American market registered 2,405 transactions (M&A, private equity, venture capital and asset acquisition), including announced and finalized operations, for an aggregate amount of US$71.9bn in reported deal value.

The figures represent a year-on-year drop of 10.3% in the number of operations and a decrease of 45.1% in reported deal value. In the fourth quarter alone, TTR recorded 712 operations with an aggregate amount of US$22.7bn, compared to 798 transactions with US$54.5bn in reported deal value in the same quarter 2019.

Pandemic aftermath Looking at the main challenges facing law firms advising on M&A in 2021, Darío Laguado, the head of the corporate/M&A practice at Bogotá-based law firm Brigard & Urrutia, said,

“In first place, the practice of M&A will surely be influenced by the ‘aftermath’ of the crisis generated by the pandemic.”

“As in any crisis, there are those who have benefited from the pandemic and this can make them active players in the practice of mergers and acquisitions, but certainly there are others who have been greatly affected, and we can find them as targets in mergers and acquisitions transactions,” said Laguado, speaking in an interview with TTR.

“For example, companies that have traditionally been reluctant to invest in third parties may have a greater appetite to consider such operations with a view to diversifying their assets or accessing fresh capital,” he said. “Some private equity funds may see investment options that were previously unavailable. Likewise, we think that the operations of sale or investment of companies in crisis situations will possibly increase,” Laguado added.

The second major challenge, according to Laugado, stems from the fiscal situations in various countries in the region that are under a heavy new strain due to efforts to mitigate the economic impact of the pandemic.

The pressure, he said, “will possibly fuel a wave of privatizations, which are highly challenging, as they must be implemented through a demanding legal process.” A third challenge has also emerged due to the continued need to operate in a virtual environment for the time being, said Laguado.

“The rituals of closing a transaction can involve formalities and deliverables that require physical presence,” the lawyer said. “The pandemic has forced us to make the transition from these activities to a virtual environment.”

“This transition is perfectly achievable thanks to communication platforms, specialized software, and a little more coordination and discipline,” he added.

Private Equity and Venture Capital TTR recorded 158 private equity operations in the region last year, including 55 transactions that went on the record with deal value amounting to US$3.72bn.

The figures represent a year-on-year drop of 8.67% in the number of transactions and a decrease of 67.2% in reported deal value. TTR also reported 644 venture capital transactions, 446 of which disclosed deal values amounting to US$5.66bn, which represents growth of 32% in the number of transactions and a deal value increase of 2.63%.

Country ranking Brazil led the 2020 ranking of the most active countries in the region with 1,549 operations (a 5% decrease) and a 46% drop in capital mobilized (US$44bn). It is followed by Mexico, with 302 operations (down 6%) and a 26% decrease in deal value (US$13.4bn).

Chile ranked third, with 227 operations (a decrease of 14%) and a drop of 53% in mobilized capital (US$6.6bn). Colombia, for its part, registered 152 operations (a decline of 34%), with a decrease of 61% in deal value (US$4.75bn).

Meanwhile, the 143 operations in Argentina represent a decline of 16%, with a decrease of 62% in capital mobilized (US$2.36bn). Peru, for its part, registered 95 operations (down 36%) and a decrease of 83% in deal value (US$1.40bn). Cross-border arena Looking at outbound deal activity in 2020, the investment appetite of Latin American companies outside the region was strongest in North America and Europe, where 56 and 37 operations took place, respectively. In the case of inbound deals, the companies that carried out the most transactions in Latin America were from North America, with 365 operations, Europe (257) and Asia (55)

Source: Business News Americas / BN Americas - Chile