How to overcome obstacles and boost market share in the world's most urbanized region
Although energy often gets the headlines in Latin America, the biggest M&A deal in the last six years was a play for Mexican beer: Belgian brewer Anheuser-Busch InBev's USD 20.1 billion acquisition of Grupo Modelo in 2012. By the end of 2016, Brazil emerged as Uber’s third-largest market after the US and India. And nearly 20% of Facebook users now reside in Latin America.
In fact, consumer goods and technology are among the top three fastest growing industries in the region along with energy, and industrials and financial services. Since 2012, the five largest foreign acquisitions included not only the Grupo Modelo deal, but a major transaction in the telecommunications sector: Spain-based Telefonica's USD 9.9 billion acquisition of Global Village Telecom in Brazil.
As Latin America continues to find its place in the M&A world, we surveyed 125 dealmakers from North America, Europe and Asia — the top foreign investors in Latin America — to uncover the key drivers of their acquisitions, the M&A challenges they face during those transactions, and the strategies they use to mitigate those challenges.
This report offers corporate and private equity investors a better sense of the forces shaping M&A trends in individual markets, and provides effective tactics for addressing issues that can stand in the way of capitalizing on Latin America's expanding consumer base, rapid market growth and low cost of doing business. Our survey focuses specifically on foreign investors in the consumer goods, technology, healthcare and financial services sectors to paint a picture of market trends beyond the energy industry.
- Four in five dealmakers expect M&A activity in Latin America to rise over the next year despite political and economic challenges in countries such as Argentina and Brazil.
- Chile is the top destination for future transactions, with 72% of respondents saying they plan to target investments there in the next year, followed by Brazil (66%) and Mexico (61%). Our respondents also rated Chile (43%) and Mexico (31%) as the best business environments in Latin America.
- Increasing market share (37%) and acquiring strong local brands (24%) are the biggest drivers of deal activity for corporate and private equity investors, representing a shift in M&A strategy. Foreign investors are no longer pursuing deals in Latin America primarily because they can't find good investment opportunities at home, but because rapid consumer growth, urbanization and digitization within the region are creating attractive assets all on their own.
- Although the deal drivers are strong, investors must find ways to push through potential barriers during due diligence, deal negotiation, and post-acquisition integration to realize their transactional goals. Regulatory hurdles (33%) and obtaining sufficient information from the target (25%) are the greatest challenges during due diligence, market volatility (35%) and closing valuation gaps (33%) as the biggest barriers during deal negotiation, and addressing cultural differences (33%) is the top issue during post-acquisition integration.
- Strategies such as engaging with outside advisors to help navigate regulatory hurdles during due diligence (36%), reaching compromises through negotiation to close valuation gaps (25%), and finding ways to retain local talent (28%) when faced with cultural differences during the integration phase are being used to address M&A challenges.