MARKET TALK: Q1.2021 OUTLOOK
Interview with Jose Ignacio Valdez
Managing Director and Head of Investment Banking for Latin America at Scotiabank
BY JO BRUNI
Mergers and acquisitions activity suffered in the last quarter of 2020, however a clutch of big ticket deals in the tail end of the year suggested some companies had dusted off their expansion plans and began to look ahead to 2021.
In the wake of the COVID-19 pandemic, across the region, transactional activity remained down around 50% compared to previous quarters, said Jose Ignacio Valdez, Managing Director and Head of Investment Banking for Latin America at Scotiabank.
“I think the world is learning to do transactions in the new reality,” said Valdez.
Brazil is among the jurisdictions showing the sharpest uptick. However, transactional activity is still around 30% lower than pre-COVID-19 levels, he said.
Among the large stock transactions to color the M&A market in the final quarter was the proposed $2.11 billion takeover by local car rental company Localiza of smaller rival Unidas and a $1.28 billion acquisition by payments processing company StoneCo of software developer Linx.
More broadly, Valdez noted that assets in heavily regulated sectors such as energy, oil & gas and infrastructure saw higher valuations by foreign investors who were redeploying capital from low yield, fixed income instruments into infrastructure investment funds promising better returns.
In Brazil, state-owned oil company Petrobras helped stoke activity by bringing assets to market ranging from fertilizer plants to offshore oil blocs under its aggressive divestment plan.
Elsewhere, US energy company Sempra Energy announced plans to buy out minority shareholders in its Mexican subsidiary IEnova in a potentially $6 billion transaction.
State-owned enterprises from China have also continued to show growing interest in the region with China’s State Grid agreeing to pay $3.04 billion for a 96% stake in Chilean electricity grid business CGE from Spain's Naturgy Energy Group.
“We have seen some very large transactions – ex-Brazil – come to market that may have been on hold or slowed down due to COVID-19,” said Valdez.
Looking ahead to next year, Valdez expects transaction volume to remain below pre-COVID-19 levels, but said “it is very possible” transaction value may higher than the first quarter in 2020 given the high level of interest in infrastructure, telecoms and energy assets.
“What we are also starting to see is a lot of pent up activity for the following year, so 2021 will definitely be a rebound year,” he added.