Latin America and Spain: A Reversal of Fortune

European colonization has left an unmistakable and lasting imprint on the developing world. But, in the business world, the once-conquered can occasionally become the conquerors. This reversing trend seems to be on full display in the case of recent business and labor flows between Latin America and Spain, and provides important insight into the region's business potential.

Macro Trends

For centuries, investment from Spain to Latin America dominated trade flows across the Atlantic. This trend may have reached new heights in the 1990s when Latin American state-owned companies were gobbled up by Spanish companies seeking to profit from privatization. By contrast, the main export from Latin America to Spain seemed to be migrant workers seeking better jobs and education.

But all that has changed ... and suddenly so.

As the charts below show, M&A investment from Latin America to Spain, while nowhere near levels of Spanish investment in the 1990's, have risen from negligible levels to now eclipse and even double the levels of Spanish acquisitions. Also, and equally remarkable, migration flows from Spain to Latin America are spiking as workers have begun to flock to many of the Latin American countries that emerged relatively unscathed from the global recession and are primed to continue to grow in coming years.

"Global Latinas" Wield Their Clout

The reversal of M&A activity is being led by so-called, "Global Latinas", an emerging group of expansion-minded Latin American giants which we covered in this recent Expansion Insights post. The list of Global Latinas that have recently made large investments in Spain include major firms owned by Carlos Slim, Venezuelan bank Banesco, and even a major Colombian financial firm that invested in a Spanish real estate company named, perhaps ironically, Colonial. See here for an Economist article that mentions many of the bigger deals.

Perhaps less visible than the M&A activity itself is how the Global Latinas are wielding their power as shareholders in Spanish companies. Just recently, the Mexican oil giant, Pemex, leveraged its 10% stake in Spanish giant Repsol to influence a settlement between Repsol and Argentina's YPF over the Argentine company's takeover of Repsol's local investment. See here . In doing so, Pemex has signifcantly increased its chances of profiting from the future exploration of Argentina's rich oil reserves.

Lessons and What's Ahead

The reversal of fortune between Latin America and Spain provide important lessons for businesses and investors looking at expansion opportunities.

• First, as we have covered before here, there are a whole new set of large, expansion-minded players in the Americas and many of these players are now located outside the US. While US and European firms were once the dominant acquirers targeting less developed markets, investment is now flowing to and from all corners of the globe and regions like Latin America have spawned their own breed of global economic explorers. The message for companies seeking to invest in Latin America is this: you are no longer on a free-flowing lane on a one-way street; the lanes are in fact getting more and more crowded and traffic is flowing in many different directions.

• Second, Global Latinas and the more regionally-focused "MultiLatinas" are showing no signs of slowing their expansionist march into new markets, especially those like Spain and even the US, that share important features such as borders and language. We anticipate that Latin American firms are likely to continue to find good bargains in larger markets, like Spain, that are still struggling to emerge from deep recessions.

• Third, the fact that investment in the Americas has dried up from countries such as Spain has much more to do with economic and capital constraints in the acquirers' market than in the ability of the destination to provide profits. Prior Spanish entrants in Latin America such as Banco Santander still reap huge profits from their earlier investments in the region. The old maxim "strike while you can" seems to be particularly relevant to the Spanish M&A experience in Latin America and should be taken to heart by any company evaluating potential entry.

• Finally, while new investment trends show a clear strengthening of outflows from Latin America, there is every reason to believe that trends can shift again as economic conditions permit. While GDP growth trends suggest that many countries in Latin America will continue to do well see here , these developments are likely to occur during a period when the global economy also churns toward recovery. As US and European economies regain strength, we fully expect that investment flows to Latin America will grow substantially and perhaps return to dominant levels.

In sum, while the buyers and sellers are changing rapidly, there is no lack of opportunity for investment to and from the Americas. Staying attuned to these shifting trends will be of interest for potential buyers, sellers and even those currently on the sidelines.

For a downloadable PDF version of this artice, see here

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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 in almost every country in the Americas, including the US, Mexico, Colombia, Brazil, Ecuador, Argentina, Chile, and Canada, just to name a few. 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