Shifting Trends in M&A Across the Americas
- Catalina Osorio
- Feb 11, 2014
- 4 min read
Companies seeking growth in the Americas have always been drawn to merger and acquisition (M&A) activity. The allure of buying into fast-growing markets in the hopes of extending successes at home can, for some companies, present many benefits over either greenfield (opening of wholly owned subsidiaries) or partnering strategies.
But M&A -- more than other market entry strategies -- is driven by market, economic, and regulatory forces that shift over time. Levels of liquidity in the acquirers' markets, the degree of economic and regulatory stability in target markets, and the extent of cross-border adoption of new business models, are just a few of the moving targets that only sometimes align in favor of M&A. When they do, the conditions for M&A improve markedly as growth capital becomes more readily available to companies seeking bargains in high potential markets. When they don't, M&A activity tends to slow significantly or shift in ways that favor a new set of actors. Businesses interested in expansion through M&A are well advised to be highly attuned to these trends so that they may increase the odds of striking good deals when conditions are positive and acting more conservatively when these opportunities dry up.
Latin American M&A: MNCs, Multilatinas, and Beyond
Latin America M&A activity over the last two decades have also seen a major shift in the type of companies willing to make large scale bets in the region.
The 1990's saw the tail end of decades of M&A investments dominated by US and some European multinational corporations (MNCs) buying companies that promised a foot-hold in emerging country markets. From 1991-2001 alone, MNC ownership of Latin america's largest 500 companies grew by almost 50%.
But the new century ushered in a large scale shift in M&A activity. First, more sober economic conditions abroad combined with well-publicized banking busts in major markets such as Argentina and Mexico caused MNCs to ratchet down their activities significantly. Second, the largest Latin American firms, which had just recently been targeted by MNC activity, began to eye cross-border purchases themselves. The dawn of the so-called "Multilatinas" saw leading Latin American companies embark on sustained M&A activity that included purchases of companies in the US. The trend became further entrenched toward the end of the last decade as the largest Multilatinas such as Cemex, Bimbo and the Cisneros Group -- referred to by some as GlobalLatinas -- grew into more and more markets while their MNC counterparts generally struggled to withstand and only slowly emerge from the global recession that largely spared a Latin American region that enjoyed sustained growth.
Fast-forwad to today, and we find a variety of trends that suggest that M&A activity in the Americas is on the precipice of still more change. Here are just three of these trends that we cover more fully in current and future posts.
Uneven economic conditions in Latin America
After a decade of widespread economic growth in Latin America, we now find that major markets such as Brazil and Mexico have slowed significantly and Argentina and Venezuela, fueled by recent booms in their soy and oil industries, on the brink of sharp economic declines. See here for a recent NY Times editorial on declining conditions in Argentina. This is not to say, that the region as a whole is in decline. As we discussed in a recent post, countries such as Peru, Colombia, Chile, and even Panama are expected to continue to grow at impressive rates and may embolden multilatinas in those countries to continue to expand.
The Changing Face of MNCs and Multilatinas
The slow re-emergence of the US and some European economies, may also lead to a resurgence in a decade-long slump of MNC activity in Latin America. But, even if this occurs, the MNCs from traditional western economies will continue to find competition from a whole new set of MNCs and Multilatinas hailing from a patchwork of international origins.
As the following Latin Business Chronicle chart shows, 2012 saw no dominant country of origin in the largest M&A deals, which we expect will have continued in 2013 (awaiting data). Interestingly, the chart shows no major M&A deals hailing from China which has increased its investments in Latin America significantly during 2009-2011. We will dedicate a future post to Asian activity in the region to see if we can identify specific trends and opportunities.
source: Latin Business Chronicle
Regulatory changes affecting Foreign Direct Investment (FDI)
Fueled by the need to reinvigorate their economies, several countries have recently taken steps to significantly liberalize rules that previously restricted foreign investment in certain industries. For example, as we cover in this post, Mexico recently opened its telecommunications and oild industries to foreign direct investment, sparking almost immediate interest from variuos potential suitors.
In our view, all of these factors will conspire to usher in significant shanges in not only who is investing, whether they be MNCs or multilatinas, but from where the activity originates and which countries are targeted. We are counseling all of our clients and readers to carefully monitor these trends as they may provide excellent opportunities in select circumstances.
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Andres Snaider is a founding partner of Nextant, a consulting firm specializing in assisting companies expand their businesses in international markets, with a strong focus on Latin America. With a degree in law and experience working as an international attorney and businessman, Andres has advised clients on a range of commercial matters and investments across the Americas. He is a graduate of the Harvard Law School and currently lives and works in Boulder, Colorado.
Email Andres at : asnaider@nextant.com
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Nextant has extensive experience in assisting leading clients through its Market Expansion and Business Optimization services. For more information on how Nextant can assist your company in socializing a market entry and initiating sales, please visit our website at http://www.nextant.com
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