Latin American M&A Activity
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March 24, 2023
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Our latest Latin America M&A newsletter highlights trends in transaction activity for FTI Consulting’s regional coverage (Argentina, Brazil, Chile, Colombia, Mexico and Peru) and dives into the historical composition of buyers across the region. The insights included herein were prepared by FTI Consulting’s Latin America Transactions team with the support of local experts across the region. We hope you find the M&A-focused insights valuable and look forward to speaking with you about FTI Consulting’s transactions capabilities in Latin America.
Transaction Activity Overview
M&A transaction activity in Latin America decreased in 2022 compared to deal volume in 2021, reflecting the lowest level of activity in the last 7 years. Total deal volume fell from a historical high of 1,311 deals in 2021 to 1,020 in 2022, representing a 22.2% decline. This trend is prevalent across all industries except for industrials, which showed a modest expansion in deal count (+10 transactions for a total of 176 deals in 2022).1 Key drivers for the M&A transactions decline in 2022 include: 1) uncertain macro-economic and geopolitical environment, 2) election cycles and social unrest and 3) increase in interest rates and inflationary pressures.2 Further insight for each relevant jurisdiction is included in the following pages.3
Exhibit 1.1 - Deals by country
Exhibit 1.2 - Deals by industry
Transaction Activity By Country Brazil
Brazil
In 2022, Brazil accounted for 56.5% of total transactions within the region, compared to 59% in 2021. The country experienced a 25.5% reduction in deal-count in 2022, from 774 to 577 in 2022. An economic cycle and uncertainties around local politics4 can partially explain the decrease in activity as leftist President, Luiz Inacio Lula da Silva, was elected in 2022. The top indus-tries in Brazil were information technology, industrial, consumer and health care accounting for 26.9%, 18.4%, 15.1% and 9.2% of total transactions, respectively.
Exhibit 2.1 - Deals in Brazil
Exhibit 2.2 - Deals by industry in Brazil
Mexico
Mexico remains the second largest market for deals in the region. During 2022, the industrials sector had the most activity reaching 35 transactions, which is the highest level of activity in the historical period analyzed. Industrial activity has driven more transactions in transportation, logistics and supply chain as Mexico appears to be a beneficiary from nearshoring5 (the relocation of supply chains to geographically closer regions),6 in spite of an expected slowdown in the Mexican economy.7 M&A activity in the energy sector could remain subdued as the current administration embraces a nationalist approach to strategic industries such as oil & gas.8
Exhibit 3.1 - Deals in Mexico
Exhibit 3.2 - Deals by industry in Mexico
Colombia
Colombia represented, based on the number of deals, the third largest market for M&A in this analysis. The country experi-enced a modest decrease in the number of transactions, decreasing from 86 in 2021 to 80 in 2022. Elections in the country in 2022, where the first leftist president, Gustavo Petro, was elected, could have contributed to the decrease in transactions as uncertainty increased in 2022.9 The most active sector based on deal activity during 2022 was consumer, with 22 transactions, which represented 27.5% of total deals during the year with e-commerce, restaurants and hotels contributing to the overall deal count. The second most important sector in Colombia in 2022 was information technology with 18 deals, particularly concentrated in application-software companies and data processing. The country has made inroads in the tech space over the last decade, contributing to the heatlh of the sector.10 The industrials activity was the third highest with 14 deals, which came from scattered subsectors such as construction and engineering, facilities services, airports and marine ports services.
Exhibit 4.1 - Deals in Colombia
Exhibit 4.2 - Deals by industry in Colombia
Chile
Chile’s GDP grew at 11.7% in 2021, supported by consumption, and fiscal aid.11 However, in 2022, tighter fiscal and monetary conditions, withdrawal of pandemic-related support and a spike in inflation led to a deceleration in GDP projected to be 1.9% in 2022.12 Chile represented 10% of total deal count during 2022, experiencing a decrease of 20.3% when compared with 2021 transactions. Materials and utilities experienced the most significant decrease YoY from 50 transactions in 2021 to 26 trans-actions in 2022 (decrease of 48%). This was slightly offset by the consumer sector, which experienced an increase of 73.3% (11 more deals than in 2021). During 2022, this sector represented 25.5% of transactions during the year, compared to 11.7% in 2021. IT (mainly application software) remains the cornerstone of transactions in the country representing 22.5% of total transactions during the year.
Exhibit 5.1 - Deals in Chile
Exhibit 5.2 - Deals by industry in Chile
Argentina
Transactions in Argentina decreased from 90 in 2021 to 75 in 2022, representing a decrease of 16.7%. As in 2021, the IT sector (mainly application software) represented a majority of the transactions in the country, 32% of total deals in 2022. This is followed by the consumer industry, which represented 20% of total transactions in the year; most of the transactions in this sector were seen in packaged foods and meats and agricultural products. The country continues to deal with a stubbornly high inflation rate (95% in 2022),13 which is expected to negatively affect investor appetite in the country.
Exhibit 6.1 - Deals in Argentina
Exhibit 6.2 - Deals by industry in Argentina
Peru
In 2022, Peru had the lowest level of transactions in the analyzed period with 33 deals. Political uncertainty and social unrest is expected to continue to impede M&A activity. The country has had six sitting presidents over the last seven years.14 During 2021, Peru counted 20 transactions in the materials sector, a historical number. In contrast, there were only six such deals in 2022, mainly related to mining (gold, silver and copper). Other sectors have shown a persistent level of stagnation including communications, energy, healthcare and real estate.
