COVID-19 hit Mexican M&A activity hard in the second quarter with less than half the activity of 2Q19, but strategic expansion and company reorganization could spur more deals in the third quarter. 

Mexico generated only 43 deals in the quarter – including M&A, private equity, venture capital and asset acquisitions, according to M&A research firm Transactional Track Record.

While the number of deals declined 55%, total disclosed deal value reached nearly US$1.54bn, a 71% decline from the around US$5.22bn reported in the same quarter of 2019.

“Many investors right now fear jeopardizing their ability to meet their budget or meet their short- and medium-term compliance goals, especially as they may affect their annual compensation scheme,” Marcela Chacón, TTR research and business intelligence analyst for Latin America, told BNamericas.  

“With this, natural risk aversion and corporate incentives could limit investor appetite to some extent, at least in the next two quarters of the year,” she said, adding that dealmakers are carefully watching for peso volatility, sudden movements in oil prices and new developments with COVID-19 this year.

“However, starting in the third quarter of the year, strategic expansion buyers might take advantage of undervalued assets, as well as partnerships, mergers or acquisitions of reorganizing companies,” Chacón said.

The analyst added the most immediate impact of the USMCA trade agreement may be seen in how companies are sizing up destinations for investment plans, with Mexico also drawing attention from some global firms looking to access the US market and avoid further US-China tension.

“However, with the current situation of COVID-19, it will be natural for large US or European companies – strategic partners in the Mexican transactional market – to act conservatively regarding investment decisions involving medium and long-range transactions, i.e. greater than US$100m,” Chacón said.

The potential for a third quarter pickup, said Chacón, relates to deals in key sectors that have seen movement with the pandemic: internet, finance and insurance, and technology – which were also the most active segments in the second quarter this year.

1H20 OVERVIEW

Mexico saw 121 announced and closed M&A transactions in the first six months of 2020 for an aggregate deal value of US$3.80bn, TTR reported. 

This represents a 22% decrease in the number of operations and a 53% drop in disclosed deal value, compared to the same period last year.

The most active sector has been internet with 19 transactions, followed by finance and insurance with 18, and the technology sector, registering 10 operations, reported TTR.

However, in year-on-year terms the internet sector has registered a decrease of 24% and the technology sector has reduced its activity by 58%, while the finance/insurance sector has increased by 6%. 

CROSS-BORDER ACTIVITY 

Looking at outbound deals in the first six months of 2020, Mexican companies have mainly targeted investments in the US, with 11 operations, followed by Spain, with eight operations. By amount, Spain stands out with nearly US$1.03bn in outbound transactions.

Regarding inbound transactions, US and Canadian firms have been the most active in targeting Mexican assets, carrying out 22 and seven operations, respectively. US inbound transactions fetched the highest level of capital at US$222mn.

PRIVATE EQUITY, VENTURE CAPITAL, ASSET ACQUISITIONS 

TTR reported only five private equity operations totaling US$73mn, representing a 50% decrease in the number of equity deals, but an 8% increase in total deal value.

Mexico saw 39 VC deals amounting to US$344mn from January to June, the same number of venture capital deals as in the 1H19, but a 23% decline in total deal value. 

In the asset acquisitions segment, there have been 30 operations in the period, worth US$875mn, which represents a 25% decrease in the number of operations, and a 69% drop in capital.

Source: Business News Americas / BN Americas - Chile