Global law firm Baker & McKenzie has launched the Cross Border M&A Index, a study in conjunction with Merger Market, which forecasts a 10% growth in cross border M&A transactions driven primarily by the US, EU, and Asian markets. Still, of the $375 billion (USD) total, Latin America’s emerging markets make up a reported $14.9 billion.
While Chile, Argentina and Peru continued to see deals at a constant pace, Colombia, Brasil and Mexico saw a decrease in the quantity of deals done. The devaluation of the Brasilian Real and the Colombian Peso have caused adjustments in the relative economics within the two countries, and the volatility of petroleum prices have been the primary impediments to more deal traffic in 2015, according to Baker & McKenzie analysis.
Sectors seeing the most M&A activity include financial services, industrial production, energy, mining, and pharmaceuticals.
Notwithstanding, the study signals that countries such as Colombia and Brasil have been becoming more and more attractive for foreign investment and this will push growth in cross border transactions over the medium to long term. Local companies and assets can offer very good opportunities, especially now that their values have been discounted taking into account local currency valuations.
“The devaluation of the Colombian Peso, losing between 28 and 35% of its value against the US dollar in the last year, has converted national enterprises into attractive objects for foreign investors. As such, it is highly probable that we will see more mergers and acquisitions in the second half of the year, now that the drop in oil & gas prices is forcing a readjustment by those companies that operate in that industry, said Jaime Trujillo, managing partner with Baker & McKenzie (above).
Over the long range, signaled Trujillo, it is hoped that Colombia as well as the rest of the region will see a deceleration in the balance of internal transactions in favor of cross-border transactions representing a larger portion of the M&A market.
“While depreciation and instability in exchange rates continues in several Latin American countries, the surest thing is that M&A transactions will be led by foreign private equity funds and multinational enterprises during the second half of 2015, through the end of 2016,” said Trujillo.
Asian buyers continue demonstrating a growing appetite for shares in Latin American companies, having completed eleven transactions in the third quarter, and a total of 30 so far this year, making Asia the most active investor in the region.