Private equity funds are looking for Mexico’s small business sector to drive M&A growth this year, amid a slowdown in big-ticket transactions, panelists said at LatinFinance‘s 11th Cumbre Financiera Mexicana last week.
M&A deals in Mexico dropped to $90.4bn last year, down 31% from 2014, according to Dealogic. However, a series of smaller transactions valued between $20m and $60m is expected to prop up this year’s numbers, said Christian Warnholtz, co-founder and senior managing partner at Wamex Private Equity.
Unrealistic valuations are holding back M&A transactions among Mexico’s small and medium-sized enterprises (SMEs) because companies that do business in pesos are putting their asking prices in dollars, which causes an impasse in negotiations, he said.
Investors from both home and abroad have paid close attention to the reforms in Mexico’s energy and telecommunications sectors, but large-scale private investments are still far away, Warnholtz said.
“The reforms are only just coming into fruition,” he said. “For now, deal flow will be dominated by the smaller-sized deals that generate a lot of yield and interest from institutional players.”
For Carlos Pena, a director at private equity firm Advent International, Mexico’s retail, healthcare and consumer manufacturing sectors are poised for the arrival of institutional investments this year as private equity funds look for yield with minimum risks.
Local institutional investors have shown interest in the SME sector, but foreign funds are reluctant to participate due to weak corporate governance and a lack of transparency, Pena said. International private equity funds are mostly interested in buying majority stakes in SMEs to get around such obstacles as nepotism and corruption, he said.