latam M&A

LatAm M&A trends – full year report for 2021

Brought to you by the M&A Community in association with MergerMarket. 

The devastating impact of Covid-19 was succeeded by a record-breaking growth in deals, especially in the energy sector.

Latin America, and especially Brazil, were very badly affected by the pandemic but we then saw a major resurgence in the M&A market in 2021, with a sevenfold rise in value. 

There is a certain sense of urgency attributed to Covid-19 and investors have been eager to close deals fast. Energy led the way, as usual, with high value in oil and gas transactions and renewables. Technology was also a growth sector. 

And, as the world’s major economies recovered, a rediscovered enthusiasm for cross-border deals has definitely included Latin America. 

According to the International Monetary Fund’s World Economic Outlook, published in October, the whole region saw a 7% decline in GDP in 2020, but major economies in the region then enjoyed robust growth in 2021. Among the larger economies, Brazil and Mexico are expecting growth rates of 5.2% and 6.2% respectively for 2021. 

There was a similar pattern in the M&A market. Deals in 2020 were worth just under $63bn, a 26% fall from 2019. That downturn was dramatically countered by the spurt of activity in Q4, which carried over into 2021. 

A record number of deals were announced in 2021 with a combined value of $133.7bn, the highest annual value in a decade. Although early figures from Q4 do suggest that the regional M&A market is slowing after its post-pandemic surge. 

Private equity also rose, with twice the number of buyouts and more than triple the value. The volume of exits more than doubled, and their value rose almost sixfold, exceeding the previous record set in 2019.

Transactions involving bidders from outside of the region climbed to new highs in both number and value. US bidders were most prominent and Brazil was the main attraction. In fact, Brazil’s domestic and inbound activity was the major factor in the massive upswing in Latin American M&A in 2021. 

Eight of the 10 biggest transactions targeted Brazilian companies, notably the tie-up between Hapvida and NotreDame to create the country’s biggest hospital chain. The next largest contributors were Colombia and Mexico.

Financial services deals accounted for 20.1% of the market in value. Deals in the rapidly expanding fintech subsector were also significant and are expected to grow in the next few years. In value terms, the energy, mining & utilities sector were the biggest, while the highest number of deals were in technology.

Three of the six largest deals were in the energy sector, including the second largest overall. That was Colombia’s state-owned Ecopetrol acquiring Interconexion Electrica from Colombia’s finance ministry. The move is part of Ecopetrol’s plans to diversify its energy portfolio away from hydrocarbons. 

However, the IMF is only predicting 3% growth for the region in 2022. Mexico is expected to slow a little to 4%, but Brazil is only predicted to grow 1.5%, compared with its 5.2% for 2021.

It is not all good news – possible new variants of Covid-19 plus two looming elections to supplement existing socio-political issues have the potential to interrupt the post-pandemic recovery. But on the whole, the region is expected to flourish in 2022.

Outlook

There are some concerns about socio-political issues (and Covid-19 variants) but prospects are good. There will be more valuable opportunities in energy and natural resources, especially in natural gas and renewables. The ever-growing technology segment – particularly fintech and consumer technology – is also one to watch.

Download the full report here

Notes:

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