M&A activity in Mexico saw a 9.5% rise in the number of operations and a 49.6% decline in total reported deal value in 2018, according to research firm Transactional Track Record (TTR).

TTR recorded 343 M&A operations in the country last year, compared to 303 in 2017. There were 142 deals that publicly disclosed deal values in 2018 for an amount of US$14.4bn compared to US$28.6bn in 150 disclosed operations the year before.

Mexican deal activity was last year affected by new and growing uncertainties surrounding the building USChina trade war, historic selloffs in equities markets, tightening global monetary policy and, domestically, rising concerns around the left­wing government of President Andrés Manuel López Obrador, coming into power in December.

"2018 has been a volatile year for the transactional market in Mexico," said Marcela Chacón, Transactional Track Record's research and business intelligence analyst for Latin America, in remarks provided to BNamericas, noting that the first half of that year began more or less on par with M&A activity levels in 2017.

"However, in the second half of the year [activity] was less homologous, even though there were some areas and sectors with a high level of transactions (finance and insurance, for example)," she added, "Other sectors suffered a slowdown, where behavior in the second half reflected a dynamic more focused on closing deals than announcing [new] ones."

The only major relief in uncertainty last year came with the trilateral deal to renew the North American Free Trade Agreement (Nafta) under the auspices of a new agreement known as USMCA in the English and T­Mec in Spanish. The agreement is still awaiting legislative ratification.

October and November were particularly tough on local markets with the highly controversial cancellation of the partially completed international airport for Mexico City (NAIM) and the surprise introduction of legislation that would eliminate many forms of banking fees.

The late­year downturn was evident in Q4, where Mexico saw only 73 transactions, 33 of which reporting deal values totaling US$2.64bn ­ representing a 17.1% year­on­year drop in the number of M&A operations and a 70.9% decline in reported deal values.

Of the 142 deals that disclosed price tags in 2018, 110 were small­market with values under US$100mn, 25 were mid­market (US$100mn­US$500mn) and seven deals were valued above US$500mn.

Outlook 2019

"Putting to the side questions of timeframes, 2019 will remain an attractive year for investments in Mexico," noted Chacón in comments to BNamericas. "However, not only factors in the transactional market must be taken into account, such as the year to date evolution of volume and amount of transactions at the national level, but also some geopolitical decisions that may influence to a certain extent the investment environment, especially in regions like the US, Latin America, Europe, among other partner territories that partner with [Mexico]."

"The decisions of the US at several key economic junctures for the two countries will be important," added Chacón, saying these include "consequences from the renegotiation of Nafta; international geopolitical risks that can influence global issues such as Brexit or the US­China trade war; as well as other macroeconomic aspects that will be key in the coming months to set the trend in the dynamics of the M&A market." Cross­border dynamics With regard to outbound M&A deals, throughout 2018, Mexican companies mainly opted to invest in US properties, carrying out 19 transactions there. However, standing out in terms of largest outbound deal value for any territory, outbound deals to Spain closed the year with reported deal value of US$1.69bn.

Conversely, US and Spanish firms also expressed the strongest interest in targeting Mexican properties last year, carrying out 61 and 17 operations, respectively. By amount, the US stands out again, with US$ 2.65bn.

Private equity and VC

Last year saw 35 private equity transactions valued at US$2.39bn, which represented a 20% decrease in the number of transactions and a 56% decrease in mobilized capital with respect to the same period of 2017.

In turn, Mexico registered 72 venture capital operations valued at US$608mn, up 50% and 38% respectively in the same comparison.

Source: Business News Americas / BN Americas - Chile