Given that two major trade issues for Mexico have recently been resolved with the signing of a preliminary US-China trade agreement and the passage of the USMCA free agreement in the US senate, M&A activity is set to pick up.

M&A deal value declined last year 11.6% over 2018, while 123 of a total of 312 transactions (M&A, private equity, venture and asset acquisition) had a disclosed deal value of nearly US$19bn, a rise of 25.6%, according to research firm Transactional Track Record (TTR).

This year, “undoubtedly, the automotive sector and the agribusiness sector, which have registered great dynamism in the region, will benefit most from the USMCA,” Marcela Chacón, TTR research and business intelligence analyst for Latin America, told BNamericas.

Only Canada still needs to ratify the trade pact, but due to the deal's importance and the Canadian parliament's resumption on January 27, Banorte said in a note ratification could be finalized in March. This would mean the USMCA takes effect in June or July.

Considering a potential M&A surge as a result, Chacón told BNamericas that key reasons for deals last year were based not just on the assumption of successful USMCA talks but also because of compelling Mexican regulation.

“The recent business moves that the Mexican M&A market has generated are not only due to the expectations that the markets were holding with respect to the ratification of the USMCA trade agreement, but also to the structural reforms that have empowered the internationalization of firms to locations beyond the US, for instance toward the Pacific Alliance or even the EU.”

She added, “logically, the local regulatory changes, in addition to this imminent renegotiation [of the free trade agreement], have spurred companies to refocus on attaining stability, on positioning themselves in new markets and also on the optimization of their production processes.”

According to Chacón, “this implies that firms are going to have to successfully diversify their businesses in other places in the world through acquisitions, mergers, and even the purchase of assets that also boost the transactional market in an area as strategic as North America.”

TRANSITION POINT

TTR data suggest a rebound in M&A activity was already underway in the fourth quarter of 2019, as the firm recorded 85 deals (+7.6%) and nearly US$8.19bn in disclosed deal value, a 182% increase over 4Q18.

This is coming off of a 10.2% drop in the number of transactions in Q3 and a 67.6% drop in deal value compared to the year before.

Having registered the strongest growth in activity of all sectors in 2019, it remains to be seen if internet and tech firms can carry over that momentum into 2020.

TTR recorded 44 internet M&A deals in 2019 and 42 in the technology sub-sectors, representing annual increases of 42% and 62%, respectively. 

These sub-sectors have been the most attractive to foreign investors by deal volume, according to TTR, with inbound acquisitions for tech and internet reaching 35 in 2019, up 45.8%.

Still, the biggest deal in 4Q19 was in infrastructure – the US$2.59bn purchase of Mexican builder IDEAL’s portfolio, including 18 infrastructure concessions (13 toll roads, three logistics terminals and two wastewater treatment plants), according to the pension fund managers that made the acquistion.

Another big deal in the quarter involved Uber’s buyout in October of personal shopper mobile platform Cornershop, sold by stakeholders ALLVP, Creandum, Accel Partners, and private shareholders in Chile for US$459mn.

Source: Business News Americas / BN Americas - Chile