Global stress drives lower-risk M&A in Mexico

Mexican M&A activity has moderated in the wake of global uncertainty and inflation, says Marcela Chacón, research and business analyst at research firm Transactional Track Record (TTR).

Chacón told BNamericas investors are now looking to lower-risk and longer-term opportunities.

TTR, in collaboration with Intralinks, recorded a total of 191 operations in Mexico during the first half of 2022 – including mergers and acquisitions, private equity, venture capital and asset acquisitions – with 100 of these disclosing deal value amounting to US$7.44bn.

The data reflects a 5% increase in the number of operations and a 32% rise in their value compared to the first half of 2021, with 2022 marked by a strong start that has since begun to cool.

“[Mexico’s] M&A environment has been impacted by the Russia-Ukrainian war, the supply crisis, the effects of inflation, as well as the volatility of the markets,” Chacón said.

However, she added, transactions are still happening, “and some investors with major financial muscle have taken advantage of this opportunity to expand their operations in strategic markets in the medium term,” she said.

The TTR data also indicates a solid pick-up in private equity transactions in the first half of 2022, accompanied by a softening in the venture capital market since the start of the year.

TTR reported 18 private equity transactions in the first half. Two of these disclosed combined deal values of US$1.53bn. 

This amounts to 50% more PE operations in the period compared with the first six months of 2021 and a 120% increase in reported value.

Venture capital (VC), however, has slowed. TTR reported 84 VC deals in 1H22 amounting to US$1.70bn, a 9% rise in the number of operations but a 14.4% decrease in value.

The number of VC deals also dropped from 48 in 1Q22 to 36 in 2Q22.

“Without a doubt, the boom that we were seeing in venture capital has diminished considerably,” said Chacón, “especially in the second quarter of the year due to several factors that show signs of a more cautious period in the transactional market, not only in Mexico but worldwide.

“The collapse of certain stock prices in the market, the struggle of central banks to control inflation, as well as fears of a recession have triggered a general drop in returns at venture capital funds,” she added. “This, without a doubt, is a trend that could continue in the coming months.”

TTR also reported on the asset market, noting 24 transactions closed in 1H22 with a combined value of US$560mn, a decrease of 14.3% in the number of operations and 89.0% in deal value over the same period 2021.

SECTOR IN-DEPTH

The most active sector in 1H22 was internet, software and IT services, which has been driving growth in the transactional market for the last few years, generating 25 operations in the period, up 32% year-on-year.

Real estate, however, has seen a comeback, producing 23 transactions in 1H22, up 92% from the first half of 2021.

“It’s interesting to see that the transactions in the real estate market have had an active growth throughout the year, not only in Mexico but, in general, globally,” said Chacón.

She added that in hyperinflationary periods “like the current one,” large investors adopt real estate as a longer-term investment strategy.