LatAm, China compete on M&A

Updated: 2015-05-04 05:04

By JACK FREIFELDER in New York(China Daily Latin America)

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Despite a first-quarter dip in the total value of mergers and acquisitions in Latin America, Mexico remains an enticing option for foreign investors, according to a partner with a US-based private-equity firm.

"People took the view for a long time that Mexico was a place you flew over or you went to on Spring Break," said Tom Speechley, a partner with the Abraaj Group, a New York-based private equity investment manager. "They are realizing now that it's got a multi-billion dollar domestic economy, and it's completely worth investing in."

Latin American M&A in the first quarter of 2015 totaled $18.4 billion, down 22 percent from $23.6 billion a year ago, according to Dealogic, an investment research firm.

Brazil and Mexico remained the top targets in the period, with $9.2 billion and $7 billion in deals, respectively. Brazil saw a decrease of 27 percent year-over-year from $12.5 billion, while Mexico's M&A totals climbed more than 350 percent from $1.5 billion in the year-ago period.

But other emerging markets in Latin America also are offering attractive investment opportunities, according to Speechley. He made his remarks at the 2015 M&A Advisor Symposium on April 28 at the New York Athletic Club in Manhattan along with other panelists in a session titled Global Growth Markets.

"The Pacific Alliance is going to be a huge bonus for that part of the world," he said. "If you can understand the nuances of the region, you can make great investments there."

The Pacific Alliance was established in 2012 when leaders from four Latin American countries (Chile, Colombia, Mexico, Peru) agreed to form a single trade bloc with the goal of helping improve economic integration in the region.

There are now more than 30 observer nations to the group, including China and the United States, and two countries (Costa Rica and Panama) are being considered as candidates for full membership.

Euan Rellie, a senior managing director with BDA Partners, an Asia-focused international investment banking firm, said at the symposium that the global landscape for M&A is changing "quite dramatically".

"China and India have been on the front page a lot," he said. "We keep ourselves very busy in China. But having said that, we're seeing some dramatic changes. People don't want to put all of their eggs in the China basket, and a lot of people are saying they're worried about China risk. I wouldn't discard that risk at all.''

"I think there's a very significant chance of a dramatic real estate correction in China," Rellie said. "In terms of the overall level of M&A activity, the Asian markets still represent just a tiny portion of the addressable market. But China is a pretty good place to do business."

The Asia Pacific region, excluding Japan, had $656.8 billion in deals last year, with China getting more than 45 percent ($307.4 billion) of deal flow, data from Dealogic showed.

As of April 21, China's M&A volume in the technology sector had nearly doubled year-over-year to $26.4 billion (up from $13.7 billion in 2014).

Latin America accounted for more than $120 billion in M&A activity in 2014, with Brazil ($54.7 billion), Mexico ($22.8 billion) and Peru ($10.8 billion) commanding nearly 75 percent of last year's total.

During a keynote speech at the symposium, Hany A Fam, president of MasterCard Enterprise Partnerships, said that his company is looking at environments where there's "inherent inefficiency".

"We identify the leading enablers and look at their core competencies, and we bring together odd bedfellows - companies you wouldn't necessarily think about putting together," Fam said. "Places like China already have a burning platform for M&A deals, but they need to understand their own challenges."

Global M&A transactions totaled more than $3.6 trillion last year, the highest since 2007, according to Dealogic.

Overall M&A activity has increased 26 percent year-over-year, with healthcare, real estate and the telecom and technology sectors among the most popular.

Deals in the US reached $1.61 trillion, an increase of 42 percent from 2013 and the highest full-year volume on record, Dealogic data said.

"The US is always going to be the most important economy. It's the most advanced and it will remain that. But people should recognize that there's a lot going on in the rest of the world that is extremely interesting and potentially very exciting from the investment perspective," Speechley said.