More companies are dusting off acquisition plans – and sellers willing to sell – in Latin America, as interest rates start to decline in the region, analysts and executives say. It could get busier in the fourth quarter – and next year.
By Charles Newbery and Rodrigo Alonso Cruz
After a sluggish start this year, mergers and acquisitions activity in Latin America and the Caribbean is expected to bounce back in the fourth quarter, as prospects improve for more robust economic growth and lower interest rates, analysts and executives say.
M&A dealmaking got off to a slow start in the first half, as the surge in global interest rates since 2022 slashed company valuations for sellers and made it harder and more expensive for buyers to finance deals in a less-liquid market.
The number of M&A deals in the region fell 10% to 1,076 in the year to September 15 from 1,194 in the year-earlier period, while volume dropped 15% to $60.5 billion from $71.3 billion over the same period, according to data from Refinitiv.
“The first semester was a reality check,” says Renato Souza Neto, a managing partner at Prismapar, a São Paulo-based financial advisory firm focused on M&A in the region. “It has taken time to get used to the lower valuations.”
That’s starting to happen, and this is encouraging buyers and sellers to move forward again after the lull in the first half when there was widespread uncertainty about when interest rates would peak.
“We are probably going to do all of our postponed deals in the next three to six months,” Souza Neto says. “People are now more in sync with what is going on and they are accepting the new valuations. Things are starting to flow.”
“We are starting to come out of the storm.”
– Renato Souza Neto
This bodes well for a pickup in activity now that the global economic outlook appears to be brightening as concerns of a sharp recession abate, Souza Neto adds. This will gradually lead to a decline in interest rates as inflation eases.
“Everybody is seeing that there is not going to be a tremendous crisis, and so they’re giving the green light to go back to acquisition mode,” he said. “We are starting to come out of the storm.”
Mexican credit card and digital payment platform Clara is dusting off its acquisitions plans.
“There are favorable opportunities to make acquisitions in Latin America,” says CEO Gerry Giacomán. “In fact, we have already evaluated some opportunities with great interest. Any acquisition that we consider will be based on the premise of significantly improving both the quality of the product offered and the experience of our customers.”
The sectors that could drive M&A growth in the region over the rest of this year include commodities, led by international companies looking for deals in energy and mining, Souza Neto says.
“Chinese and Middle Eastern companies are looking at the region for its resources,” he says.
In September, Abu Dhabi sovereign wealth fund Mubadala paid the equivalent of $100 million for a 31.5% stake in Brazilian ethanol producer Atvos, while Saudi Arabian oil giant Aramco agreed to buy Chilean fuel retailer Esmax Distribución to expand its business in South America.
Food and packaging could also see strong growth in M&A, Souza Neto adds.
Indeed, Swiss food manufacturer Nestlé is reportedly looking to buy Brazilian chocolate maker Kopenhagen for the equivalent of $900 million.
Another trend in M&A is cross-border diversification, with more local and international companies seeking to both shield themselves from an overreliance on one market, reduce currency and political risks and reach a larger market.
“Companies are trying to diversify their risks,” Souza Neto says.
The political crises in Ecuador and Peru have led to the search for assets in Brazil, Central America, Colombia and Mexico, Souza Neto says.
At the same time, more companies are expanding within and outside the region. In September, Brazilian electric and industrial engine manufacturer WEG agreed to pay $400 million to acquire the industrial motor and generator businesses of US manufacturer Regal Rexnord. Mexican ceramics manufacturer Grupo Lamosa recently agreed to buy Spain’s Baldocer for about $453 million.
As more of the region’s companies like Brazilian bank Itaú show that they can compete abroad, others are seeing that they can compete internationally, Souza Neto says.
“Companies are losing their fear about moving across borders,” he says. “A lot more Brazilian companies are thinking about acquisitions in the US. I think this trend will continue.” LF