M&A in Latin America bucks global trend in 2019

M&A activity across Latin America bucked the negative global trend in 2019 with deals seeing double-digit growth despite its two largest economies stuck in the doldrums and a rash of social unrest breaking out from Colombia to Chile. 

Looking to 2020, further growth will likely depend once again on the determination and perseverance of deal appetite, particularly from abroad, against a similarly rocky outlook for the region, even with the expectations of modestly improved economic growth in Latin America this year.

Mergermarket, in its Global & Regional M&A Report 2019, said the combined value of deals across the region jumped to US$85.9bn last year from US$76.4bn in 2018 (up 12.4%), despite a decline in the number of deals announced to 675 from 659.

“The increase in activity was fueled by inbound deals from around the world, which made up nearly 66% of Latin American overall deal making by value in 2019,” said the report

The growth in Latin America compares to the 6.9% drop in global M&A deal value to US$3.33tn, with the US taking the lion’s share with 47.2% of the total. Dealmaking was attenuated in China, in part due to geopolitical tensions and anti-Beijing protests in Hong Kong, with the bloc seeing its global share in M&A activity shrink from 11.4% in 2018 to 8.8% in 2019.

The report said inbound deals to Latin America from Europe alone surged 98% in 2019 to US$13.2bn, as European investors begun to look beyond the hampered growth in the Eurozone for deals abroad – a trend Mergermarket sees extending into 2020. 

Mergermarket identified 284 inbound deals worth a combined US$56.9bn last year, up 61.6% by deal value, where there were 291 inbound deals worth US$35.2bn in 2018. In contrast, with 375 deals worth US$29bn, domestic M&A activity declined nearly 30% by value compared to last year (384 deals worth US$41.1bn).

Latin America is in sync with the rest of the world in one key aspect – fewer transactions with notably higher price tags. 

“On the back of the longest equity bull market in history, and amid persistently low interest rates, corporates and private equity firms alike have ample cash reserves and appealing debt financing options at their disposal,” read the report. Meanwhile, “the feeling that these conditions may not last and the desire to secure future growth are pushing valuations up.” 

The average size of an M&A transaction worldwide last year was US$389mn, up from US$353mn in 2018, and the second highest value on Mergermarket record behind the all-time high set in 2015. 

Winners and losers 

Latin American M&A experienced markedly different trends when viewed by sector with transactions in the energy, mining and utilities sectors booming in deal value to US$30.6bn, an annual jump of 37.2%, helping to offset the nearly 75% drop seen in the industrial and chemicals sectors to US$5.9bn. 

Tech deals also made a splash in Latin America last year, with Mergermarket identifying 77 technology acquisitions – the highest of any year on record. Deals in the agriculture sector, however, were off 71% last year to US$1.4bn. 

Top players and deals 

Climbing from 14th place in 2018 to number one last year, Santander Corporate Investment Banking (SCIB) handled M&A transactions worth US$26.2bn in 2019, representing an increase of about 706%. 

The top firm in 2018, Bank of America, was placed second with US$26.1bn in deal value managed, down 9% from 2018.

In terms of transaction volume, Banco Itau BBA handled more than any other rival with 42 transactions valued at US$9.24bn, with Banco BTG Pactual following next with 35 deals valued at US$6.17bn.

The largest single transaction in Latin America, according to Mergermarket, was April’s US$8.64bn acquisition of Transportadora Associada de Gas by Engie Brasil Energia and Caisse de Depot et Placement du Quebec, which gave the firms a 90% stake in the target company. 

Brazilian retailer Companhia Brasileira de Distribucao’s (GPA) 96.6% buyout of Colombia’s Almacenes Exito, placed at a distant second with a deal value of US$4.7bn.