Recording 165 deals in the first half of 2018, M&A activity in Mexico marked a 19.6% increase in over the same period of 2017, with 70 of the transactions reporting combined deal value of US$7.1bn, up 4.34% year­onyear.

However, in a second quarter marked by strained Nafta renegotiations, peso depreciation and uncertainty before Mexico's July 1 presidential election, activity was less dynamic than in 2Q17 with 78 transactions (+6.85% y­o­y) and 38 of these reporting a total deal value of US$2.4bn (­18.09% y­o­y), according to M&A research firm Transactional Track Record (TTR).

Discussing the general improvement in Mexico over the first half of the year, Pablo Coballasi, cofounder, partner, and managing director at PC Capital Partners, a Mexico City­based provider of investment banking and M&A advisory services, in an interview with TTR, said, "This increase in [deal] volume is due to the strong transactional dynamism in the Mexican economy and to its continued growth, especially in the financial and manufacturing sectors, which continue to grow at rates above the growth rate of the country."

"The strength of Mexican institutions is valued at the international level, and this should give investors confidence," said Coballasi.

Of the 78 transactions reporting deal value in 1H18, TTR said 57 were so­called small market (valued at less than US$100mn), 11 were mid­market (US$100mn ­ US$500mn) and three were large market (above US$500mn in value).

Finance, insurance stand out

The financial and insurance sectors produced most M&A activity in 1H18, generating a total of 33 transactions, followed by real estate with 27 deals and the internet sector with 14.

Coballasi said the financial and insurance sectors continue to demonstrate strong dynamism in Mexico, with transactions in the sector growing 50% with respect to the number seen last year.

"The major driver of this sector during the last 10 years has been the lack of banking in the Mexican market and the consolidation of the sector, which continues to be highly fragmented," said Coballasi.

"In Mexico, only 39% of the economically active population has access to a bank account, which represents a great opportunity for businesses such as microfinance and small lenders, among other niches of the financial sector," he added.

"For PC Capital, the financial sector has been one of the most active for us in the last 3 years, having seen three operations in this sector in 2018, including two purchases by First Cash, the global sector leader for small lenders and the purchase of CAME by Te Creemos, which is part of our portfolio of private equity companies and is already the second largest microfinancier in the country," said Coballasi.

Looking ahead, Coballasi expects the Mexican market to be "especially interesting" once the new government has made its first announcements.
Leftist candidate Andrés Manuel López Obrador (AMLO) won a landslide victory on July 1 and he assumes as the next president on December 1.

"The country continues to present a solid macroeconomic outlook and a long­term growth projection that will remain attractive to international and domestic investors in various industries," Coballasi said. "Regardless of who is the new government for the country, Mexico will remain a preferred destination within emerging markets."

Cross­border activity

Looking at cross­border dynamics, TTR noted that Mexican firms have targeted the US more than any other foreign territory for outbound deals, carrying out 10 transactions in the first half of the year with reported deal value of US$359mn.

With inbound deals, US and Spanish firms have shown the greatest interest in Mexican properties, carrying out 25 and seven deals, respectively. The total reported deal value on inbound deals to Mexico from the US amounted to US$1.6bn in 1H18.

TTR reported that in 2Q18 there were a total of four private equity operations valued at US$23.8mn, representing a y­o­y decrease of 60% in the number of transactions and a decrease of 93% in terms of capital mobilized. On the venture capital side, the second quarter saw 18 operations with a combined value of US$158mn, representing an increase of 64% in numbers and a 50% decrease in mobilized capital.

Source: Business News Americas / BN Americas - Chile