Brazil and Mexico will lead dealmaking in 2022, yet only so much as high inflation and political uncertainty abate investor appetite for acquisitions.
Latin American M&A activity is expected be strong in 2022, driven by deals in Brazil and Mexico, even as political tension and inflation run high, experts say.
In Brazil, the region’s biggest economy, activity could reach $80 billion in 2022, says Roderick Greenlees, head of investment banking at Itaú BBA in São Paulo. That would be down from $90 billion in 2021, largely as the country’s looming general elections in October 2022 and high inflation dull the appetite for deals, he says.
Luiz Inácio Lula da Silva, a former two-term leftist president, is a potential contender to dethrone right-wing President Jair Bolsonaro, raising concerns about the economy’s pace of recovery from a 4.1% contraction in 2020 and its long-term financial health.
“I think that we’ll see probably more deals being announced in the first half of the year than in the second half of the year,” Greenlees says, adding that he also expects some deals could get put off until 2023.
Felipe Thut, head of investment banking at Bradesco BBI in São Paulo, says much the same. “There is a possibility that shareholders or entrepreneurs will wait for some visibility on who is going to be the next president to do big transactions,” he says.
Image: Felipe Thut
Even so, M&A activity could benefit from an expected rise in volatility in Brazil’s equity markets, as that would curtail the number of initial public offerings (IPOs) and follow-on deals. There were 76 equity offerings in Brazil in 2021, but another 77 got canceled or postponed, Thut says. Many of the companies that had to postpone or cancel IPOs could become targets for M&A, he adds.
In Mexico, M&A activity is also expected to improve in 2022, led by new deals and the revival of those postponed during the pandemic, says Alonso Molina, head of investment banking and Finance at BBVA México.
“Quite a few transactions are being discussed at this time,” says Molina.
M&A activity in Mexico, the region’s second-largest economy, shot up to 167 transactions worth $10.5 billion in 2021 from 128 deals worth $3.2 billion in 2020, according to data from Refinitiv.
The health care and pharmaceutical industries will likely attract attention because there is room for growth in Mexico, where the penetration of these services is low, says Molina. Industrial real estate and logistics, he adds, could also lure buyers on expectations that the United States-Mexico-Canada Agreement (USMCA) will boost trade activity.
Mexican companies, too, will be looking to buy companies in the United States to diversify their businesses and shield themselves from the political risk at home, he adds.
Anna Mello, a partner at Trench Rossi Watanabe, a law firm in São Paulo, says M&A activity in Latin America will also benefit from increased COVID-19 vaccination rates, which is bolstering investor confidence despite the rising inflation and political uncertainty.
A standout could be technology in Brazil, she adds.
“While certain companies remain cautious about investing in Brazil due to the volatility caused by the presidential elections, most bankers do not expect a drop in the near-term M&A activity,” Mello says. “On the contrary, as technology continues to emerge and change the way we live and work, trends suggest that tech transactions are most likely to lead the M&A market in Brazil in 2022.” LF