Exhibit 7.1 - Deals in Peru
Exhibit 7.2 - Deals by industry in Peru
Transaction Activity By Type Of Buyers
In the analyzed period, most of the transactions have been consummated by acquirers from Latin America. Nevertheless, during 2021 and 2022, investors from the United States and Canada have shown relatively greater appetite for conducting deals in Latin America (approximately 25% of all transactions in the region). In 2022, investors from Europe also gained more relevance as they participated in just more than 18% of the transactions compared with only a little more than 14% in 2021. However, buyers from the Asia/Pacific region decreased from 4.1% to 3.5% in 2021 and 2022, respectively. The expected re-opening of China may provide a boost to commodity-heavy Latin American countries.15
In 2021 Softbank, a key investor from Asia and Europe (based on the country of the legal entity participating in the transac-tion), engaged in 33 transactions across the territories, 23 of which were in Brazil. In contrast, during 2022, Softbank partici-pated in only 7 deals in the region, all in Brazil.16
During 2022, it was private companies that participated in almost 55% of the deal volume, whereas public companies and pri-vate equity firms participated in a smaller proportion compared to 2021. Private-equity acquisitions decreased from 20.4% of the transactions in 2021 to 17.5% in 2022. The decrease in private-equity activity was particularly notorious in two countries where the number of deals involving this type of buyer fell during 2022; from 45 to 29 in Mexico and from 154 to 90 in Brazil — the two biggest markets in the region. Relative lower valuation and a stronger dollar could make the region more attractive in the near- to mid-term.
Exhibit 8.1 - Buyers by Region
Exhibit 8.2 - Buyers by Type
Note: Total exceeds 100% as some transactions have multiple acquirers
Footnotes:
1: S&P Capital IQ. (2023). Retrieved January 11, 2023, from S&P Capital IQ database
2: Rafael Gayol, “Chart: Economists Forecast Somber Year for Latin American Economies, Especially Chile,” Bloomberg Linea (January 21, 2023), https://www.bloomberglinea.com/english/chart-economists-forecast-somber-year-for-latam-economies-especially-chile/
3. The data used in this report was compiled by FTI Consulting and its team of experts from S&P Capital IQ data base. S&P Capital IQ. (2023). Retrieved January 11, 2023, from S&P Capital IQ database
4: Gabriel Stargardter, “Brazil may face ‘political instability’ after election, says Bolsonaro’s son”, Reuters (May 18, 2022), https://www.reuters.com/world/americas/brazil-may-face-political-instability-after-election-says-bolsonaros-son-2022-05-18/
5: Jose Sevilla-Macip, “Mexico’s nearshoring potential likely to grow as alignment with US increases,” S&P Global Market Intelligence (January 20, 2023), https://www.spglobal.com/marketintelligence/en/mi/research-analysis/mexicos-nearshoring-potential-likely-to-grow-as-alignment-with.html?ite=1025818&ito=1274&itq=66c08a00-0a44-490c-b7a0-2d9d5bbb4a64&itx%5Bidio%5D=791107516
6. “IDB Joins Forces with Mexico to Promote Nearshoring” (July 6, 2022), https://www.iadb.org/en/news/idb-joins-forces-mexico-promote-nearshoring
7: “Mexican central banker says ‘it is clear’ economy is slowing,” Reuters (January 20, 2023), https://www.reuters.com/world/americas/mexican-central-banker-says-it-is-clear-economy-is-slowing-2023-01-20/
8: Nacha Cattan, “AMLO Risks Long US-Mexico Trade Spat by Insisting on Energy Policy,” Bloomberg (July 22, 2022), https://www.bloomberg.com/news/articles/2022-07-22/amlo-risks-long-trade-spat-with-us-by-insisting-on-energy-policy#xj4y7vzkg
9: Julia Symmes Cobb and Oliver Griffin, “Analysis: Colombia’s first leftist leader Gustavo Petro targets inequality; investors on edge,” Reuters (June 20, 2022), https://www.reuters.com/world/americas/colombias-first-leftist-president-targets-inequality-leaves-investors-edge-2022-06-20/
10: “OECD Reviews of Digital Transformation: Going Digital in Colombia” https://www.oecd-ilibrary.org/sites/5b895408-en/index.html?itemId=/content/component/5b895408-en
11: “The World Bank In Chile,” The World Bank (last updated May 23, 2022), https://www.worldbank.org/en/country/chile/overview.
12: “Chile Economic Snapshot: Economic Forecast Summary (November 2022),” OECD (last visited January 27, 2023), https://www.oecd.org/economy/chile-economic-snapshot/#:~:text=Economic%20Outlook%20Note%20%2D%20 Chile,growth%20of%202.6%25%20in%202024.
13: “Inflation rate, end of period consumer prices,” International Monetary Fund (last visited February 14, 2023, https://www.imf.org/external/datamapper/PCPIEPCH@WEO/ARG?zoom=ARG&highlight=ARG.
14: Marco Aquino, “Factbox: Peru’s presidents and years of political turmoil,” Reuters (December 7, 2022), https://www.reuters.com/world/americas/perus-presidents-years-political-turmoil-2022-12-07/.
15: “What does China’s reopening mean for Latin America?,” The Economist (January 18, 2023), https://www.economist.com/the-americas/2023/01/18/what-does-chinas-reopening-mean-for-latin-america.
16: S&P Capital IQ. (2023). Retrieved January 11, 2023, from S&P Capital IQ database
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