M&A activity in Mexico re-surged in 2021 with research firm Transactional Track Record (TTR) recording 394 deals – including mergers, acquisitions, private equity, venture capital and asset acquisition – while disclosed deal value amounted to US$19.4bn.

The results not only marked a strong recovery from pandemic year 2020 but also beat 2019 activity, when TTR reported 312 deals and US$18.9bn in reported deal value. 

But economic recovery sputtered from mid-2021 as the Delta variant of COVID-19 emerged and supply chain disruptions and inflation hit growth heavily in Q4. And the outlook for 2022 continues to worsen, with the OECD the latest organization to lower its GDP forecast, to 2.3% from 3.3%. 

BNamericas spoke with TTR research and business analyst Marcela Chacón about the M&A market this year and what to expect in the technology sector and from the trend toward ESG adoption.

BNamericas: TTR recorded 20 operations in January, down from 21 in the month last year, though disclosed deal value amounted to US$447mn, up 137%. Will this trend of fewer but larger deals continue this year? 

Chacón: This behavior is common in the first months of the year since part of these operations – which in this case were high value – are usually registered as deals that were on standby from previous periods. This trend wasn't seen just in Mexico, but in most countries in the region.  

However, the dynamics [in the Mexican market] will be on the rise as it shakes off the impacts of recent periods of uncertainty. Furthermore, there is a lot of liquidity and, while there is inflation, US interest rates have not yet risen, so it is very likely that capital will be channeled towards investment.

BNamericas: Does TTR have a forecast for Mexican deal activity in 2022?

Chacón: While it’s tough to make predictions about the volume of operations that might be seen in 2022 … what is clear is that there are going to be more deals in 2022 in the transactional market than there were in 2021.

BNamericas: Is the tech sector a major reason for this optimism? 

Chacón: There’s no doubt that M&A transactions in Mexico’s tech sector are going to be powered by well-capitalized companies, operational and commercial synergies and the digital transformation that will continue to play out through the medium and long term. 

You also have many companies in more traditional sectors of the economy that have had to carry out their own digital transformations just to keep their businesses going – as seen with the fintech sector, edtech, etc.

By making acquisitions, [these traditional firms] look to further streamline processes or even reposition their product lines, carry out branding or launch new services, and this is certain to boost the transactional market. 

BNamericas: Do you think ESG considerations will play an increasing role this year in Mexico's M&A activity?  

Chacón: ESG issues in M&A come into play from a variety of angles, with legal, financial and other advisories presenting a wide range of perspectives, even more so in emerging markets, like Latin America’s.

But it’s clear now that companies are going to have to spell out their positions on ESG issues in the long term and translate this into their M&A strategy. Here, not only do the transactional and economic aspects of a company need to be weighed, but [dealmakers] will have to add social and environmental responsibility on a global scale into their evaluations.

BNamericas: Is there reason to believe this could be a good year for M&A region-wide?

Chacón: The transactional market is likely to be optimistic about the prospects for 2022, especially in Latin America. Even more so when M&A activity continues to play a fundamental role for companies facing technological disruption and growing pressure from shareholders and investors to create value in their companies. 

There’s no doubt about these factors driving local and regional transactional activity. 

However, we still have to be mindful of macroeconomic effects, such as rising interest rates, the evolution of inflation, rising fiscal pressures and new regulations, which could affect the market and which must be constantly evaluated to provide more accurate forecasts.

Source: Business News Americas / BN Americas - Chile