M&A in Latin America
Our comprehensive look at M&A trends in Latin America
For decades, Latin American countries have been a promising venue for global companies seeking to leverage the region’s rich natural resources, low-cost labor markets, and, more recently, expanding consumer markets.
Compared to 2015, M&A activity in 2016 remained weak, owing to challenging macroeconomic conditions and weak commodity prices. Energy & Resources (USD36.7 billion) and Consumer Business (USD21.1 billion) industries attracted the highest investments in 2016. Abundant reserves of natural resources in the region and huge consumer base could drive M&A activities. However, restrictive trade policies of the new United States president may act as a deterrent.
M&A trends in Latin America
- M&A activity in Latin America remained subdued in 2016 as a result of weak economic growth. Many of the Latin American countries are dependent on oil and gas and mining sector for growth. Therefore, weak oil and commodity markets have affected M&A activity in the region.1,2,3,4,5,6
- The election of Donald Trump as the 45th United States president may have adverse effects on Mexican M&A activities as the president has proposed special tariffs on Mexican manufacturing exports and fines on United States-based companies moving jobs and production to Mexico.2
- However, the depreciation of the local currency, mainly in Brazil and Argentina, may make the assets and companies in these countries more attractive to foreign investors in the mid-term.1,6
- Energy & Resources (E&R) industry observed the highest M&A activity in 2016 with ~USD36.7 billion in deal value. Ample reserves of oil and natural resources in the region, lower valuation of oil and gas assets resulting from decline in oil prices, government policies to promote renewable energy, and reforms in the mining sector could attract large investments in Latin America and drive M&A activity.1,3,7
- The emerging middle class and vast domestic markets of Brazil and Mexico may drive M&A activity in consumer facing industries like Consumer Business (CB) and Technology, Media, and Telecommunications (TMT).1,2
- However, the inflow of investments in Latin America’s manufacturing industry (especially in Mexico) is uncertain amidst Trump’s policies to promote manufacturing in the United States.2
- In 2016, the majority of M&A activity in the region were intra-regional, with bigger economies, such as Brazil and Mexico, being top investors in the region.7
- North America (especially the United States) and Europe (countries such as Spain and Italy) have led cross-border M&A activity in Latin America as companies from these economies look to capture investment opportunities in developing markets.7
- Despite implementing reforms and attractive valuation of assets for foreign investors, weak macroeconomic conditions, overdependence on commodities for growth, and falling oil and commodity prices continue to negatively impact the M&A activity in Latin America.1,2,3,4,5,6
- Political uncertainty, poor institutional environment, insufficient infrastructure, weak judicial system, rising inflation, and growing corruption, may also deter investors and dampen deal activity in certain Latin American markets. 1,2,3,4,5,6
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