M&A in Mexico remained at very low levels last month due to the COVID-19 crisis with few deals even in the tech sector, which ran strong in 2019. 

There were only 11 operations in May, between announced and closed deals, for an aggregate amount of US$146mn in disclosed transaction value, according to research firm Transactional Track Record (TTR).

The number of transactions was on par with April, but the May figures were down 42% from the 19 deals recorded a year before, when disclosed value amounted to US$810mn. 

There were 99 transactions tied to Mexico in the first five months of year, said TTR, where 44 reported a combined deal value of US$2.78bn, for a year-on-year decrease of 25% in the number of operations and a 61% decrease in disclosed deal value. 

“Although 2019 got off to a good start in the transactional market, there was an appreciable drop in activity in the second quarter of the year, which led to a cautious dynamic in 2020, and this problem deepened with the Covid-19 crisis,” said Marcela Chacón, TTR research and business intelligence analyst for Latin America, in remarks provided to BNamericas.

“And while there is the prospect of a strong contraction in the short term – with mergers and acquisitions not seeing an upswing until 2021 or 2022, Mexico could emerge from the crisis in a favorable position in light of various scenarios,” she added. 

The new US-Mexico-Canada trade agreement (USMCA) comes into effect July 1 and it could be positive for Mexico “if the tension continues between the United States and China … as supply chains will be reoriented closer to the region and the country may be a potential candidate,” said Chacón. 

Sector trends

Finance and insurance was the most active in the first five months, with a total of 16 transactions, followed by the internet with 15 and other technology with nine. 

The internet and other technology categories were down 35% and 59%, respectively, compared to January-May 2019. 

Possibly boosted by progressive regulation for fintechs passed in 2018, these categories had stood out in 2019 as the strongest magnet for M&A and venture capital. 

That trend appears to have faded this year with the number of foreign acquisitions in the internet and tech sectors down 50% to eight deals in the first five months.

“As for the technology sector, although there was a stable dynamic in the country, the current situation has slowed down certain types of operations,” Chacón said. “In this particular sector, the trend could be reversed in the short term by companies providing IT networks, remote work and distance learning platforms, as well as e-commerce firms that will be in demand like never before.” 

Asked what sectors might begin to move first in the eventual economic recovery, Chacón said, “The food sector will have a slight rebound due to the current crisis and the renewable energy sector will also be on the investment radar, not only in Mexico but throughout LatAm.”

Cross-border dynamics

Regarding outbound deals in January-May, Mexican companies have been mainly targeting assets in the US with 11 operations, followed by Spain with five transactions. By value, outbound deals involving US firms were highest at US$911mn.

Looking at inbound transactions, US companies were most active with 19 operations, followed by Chile and Canada, with five transactions each. By value, the US stands out with US$198mn. 

Private Equity, Venture Capital and Asset Acquisitions 

There have been four private equity deals in Mexico from January to May, involving US$73mn, representing a 55.6% year-on-year decrease in the number of operations and an increase of 8% in value, according to TTR. 

TTR also recorded 31 venture capital operations in the five-month period with capital amounting to US$303mn – a 13.9% y-o-y drop in the number of transactions and a 132% decline in the capital injected.

In terms of asset acquisitions, TTR said there were 26 such operations in the first five months for a combined value of US$866m, which represents 23.5% fewer operations, and a value drop of 62.8%.

Source: Business News Americas / BN Americas - Chile