The energy sector, including solar, continued to drive Mexican M&A activity in 2021, with specific sub-sectors looking likely to keep deals flowing in 2022, according to Transactional Track Record (TTR) research and business analyst Marcela Chacón.

Mexican firms were tied to 22 M&A operations in 2021, where 10 of these disclosed deal values amounting to US$1.68bn, according to TTR data.

Chacón told BNamericas that the most active areas for energy in 2021 were in Mexico's oil and gas sector, “as well as solar energy, ” with the latter sparking four transactions and deal values disclosed for two, amounting to US$131mn.

The interest in renewables in Mexico is relevant given the backdrop of the federal government’s efforts in the past two years to pare back growth of private solar and wind development and the private wholesale electricity market in general via regulation and legislation, with its goal of reasserting the dominance of state-owned utility CFE in the market.

The administration of President Andrés Manuel López Obrador (AMLO) previously ended the oil and gas rounds that brought private firms into Mexico’s upstream sector as investors. It has since worked to limit growth of the private fuel sales, storage and distribution sector via regulations and laws to prop up national oil company Pemex.

The situation has all but paralyzed the advance of new private renewables projects in Mexico, but other projects already up and running or on hold could attract buyers that are taking a long-term view of ever growing demand for energy in the country. “Despite the uncertain environment in Mexico, the outlook for M&A activity is optimistic with several businesses on standby and potentially in play in 2022, ” Chacón said.

In 2022, she said, “Market dynamics will continue to be active in transactions involving energy infrastructure, renewable energy development and tenders that are expected to continue to close in the short and medium term." DEAL LOGIC The TTR graph below, made for BNamericas, details the relative activity in energy sub-sectors with deals in 2021 involving Mexican firms.

Cox Energy América’s (formerly Cox Energy México) acquisition of 40% of Ibox Energy was essentially an outbound deal targeting a Spanish asset, and Array Technologies’ purchase of STI Norland last year included the company’s Mexican operation, though it was mainly focused on expansion into Brazil. Mexican cement maker Cemex, a global player looking to lead on decarbonization of the manufacturing process, says it acquired Synhelion to power operations with solar energy. And Riverstone’s purchase of a controlling stake in Energía Real, completed last July, was intended to expand distributed generation in Mexico, an area that the energy ministry continues to see as having potential to help bring electricity to the most rural areas of the country. “Fortunately, investor confidence is still active in Mexico, " said Chacón, who added that companies backed by strong financial muscle will continue to take advantage of post-pandemic opportunities in the energy sector in 2022.

Chacón added that oil and gas remains the chief area of energy interest in Mexico, with TTR recording 12 transactions in 2021 and reported deal values amounting to US$1.48bn. CROSS-SECTOR ACTIVITY While energy was active in terms of M&A deals, tech and internet companies were behind the 25% surge in M&A activity seen in Mexico last year, based on TTR data. The Mexican transactional market, including M&A, private equity, venture capital and asset acquisitions, generated 394 deals in 2021 with disclosed deal values amounting to US$19.4bn, said TTR.

This reflected a 25% jump in the number of operations compared with 2020 and a 78% increase in deal value. One of the biggest takeaways from 2021 was the impressive surge in venture capital, tied largely to Mexico’s mature Fintech ecosystem and the boom in online shopping and services apps coming out of the COVID-19 pandemic. TTR reported 167 VC deals happening in Mexico in 2021, valued at US$4.77bn, representing a 61% hike in the number of transactions and 294% growth in the amount of capital raised in the deals.

Source: Business News Americas / BN Americas - Chile