M&A momentum in Latin America
In 2021, global mergers and acquisitions (M&A) volume surpassed $5 trillion for the first time. It was yet another consequence of the pandemic stock market frenzy, which has endowed developed economies with high savings rates and low interest rates. For now, bankers are enjoying - somewhat cautiously, we must admit - their bonuses, while investors, who do not always gain from these manoeuvres, hope they have done well.
Investment banking, whose main income is fees for handling M&A deals, enjoyed an 'annus mirabilis': despite some unease and nervousness on the part of bankers, Goldman Sachs broke its all-time record in the third quarter of last year, and all of JPMorgan will have taken $45 billion.
It was a similar story in Latin America, where the number of mergers and acquisitions - 3,633 - rose by 40.61% compared to 2020, while the amount of these - $166.781 billion - represented an increase of 111.66%; private equity recorded similar figures. All in all, it was a year of more deals in general and larger deals in particular.
With its 2,560 transactions, Brazil, Latin America's leading economy, far outstripped all other countries in the region; Mexico and Chile, with 394 and 349 transactions respectively, joined it on the podium. Colombia, Peru and Argentina have also enjoyed good cycles, hence JPMorgan's emphasis on its Buenos Aires hub, where 450 of the 500 employees it plans to add to its regional workforce will be based.
But there is no reason to think that the great comeback is limited to the big economies: in order to take over all the shares of the telephone company Tigo Guatemala, the Luxembourg-based Millicom (Tigo) paid USD 2.2 billion for the remaining 45%. Millicom, we might add in passing, is a curious entity: although its headquarters are in Luxembourg and its founding capital was mainly Swedish, its main market is Latin America and its CEO is Colombian.
Latin American tech companies are also all the rage: the most notorious have debuted in New York and, what's more, have been mentioned in El Americanista, but many others have been acquired or merged with pre-existing giants. According to Transactional Track Record's annual report, the technology sector is the most booming: in fact, in Brazil, Argentina, Colombia and Peru it was the sector with the most transactions, even overtaking the financial sector.
Given such a strong performance, why are banks not resting on their laurels? What is certain is that the new year brings a hazy and uncertain outlook. Supply chains remain disrupted, this time without the demanding spring of reopening. And, as far as Latin America is concerned, inflation and the political turmoil caused by the anti-incumbent wave mentioned above are causing headaches.
Inflation, however, can stimulate M&A transactions. This is what we are seeing in Brazil, whose gloomy economic outlook we have already discussed. In the face of recession, sky-high inflation and interest rates that have risen fivefold in less than a year, younger and weaker companies are vulnerable to aggressive takeover bids, though perhaps not in the style of the 1980s. Moreover, high interest rates eliminate financing as an option, and the volatility of the Bovespa index - though we could equally well refer to the US markets - heightens the risks of going public.
More debatable is the political question. In Chile, the waters have calmed down: a kind of cordial resignation has emerged between Boric and investors, and the president-elect, seeking to show his recent moderation, has appointed Mario Marcel, president of the Central Bank, as his future finance minister. In Brazil, however, pre-election anxiety has only just begun, but the truth is that both Lula and Bolsonaro are, in their own way, pro-business candidates.
In any case, US capital is undaunted. The Americans remain the main buyers in the major Latin American economies, investing $17.024 billion, $4.895 billion and $4.785 billion in Brazilian, Mexican and Chilean assets, respectively. Canadians and Europeans, led by Spain and the UK, are also involved, but what is most interesting is the penetration of cautious Asian capital. In the Brazilian M&A market alone, Chinese firms invested $906 million, Japanese firms invested $1.827 billion, and Singaporean firms invested $4.313 billion.
Given the influx of foreign capital, we are pleased to confirm that the region's domestic market has matured. A surprising number of intra-regional deals are concluded, and multilatinas are investing in Europe and North America. The phenomenon has been brewing for some time, and the Elcano Royal Institute has analysed it, focusing on the Iberian Peninsula.
Thus, Argentines invest 2,291 million dollars in Brazil and 656 million in Mexico, while Brazilians invested 2,557 million dollars in Chile, 505 million in the Netherlands and 448.03 million in Australia. Mexicans, seeking to diversify and avoid "political risk", opted for the US and Spain, where they bought 2.223 billion dollars and 967 million dollars, respectively. Chileans, meanwhile, show a marked preference for M&A operations in Spain, where they invested $832 million, but in 2021 they accumulated positions of around $500 million in Peru, Colombia and Brazil.
Beyond the overall figures, 2022 is expected to be a year full of big deals. The most anticipated is the already approved merger of Televisa and Univisión, which aims to forge a cyclops that will dominate Spanish-language media in the hemisphere. The Argentinean startup Ualá, backed by Japan's SoftBank and China's Tencent, is following suit, entering the Colombian market and acquiring a Mexican bank to take over its banking licence.
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