Latin American M&A slump spreads into 2019

Though the 2018 elections across Latin America are out of the way, persistent uncertainty continues to place a drag on M&A operations in the region, as indicated in new reports from S&P Global Market Intelligence and Transactional Track Record (TTR).

"Time spent at the ballot box in 2018 brought significant change to political powers in prominent Latin American countries, most notably Brazil and Mexico," according to S&P's report Deal Trends in Latin America.

"Already a primary risk for the region, the uncertainty around changing political and economic regimes further contributed to a softer deal market in both deal value and volume," said S&P.

That softness ultimately led to 4Q18 seeing the smallest quarterly deal volume since 1Q16, noted S&P, adding the calendar year finished with 818 transactions across Latin America, a 3.9% drop from the volume of announced or completed transactions in 2017.

The report further pointed out that transaction value across Latin America fell by 21.4% to US$85bn in 2018, the lowest annual amount since the global financial crisis.

TTR data for January and February suggests the weakness has extended into 2019, since the region recorded 299 M&A operations in the first two months, 10.8% fewer than in the same period of 2018.

Likewise, reported deal value for both months came to US$11.4bn, down 4.05% year-on-year.

Brazil

Brazil continued to be the most active nation in the region in terms of number of transactions and deal value, with 328 deals moving more than US$49bn in 2018, according to S&P.

Six transactions surpassed US$1bn last year, three fewer than in 2017. Brazil hosted 43% of the deals over US$1bn in Latin America.

TTR data shows Brazil generating 149 operations in the first two months of 2019, a 13% y-o-y contraction. Meanwhile, reported deal value amounted to US$4.0bn, or 25% less than in the same period of 2018.

Rest of LatAm

Brazil is followed by Mexico with 44 deals during January and February, a decrease of 31%, while deal value dropped 9% to US$1.9bn.

TTR noted that Chile climbed a spot in its ranking, generating 37 transactions in the first two months, up 61% y-o-y. Reported deal value jumped by 274% to US$1.49bn.

Colombia, which has also risen in the ranking, registered 36 operations (an increase of 13%), with a decline of 88% in terms of disclosed price tags (US$88mn).

Argentina dropped in the TTR ranking due to a decrease of 39% in number of deals (25), while seeing an increase of 8% in deal value (US$1.2bn).

Peru rounds out the list with 23 operations (down 12%) and a 61% drop in transaction value (US$792mn).

The following table, provided in a press release from S&P, details recent reported deal value levels by country from 2015 to 2018.

Source: S&P Global Market Intelligence

Stand-out sectors

S&P named the materials sector as the "largest driver of M&A activity in the region" last year, sparking deals valued at a combined US$26.6bn, or 24% of total transaction value.

"Three transactions in the sector surpassed US$1bn, contributing to a nearly 4x increase in year-over-year deal value," said S&P.

The firm also pointed to the IT sector as a stand-out driver, noting that the sector saw deal activity rise for the third consecutive year in Latin America, behind only the materials sector in deal count last year.

Private Equity, Venture Capital

There were 14 private equity operations in the region during the first two months of 2019, with seven moving a combined US$1.84bn, representing y-o-y decreases of 44% and 10.3%, respectively.

In the same months, TTR said 37 venture capital transactions took place with 27 moving a total of US$159mn, down 29% and 71.5%, respectively.