In the current slowdown in M&A activity in Mexico both the internet and technology sectors are defying the trend, according to M&A research firm Transactional Track Record (TTR).

In its latest report, TTR has the sectors showing a 56% and 91% year-on-year jump, respectively, in the number of transactions for the first six months of 2019.

In contrast, the previously leading M&A sectors, real estate and finance/insurance, showed declines of 42% and 62%, respectively.

TTR reported that 134 deals were done in the first six months of the year, with disclosed values reaching US$10.2bn. The results reflect a 30.2% drop in number of transactions and a 0.8% increase in disclosed deal value.

In 2Q19, 65 deals were closed, compared to 94 in the same period of 2018, with disclosed deal value in April-June 2019 reaching US$5.64bn, up from US$5.22bn in 2Q18.

PRIVATE EQUITY AND VC

According to TTR, six private equity transactions occurred from January to June, valued at US$33mn. This represents a 70% decrease in the number of operations and a 98.1% decrease in capital mobilized.

In addition, 37 venture capital operations were undertaken in the first six months of 2019, valued at US$442mn, reflecting a 4.7% increase in the number of operations and a 14% drop in capital mobilized compared to January-June 2018.

FINTECH IPO ON THE HORIZON

An analysis from M&A research firm Mergermarket suggests that at least one Mexican fintech would launch a local IPO within the next 12 months. Mergermarket bets on online payment processing firm PayClip as the likely candidate.

The report cited a sector lawyer, a venture capital partner, two stock exchange officials and an equity capital banker, who stressed that while most companies have yet to reach breakeven point, the hype surrounding fintechs could help them attract enough investors to build strong book orders for their IPOs.

Mexico City-based PayClip seems attractive because it already received capital from investment firms such as General Atlantic in 2016 and US$20mn from Japanese Softbank in May – the first Mexico investment of the US$5bn fund launched in March to back Latin American startups.

Without mentioning PayClip, Maria Ariza, CEO of Mexico’s new BIVA stock exchange, said she has been in talks with local fintechs looking to go public, Mergermarket noted.

BIVA would be the bourse of choice for many fintechs, as it offers lower fees than its rival, the BMV, said Daniela Calleja, BIVA’s head of new issuers and entrepreneurs, according to the report.

Calleja, however, noted that given that Mexican fintechs are relatively small, they could pursue a bond sale as preparation for an IPO.

To list on the local equity market, companies must have an enterprise value of at least 72mn pesos (US$ 3.75mn), Rodrigo Velasco, BIVA deputy CEO, said at a press conference in New York.

Some Mexican fintechs are getting close as they are entering the US$50-60mn annual revenue range, said Fernando Lelo de Larrea, managing partner at local venture capital firm, ALLVP.

ALLVP currently owns stakes in six Latin American fintechs, including Mexico City-based peer-to-peer lending platform Prestadero, added Mergermarket.

“All you need is a successful IPO for the rest of the companies to follow,” General Atlantic managing director Martín Escobari said at Amexcap’s Mexico PE Day in New York City. “When you turn a few investors into millionaires, more investors will [back] similar companies in the hopes of also becoming millionaires, which in turn will make those companies bigger” - and get them closer to going public.

Source: Business News Americas / BN Americas - Chile