With trade talks, elections over, Mexico M&As to pick up

With US-Mexico trade relations and Mexico's political future now gaining clarity, M&A expert Roberto Terrazas of Mexican private equity firm Nexxus Capital, now expects to see activity picking up through the rest of the year.

"Both [Nafta and Mexico's political situation] have advanced favorably, and we expect a more active second half," said Terrazas, speaking to M&A-focused research firm Transactional Track Record (TTR). Private equity firms, like Nexxus, had deals on hold for more than a year, though flush with cash, until a clear picture on Mexico's trade and political outlook emerged.

Noting the recent achievement of a US-Mexico trade agreement, Terrazas said, "several companies in our portfolio have operations in the US. We are still very active analyzing investment opportunities for the companies of the portfolio with companies in the US."

Weak August

Though prospects seem to improve, Mexico saw a particularly slow month for M&A activity in August, recording only 23 transactions with seven of these disclosing deal values totaling US$284mn, according to TTR.

This reflects a 34.3% drop in the number of Mexican M&A operations and a whopping 97.2% decrease in total disclosed deal value from August 2017.

TTR added it recorded 219 transactions in Mexico over the first eight months of 2018, with 93 of disclosed deal values totaling US$8.08bn, reflecting a 9.0% increase in the number of transactions, but a 55.5% decline in total reported deal value.

Of the 93 operations that disclosed deal values January-August, 75 were low-market with values under US$100mn; 15 were mid-market (US$100mn-US$500mn) and three were major deals valued at over US$500mn.

US the major cross-border player

With regard to the cross-border market, throughout the year Mexican companies have opted mainly to target US properties in outbound deals, closing 10 operations there, followed by Spain with seven transactions, and Argentina with six. Total deal values for outbound operations were highest for Spain with US$868mn.

Regarding inbound deals, the US targeted Mexican properties more than any other country, generating 32 deals in Mexico in the first eight months of 2018 with a total reported deal value of US$1.66bn. Spanish firms targeted Mexican properties in nine deals over the period, followed by Canadian and Chilean firms, with six and four operations, respectively.

Private equity and VC

"The current environment for private equity firms in Mexico presents a very important challenge from the point of view of raising capital, however from the point of view of investment opportunities, it presents a very interesting opportunity," added Terrazas.

TTR noted there have been 19 private equity deals in Mexico from January to August, valued at US$40.5mn. This represented 39% fewer transactions and a 99% drop in capital involved in equity deals compared to the first eight months of 2017.

The firm added there have been 49 venture capital operations in Mexico valued at US$562mn, reflecting a 53% increase in the number of transactions, and a 71% increase in total VC mobilized compared to January-August 2017.