The purchase, sale, merger, and expansion of Latin companies
today is unrecognizable from a quarter century ago. Relative
economic stability and growth, tamed inflation and better
resistance to global shocks has meant keener foreign buyers,
local market consolidators and the creation of LatAm regional
and global champions that would have been unimaginable in 1988.
In addition to more – and bigger – deals,
many of the trends bankers identify in the region in the past
two decades were apparent in 2013: Brazilian institutions
continue to consolidate, regional leaders form, and companies
hunt for growth.
"There were a lot of multinationals making their first
investments in the region," says Jim Allen, head of LatAm
M&A at Morgan Stanley, describing the 1990s. "They would
typically enter a joint venture or take a minority stake." Most
bankers were gringos, he says, and they had to be able to talk
LatAm to superiors and clients who knew very little about the
region. Now, of course, gringos are the exception on teams
stocked with LatAm-born professionals.
Privatizations provided ample opportunities in utilities in
the early days. US telephone companies used excess cash to buy
into Latin America, as did Europeans such as Telefónica.
A group of 12 acquirers paid $19 billion for the 12 pieces of
Brazil’s Telebrás in 1998. Industrials made
moves, too. They joined a handful of consumer-focused companies
that had been active in the region through such arrangements
for much longer.
"Every large public services company from the US was
involved in certain LatAm countries," says Javier Vargas,
co-head of LatAm banking at Credit Suisse. "It was the most
important sector at that time."
The US power sector suffered after Enron collapsed in late
2001. Some foreigners, such as Duke Energy, still have holdings
in Latin companies, but many have left.
Soon, Latin American parties became the active agents in
driving deals, and privatizations gave way to deals driven by
the private sector. The Asian crisis in the late 1990s slowed
the pace of deals, but deal flow didn’t really
suffer until the early 2000s. Between 1997 and 2000 annual
volumes of deals with a LatAm component ranged from $70 billion
to $115 billion, according to Dealogic.
In Brazil, concerns over the policies of president Luiz
Inácio Lula da Silva after the 2002 election drove down
prices, and foreign investment slowed. However, local money
filled the gap, and investment in the region would pick up
through 2007-2008, lifted by favorable commodity trends.
By 2006, some LatAm companies were large enough to become
acquirers themselves. Consolidations increased, and some hunted
abroad. Brazil’s Vale turned heads when it paid
$18.7 billion for Canadian global miner Inco, transforming
itself and the industry.
Mexico’s Cemex followed by taking Australian
firm Rinker and others including Bimbo and Gerdau spread into
the US. This continues through 2013, in the US and also in
Europe, Africa and Asia. In the beverage sector, stock-swap
deals have made Latin Americans important holders in global
brands, such as Heineken, ABInBev and SABMiller.
Annual volumes of business have hit new highs since 2009,
topping those seen in the mid-2000s. Last year’s
$161 billion in transactions followed a peak of $221 billion in
2010, according to Dealogic.
"The main events have been a macroeconomic stabilization
which resulted in an increase of consumers’
disposable income and enhanced access to long-term funding,
accompanied by the development of local capital markets on the
back of pension funds and local asset managers," says Lisandro
Miguens, co-head of investment banking for Latin America at
JPMorgan. "These factors have been constant and they will
continue to shape M&A deals down the road."
Consolidation by local firms is a clear trend, starting
first in areas including telecoms, mining and cement, but now
appearing everywhere. Retail, consumer products, and financial
institutions make many of the headlines now. The exit of
Europeans in banking,
telecoms, utilities, and other sectors has hastened
opportunities. This is happening within the Brazilian market,
as well as cross-border.
Itaú and Unibanco’s 2009 merger reshaped
Brazil’s banking industry. The joining of Lan and
Tam in 2012 created one of the world’s biggest
In financial services, Colombian and Chilean banks have been
expanding, as have BTG Pactual and others from Brazil.
Colombian Grupo Sura surprised the world’s major
financial players (and perhaps even the seller) by winning the
bid for ING’s pension assets in the region. As
others, like BBVA, Santander and HSBC pull back, the list of
regional financial institutions taking advantage seems to get
longer every month: GNB Sudameris, Banorte, Corpbanca,
As European firms exit, Americans keep coming, drawn by
LatAm’s growth potential which far exceeds that of
their domestic market. For example, United Health paid a hefty
premium last year for Brazil’s Amil. AB InBev
finally convinced the controllers of Grupo Modelo to part with
the remaining half of the iconic Mexican brewer.
Interest is also ramping up from Asia. Investment in mining
and oil that has always been there is getting bigger tickets.
And financial assets and consumer growth stories are now in
play, as with Kirin’s purchase of
Brazil’s Schincariol in 2011.
"The actual volume of Asian investment isn’t as
large as you might think based on the press coverage it gets,
but Asians have provided a big bid for assets in Latin America,
particularly in natural resources during the commodity
supercycle," Allen says.
"Across the region flow reversal is expected to continue and
become more prevalent," Miguens says, with multinationals
monetizing assets in the region, and regional champions going
beyond LatAm. "Local public equity markets will play an
increasing role as sponsors of local champions in their
expansion. Additionally, in certain sectors,
multinationals’ increased spend will continue
pressuring mid- and small- tier local players, driving
The private equity industry has also ballooned over the past
five years, creating more activity at the middle and lower ends
of the market. This is because of more buying opportunities and
easier leverage. The perception of currency risk was scary in
the old days – now funds are sourced locally.
Private equity firms invested $7.9 billion in LatAm in 2012,
a new high, according to the Latin American Private Equity and
Venture Capital Association (LAVCA). Fundraising was at $5.6
billion last year, hitting a record of $10.3 billion in 2011.
The totals compare with $3.6 billion raised and $5 billion
invested in 1998.
"People feel a lot more comfortable and you see a lot more
expertise on the legal and regulatory front," Vargas says. "The
process has been expedited. There is much less that is
unprecedented and that provided more comfort on both sides of
the deal." LF