Today, the concentration of companies in our country has become a strategy from market participants to achieve their permanence in the competitive and globalized environment, to cover larger foreign markets seeking to invest in Mexico´s businesses, minimize economic risks and solve various financial problems.
During the first 4 months of the year, Mergers & Acquisitions (“M&A”) transactions have reached a value of USD$7.800 million, which has been an exponential recovery to the decline we had in 2022, due to high interest rates and geopolitical uncertainty. Mergers and Acquisitions in Latin America fell back 35.9% compared to 2021, in a period analyzed between January 2 and December 26, 2022. On those dates in the region there were deals for USD$106.9 billion, while in 2021 the figure rose to USD$168.3 billion, according to data compiled by Bloomberg.
According to comparative data on Mergers and Acquisitions in Mexico for the year 2022, we could observe a sharp decline in corporate deals in Latin America, which affected our country, due to high global interest rates and the withdrawal of many investors from emerging markets due to the war in Ukraine and the reduction of exposure in China due to its erratic policies by Covid-19. Stock offerings dropped 61% in Latin America, representing USD$13.4 billion, according to data provided by El Economista.
With the temporary closures due to the pandemic, there was a lack of maritime shipments. As a consequence of the above, companies seeked to optimize their logistics and bring their production closer to the country with the highest demand for products, which is the United States (nearshoring). The so-called nearshoring, a phenomenon of reconfiguring value chains from one country of origin to another, has been occurring in Mexico for decades. Companies from around the world have come to Mexico mainly because of the skilled labor force, lower production costs and ease of logistics compared to neighboring countries, which has allowed Mexico to recover economically.
For example, the renowned brand Apple, due to pandemic and human rights issues in China, decided to diversify and not buy products assembled in that country, opting instead to move closer to Mexico and India. This has caused a huge migration of suppliers, the United States remains the most popular market, with a boom for several international companies, according to Grupo Expansión.
In June 2023, in terms of Mergers and Acquisitions in our country, one transaction was announced by Mexican companies abroad, representing a reduction of 2 transactions in regard to the previous month. Compared to the same period last year, the volume of transactions decreased to 4.
The industrial sector led M&A activity in June with 9 transactions, representing 13% of total transactions during 2023, followed by Real Estate, Mining and IT, according to data provided by Seale & Associates.
The Secretary of Finance and Public Credit, Rogelio Ramirez de la O, revealed that the Mexican economy has experienced a great boost thanks to the arrival of foreign companies, with nearshoring, resulting in investments that exceed USD$13,000,000,000.00 so far this year.
The number of agreements that have been reached with foreign companies has increased 47% so far this year. This translates into an increase of M&A in our country, reaching a value of USD$7,800 million in the first 4 months of 2023, an increase of 189% over the USD$2,700 million of the same period last year, according to Grupo Expansión.
According to the quarterly report by TTR Data and Bloomberg, Mexico ranks third in Latin America behind Brazil and Chile.
Brazil leads the ranking of the most active countries in the region with 1,075 transactions (down 30%) and mobilized capital of USD$25,234 million (down 38%). It is followed by Chile with 223 transactions (up 21%) for USD$48,995 million (down 23%).
Mexico remains in the same position in the ranking with 203 transactions (down 23%) and capital raised of USD$10,639 million (down 9%). The M&A sector in our country could recover even more in 2024.
Global companies, from diverse industries such as technology, finance, consumer products and manufacturing, have become interested in our country because of all the business facilities we offer, mainly Asian companies. U.S. Companies have always stood out in foreign investment, followed by European companies. The Asian companies, which mainly have stood out in the automotive sector in Mexico, are exploring more industries to exploit in our country.
The transactions that are currently trending in Mexico are not venture capital, but developed businesses or those with a strong and mature market of many years. Of the 47 transactions that were presented up to April, 16 were Mexican companies that made negotiations abroad.
One of the sectors that has most interested foreign investors is technology sector. The USA has been encouraged to produce electronic chips locally, they want to create a market in another country and not depend solely on Taiwan. Although Mexico has no plans to create foundries for the creation of these chips, there will be several adjacent industries that will benefit from this industry.
According to Grupo Expansion´s data, in the first four months of this year, the industries that have had the biggest activity and development in terms of M&A of Mexican companies abroad with 43.8%, Information Technology (IT) with 12.5% the Financial sector with 12.5%, Consumer Products with 12.5% and Telecommunications with 6.3%.
Strategic acquisitions of U.S. transnational companies are the most frequent, above private equity. The Mexican Government is trying to favor the emergence of industrial parks by extending to Oaxaca or Veracruz, through the Isthmus Train Project and several business incentives.
In VAHG we provide legal services with great experience and knowledge in Mergers and Acquisitions, being leaders in this practice in Mexico. We are backed by a solid legal infrastructure with more than 30 years of combined experience, focused on promptly assisting our clients with the commitment and integration to the legal framework of Mergers and Acquisitions Practice.
For more information regarding our professional services, the M&A Team is at your disposal.
Fernando Hernández Gómez | Partner
Mergers & Acquisitions
+52 (33) 38171731 Ext 225 | fhernandez@vahg.mx
**The publication of this document does not constitute legal, accounting or professional advice of any kind, nor is it intended to be applicable to particular cases. This document only refers to laws applicable in Mexico.