M&A Activity In Latin America Seen Picking Up In Second Half

Investors have had to adjust to new market conditions, and while new investments in the region are expected in second half, challenges remain

São Paulo, Brazil. Despite a generalized drop in the number of M&A transactions across the region, Brazil's market remains the strongest.
August 18, 2023 | 01:50 PM

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Bogotá — The outlook for corporate investments in Latin America remains cloudy in the midst of persistent inflation and still high interest rates, which has been reflected in a drop of at least 20% in M&As to July.

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Investor confidence has not fully recovered and risk aversion persists in emerging markets, so both the number of M&A transactions and the capital mobilized have suffered.

So far this year up to July, a total of 1,757 M&A transactions were registered in Latin America for an aggregate amount of $45.3 billion, according to figures from TTR Data and Datasite.

This meant a drop in the number of transactions of 20%, while the capital mobilized contracted by 34% with respect to the same period in 2022, according to the report.


In an interview with Bloomberg Línea, the co-leader of Baker McKenzie’s M&A practice area, Natalia Ponce de León, reflected on these figures, the reasons that could lead to this loss of dynamics and the projections of one of the most active firms in this area in the region.

The analyst points out that since last year there has already been a decrease in the number of mergers and acquisitions in the region as a result, among other aspects, of high interest rates and the depreciation of several currencies, as well as the rise in inflation.

The internal rates of return on some investments may be impacted with these factors and may not look as attractive in the face of high interest rates, she said.


“The region is also affected by the situation in Ukraine and the effects on supply chains. In addition, the changes of government in Colombia and in the region have also brought uncertainty that does not always favor the M&A market,” she added.

Specifically, she referred to changes in the applicable regulatory framework, which “bring uncertainty”.

“And uncertainty is not a friend of investors, especially foreign ones. The lack of clarity about whether the institutional framework may change in the short or medium term, undoubtedly makes us less attractive as a country and as a region,” she said in the interview.

Even so, she believes that in the second half of the year there may be an increase in the number of mergers and acquisitions in the region.

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For Ponce de León, investors have had time to adjust to the new market conditions and thanks to this they are prioritizing issues such as sustainable investments.

“Some macroeconomic factors have been stabilizing, since inflation is slowing down and interest rates seem to be easing,” she said.

Therefore, she anticipates that in the second half of the year there will be movements in terms of M&As, mainly in the technology, health and infrastructure sectors, and in renewable energy.


In the case of Colombia, she pointed out that once the law of guarantees is lifted, which currently prevents public entities from subscribing and executing certain types of contracts, there could be a greater movement in M&A operations involving the public sector.

“Among others, as announced a few months ago, Ecopetrol authorized the divestment of its entire stake in Invercolsa, so this is an operation that is anticipated for the coming months. Likewise, movements in the renewable energy sector, strategic acquisitions and some divestments are anticipated,” she added.

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M&As in Latin America

By number of transactions, Brazil leads the ranking of the most active countries in the region with 1,075 transactions (a decrease of 30%) and capital mobilized for $25.23 billion year on year in first half, (down 38% on H1 2022).

Brazil is followed by Chile with 223 transactions (up 21%) for $48.99 billion (down 23%).


Mexico remains in the same position in the ranking with 203 transactions (down 23%) and capital mobilized for $10.63 billion (down 9%).

Colombia saw 134 transactions in first half, (down 29%) worth $2.57 billion in the period, representing a drop of 57% over the same period of 2022.

Argentina lagged behind with 120 transactions (down 2%) worth $1.56 billion (down 55%).


And Peru accounted for 70 transactions (down 5%) totaling some $3.85 billion, with a significant increase of 84% in its mobilized capital over last year’s first-half figure.

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Venture capital activity remains subdued

One of the segments in the region that continues to remain stymyed is venture capital, which keeps the region’s startups from growing. According to TTR Data and Datasite, the venture capital segment accounted for a total of 515 transactions through July, with an aggregate amount of $2.21 billion.

This implied a 32% drop in the number of transactions and a decrease of 67% in their value, in year-on-year terms.


Ponce de León explains that although venture capital is a sector that has been particularly impacted in recent months, “an upturn is expected in the second half of the year”.

In any case, “this rebound is likely to be a bit more timid” and “this sector is expected to continue to be driven especially in the fintech segment and in general, technology”.

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