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Execs feel bullish over M&A

Global Capital Confidence Barometer l Colombia highlights | 16th edition

After taking a wait-and-see approach, Colombians get back to dealmaking

Colombian companies that have been sitting on the sidelines amid domestic political turmoil are ready to get back to dealmaking, according to the most recent edition of the Capital Confidence Barometer.

Mergers and acquisitions took a bit of a pause in 2016 as the Colombian government wrestled with new tax reform initiatives. Executives in Colombia waited to see how these reforms would play out and whether the government would close a peace accord with the Revolutionary Armed Forces of Colombia (FARC). With these macro issues largely stabilized, deal flows are more robust.

The number of Colombian companies expecting to pursue M&A in the next 12 months has risen dramatically since October 2016 to almost two-thirds of respondents. Colombian executives also expect deal opportunities to remain strong and stable in the year ahead. Those surveyed are particularly bullish on the number of acquisition opportunities coming to market at a global level.

Domestically, executives see the number of opportunities holding steady but are more impressed by the improving quality of opportunities. Rising valuations may play a part in both the quality and the number of opportunities — 43% of Colombian executives expect valuations to increase in the year ahead.

Given the cautious approach Colombian companies have taken until recently, pipelines remain healthy, with 86% of executives reporting one to three deals in their pipeline. Similarly, 86% do not expect this number to change in the coming months. For 82% of Colombian respondents, deal sizes will average US$250m or less as companies look to move into new geographies and grow market share.

When pursuing deals outside their sector, Colombian companies are seeking product or service innovation, or assets that will help them respond to competitive challenges. Sectors with the greatest anticipated transaction activity are agriculture, healthcare, education and oil and gas.

Digital transformation presents both opportunities and challenges for Colombians

For 44% of Colombian executives, future-proofing their business in an age of constant disruption is top of mind as they look to grow and remain competitive. Many Colombian companies are family-owned and have been for generations; hence, shifts occur more slowly than disruptive markets might dictate.

These companies will be challenged to maintain their position as competitors adopt new technologies. Indeed, our Colombian respondents indicate that implementing an innovation culture continues to be one of the most difficult parts of digital transformation.

Nevertheless, they press forward, adopting the International Financial Reporting Standards and increasing the frequency of their portfolio review process in an effort to capitalize on these disruptive forces.

Future outlook is promising

The outlook for Colombia’s business sector is promising, with 90% of Colombian executives expecting the domestic economy to remain stable or improve in the next 12 months and confidence in macroeconomic fundamentals stable across the board.

Nonetheless, even in Colombian companies’ quest for deals, concerns about an overheated market will keep them disciplined in their decision-making; more than three-fourths (77%) say they have canceled or failed to complete a deal in the last year, either because of due diligence or cybersecurity issues. We expect this level of prudence to persist in the months ahead, as Colombian executives remain mindful of the market and economic challenges they have only recently overcome.
EY - Andrés Gavenda

Andrés Gavenda

Transaction Advisory Services

Ernst & Young Audit S.A.S.

Download Colombia highlights (PDF)