Foreign Investors Gain Confidence in Latin America M&A Opportunities
- Chile emerges as the top destination for future investments in the region, followed by Brazil and Mexico
- Creation of Pacific Alliance now a major factor of M&A activity
- Significant shift in other key investment drivers in Latin America
A survey by leading global law firm Baker McKenzie of 125 dealmakers in North America, Europe and Asia shows that investor optimism is growing in Latin American M&A opportunities. The study found that foreign investors anticipate M&A activity to increase in the region in 2018, particularly in Chile, Brazil, Mexico, and Colombia as rapid consumer growth, urbanization, and digitation make local assets more attractive.
The study, 2018 A Buyer's Guide to M&A in Latin America, which was developed in association with Mergermarket, found that four in five dealmakers expect M&A activity in the region to rise in 2018. Among them, 40% feel “highly confident” about investing in the region.
According to the report, almost three quarters of investors said they plan to target investments this year in Chile, primarily because it is perceived to have a strong regulatory and legal background. Meanwhile, 66% and 61% plan to invest in Brazil and Mexico, respectively. Chile and Mexico were rated as the best business environments among the six countries analysed in Latin America (Argentina, Brazil, Chile, Colombia, Mexico and Peru).
In addition, the study found that the Pacific Alliance is rapidly becoming interesting to foreign investors given the moves that it has undergone to eliminate 92% of import tariffs among its member countries and to integrate their national stock markets into one trading platform. These steps toward greater integration have strengthened investors' confidence in the bloc with 55% of survey respondents saying that the creation of the Pacific Alliance has impacted their M&A strategy in Latin America.
The survey findings also note a significant shift in investment rationale for the region. While in the past some investors were driven to Latin America because they were unable to find good deals at home, those surveyed stated that increasing market share (37%) and acquiring strong local brands (36%) were the top drivers of deal activity for corporate and private equity investors.
Liliana Espinosa, regional M&A head of Baker McKenzie, said: “It’s clear that as the region’s economies and political climates stabilize and evolve, dealmakers are increasingly looking to Latin America and are more sophisticated about their investment decisions. This will drive interest from foreign investors in response to the growing consumer demand in Latin America".
The survey also measured the varying challenges facing investors in the region. The study found that regulatory hurdles (33%) and obtaining sufficient information from the target (25%) are the greatest challenges during the due diligence stage. Market volatility (35%) and closing valuation gaps (33%) were cited as the biggest barriers during deal negotiations. In addition, addressing cultural differences was considered the top issue during post-acquisition integration by a third of respondents.
To facilitate these transactions, respondents reported using 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%).