Latin American M&A deal flow totaled $52.9bn for the first nine months of 2015, down 43% on September 2014’s $92.8bn figure, the lowest nine-month period since 2005, according to research from Dealogic.
Brazil and Mexico, the region’s largest economies recorded year-on-year declines of $28.4bn and $13.2bn respectively. Foreign exchange volatility and uncertainty over a possible rate hike from the US Federal Reserve last month kept would-be investors at bay, according to one M&A banker in the region.
In Brazil, recent sovereign downgrades have hit all asset classes, particularly M&A, a source in the country said. That is nonetheless set to spur sales of assets by companies looking to stabilize their balance sheets amid market turmoil and a low exchange rate – although companies are wary of divesting assets too cheaply.
Mexican companies meanwhile are bolstered by healthy balance sheets, so the need to divest is seen to be less immediate when compared to Brazil. The country’s equities market however, has stalled with companies like Javer and Grupo Bimbo postponing initial public offerings on account of FX volatility and no immediate need to raise capital.
The Fed’s decision to hold interest rates in September did calm the M&A markets, an M&A banker said. Last month Grupo Argos obtained a majority stake in construction concessionaire Odinsa, while Promerica nabbed Citibank’s retail operations in Guatemala. Citibank’s retail operations in El Salvador are expected to be sold this month and bidders are said to be lining up for Pacific Hydro’s Chilean hydropower plants.
Despite the steep drop in M&A activity, investors are keen to invest in the region now as asset prices fall, and cross-border activity, particularly for deals valued below $500m, is expected to pick-up in the immediate term. LF