A deal that could effectively consolidate a significant part of the railway networks in Canada, the US and Mexico has turned into a bidding war, with Canadian National Railway (CN) making a US$33.6bn offer to buy Kansas City Southern (KCS), including its Mexican subsidiary KCSM. 

The bid issued on Friday topped a previous offer made just a day earlier from CN’s chief competitor Canadian Pacific Railway (CPR), making the potential deal one of the biggest in Mexico's transportation and logistics sector for years.

The pandemic has cooled already slow deal-making activity in the infrastructure arena in Mexico and, according to Marcela Chacón – Transactional Track Record (TTR) research and business intelligence analyst for Latin America – the sector’s recovery depends on foreign direct investment (FDI) picking up speed, such as that with the KCSM deal. 

“The dynamics in the M&A market in the infrastructure sector have reflected cautious behavior in recent years, not only in Mexico but in Latin America," Chacón told BNamericas. 

"However, at the local level, expenditures on public works have reflected a considerable decrease in the last five years, due to the impact of the appreciation of the dollar driven by the commodities crisis, in addition to the general decrease in investments in works in the sector at regional level," she added.

The growth of this sector in the M&A market, and any uptick in large transactions such as the Kansas City Southern de México deal "will depend largely on the future signals that Mexico provides in FDI, in a context in which the country has been under the spotlight due to the adverse signals it has sent to private investment," said Chacón. 

While activity in the sector has been relatively low in recent years, another deal initiated in 2019 – China Communications Construction Company’s (CCCC) acquisition of Portuguese-held Mota-Engil – gained regulatory approval last week from Mexican antitrust watchdog Cofece.

CCCC, which is the fourth largest construction company in the world, announced last November that it had agreed to acquire 23% of Mota-Engil's capital for 169mn euros (US$207mn). 

In association with CCCC, Mota-Engil has already won the tender to construct the first phase of the Mayan train project, valued at 500mn euros.

Meanwhile, the CN buyout of KCS is one of six transactions initiated in 2021 and currently ongoing that are related to Mexican construction, infrastructure, logistics and transportation firms, according to TTR data. 

The other deals under way are the following:

Target: Infraestructura Hospitalaria del Estado de México (IHEM)
Buyer: Andean Social Infrastructure Fund (ASIF)
Vendor: Marhnos subsidiary Inmar del Noreste
Type: Hospitals
 Details: In February, Marhnos, an infrastructure developer group in Mexico, accepted a proposal from ASIF to acquire a controlling interest in IHEM, operated by subsidiary Inmar del Noreste, through resources obtained through the issuance of development capital certificates.  

The agreement, whose financial details were not disclosed, involves the acquisition of 90% of the capital and 90% of the debt of the hospital infrastructure company.

Regulatory approval is required from the social security administrator (IMSS) in Mexico state and the health ministries of the state and involved municipalities. 

Since 2020, IHEM has been responsible for the Tlanepantla regional hospital project of the IMSS in Mexico state under a service provision contract. 

The contract entails the design, construction, equipment, commissioning, operation, conservation and maintenance of the hospital for 25 years ending on November 12, 2035. Until the third quarter of 2020, the most up-to-date information on the development, Marhnos had allocated 314mn pesos to the project (US$15.3mn) including capital investments, investment in subordinated debt and expenses.  

Target: Shuttle Central, Mubit.co
Buyer: 500 Startups
Type: Logistics-related internet, transportation-related internet
Details: On March 17, early-stage investor 500 Startups announced it had selected seven companies in Latin America to provide support and US$60,000 in seed money, including two in Mexico, Shuttle Central and Mubit.co.

Shuttle Central is a web platform that is aimed at taking advantage of Mexico's major tourism hubs to connect local tourist transport services in one place.

Mubit.co is a small-fleet moving and storage service with contracting, collection and delivery powered by a web platform.

Target: AIT Worldwide Logistics México
Buyer: The Jordan Company
Vendor: Private shareholders
Type: Transportation, aviation and logistics
Details: The Mexican arm of global logistics provider AIT Worldwide Logistics – a major player in the freight shipping handled at Mexico’s Toluca airport, should benefit from the firm’s recapitalization by The Jordan Company (TJC), with AIT announcing that TJC had bought the full stake held in the company by Quad-C Management in March for an undisclosed amount. 

In three-and-a-half years of partnership with Quad-C, AIT’s gross revenue more than doubled and the company launched new vertical market solutions for the automotive, e-commerce, healthcare and industrial manufacturing industries, with the parent reporting US$1.2bn in gross revenue in 2020.

AIT’s 11 company acquisitions since 2017 have increased its sales capacity, expanded AIT’s global footprint, provided the organization with technical resources for strategic sectors and strengthened its core services.

Target: Various aggregate assets held in France
Buyer: Cemex
Vendor: EQIOM Granulats
Type: Construction, materials and machinery
Details: On April 12, the Mexican cement giant said it signed an agreement to expand its network in France with the acquisition of aggregate assets in the north Paris metropolitan area as part of its strategy to enhance its vertically integrated positions near growing metropolises.

As part of the deal, Cemex will acquire certain assets of French materials supplier Eqiom Granulats, including two strategically located aggregate quarries and one rail-enabled platform that will improve customer service in Paris and surrounding areas.

Cemex did not disclose the deal value, but Eqiom Granulats has estimated annual revenues of US$11mn.

Subject to customary closing conditions, CEMEX currently expects to finalize this transaction during the second quarter of 2021.

 

Source: Business News Americas / BN Americas - Chile