Pent-up M&A deals to drive LatAm 1H19 activity

Following a downturn in 2018, M&A activity in Latin America is expected to grow 13% next year to US$94bn from an estimated US$83bn, according to the Global Transactions Forecast from Baker McKenzie and Oxford Economics.

In tracking key macroeconomic indicators across the region, the study projects that 2019 is likely to be a year of two halves. "Several major transactions announced in 2018 are set to complete in the first half of 2019, while underlying economic conditions should remain strong throughout this period. However, macro drivers will cool the market through the latter half of next year," said the study.

The following table tracks recorded and projected M&A deal activity provided in the report. The report only counted closed transactions and final deal values, rather than using deal announcements and estimated values.

In Latin America, the report sees more interest from investors looking for long-term opportunities. With new governments in Brazil and Mexico, and the expected resolution of NAFTA, stronger dealmaking activity is expected for the next couple of years, with M&A in the region rising to US$98bn in 2020.

According to the forecast, the M&A downturn in 2018 reflected the political and financial turmoil affecting individual firms' finances as well as the broader economy.

"Despite political and economic uncertainty, we continue seeing inbound M&A investments coming to Latin America, resulting in 70% of the activity coming from cross-border deals," said Liliana Espinosa, Latin America regional head of the M&A practice group at Baker McKenzie.

"With an economic recovery expected in Brazil next year; Mexico clarifying its trade rules with North America; the CPTPP entering into effect this year; and growing investor confidence in Chile, Peru, and Colombia, we foresee an uptick in regional M&A activity in 2019."

Growing Markets

In Brazil, with the presidential election in the rearview mirror, a rising stock market, and a stronger currency, the study expects business confidence to recover somewhat in 2019, with total M&A activity reaching US$46.8bn and growth rebounding even further in 2020.

In Mexico, dealmaking in 2018 has clearly been undermined by the uncertainty surrounding the country's relationships with the US. With the current trade agreement, which has only a limited impact on Mexico's access to the US market, the study forecasts a rebound in 2019, as "pent-up" deals are executed.

The study also noted that in Colombia markets responded well to the presidential election; the country's membership in the OECD; rising oil prices; and the rollout of an ambitious infrastructure program. These developments should further reinforce business confidence and dealmaking next year. However, these improvements in the fundamentals were too late to boost activity in 2018, when completed deals reached just US$1.3bn in Colombia.

"We therefore expect to see a strong growth in total M&A activity next year, to just over US$6bn," noted the release.

IPO Outlook

The forecast predicts solid growth in the domestic IPO market in 2019 in North America, Asia-Pacific and Latin America, with global deal values set to increase from US$151bn to US$164bn. Thereafter, IPOs are forecast to take a temporary pause in 2020, as potential issuers wait for the adjustment in equity markets to finish.

Latin America's two major IPO markets, Mexico and Brazil, fared reasonably well in 2018, especially considering the wider malaise in both economies. Given the expected improvement in economic and financial conditions in 2019, underlying prospects for IPO should improve.

"Mexico's 2018 figure was boosted by the US$1.8bn listing of Grupo Aeroportuario de la Ciudad de Mexico SA de CV, so the pickup in aggregate proceeds may appear relatively modest," said the study's release. "We forecast total domestic IPO to rise from US$5.3bn in 2018, to US$6.5bn in 2019, before cooling the following year."

The following table tracks IPO activity in the region with estimates into 2019.