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Colombia eyes M&A to stay ahead as the landscape shifts

Global Capital Confidence Barometer | Colombia highlights | 15th edition

Against a backdrop of increasing political uncertainty at home and abroad, and amid a landscape of rapid change, Colombian executives remain positive about the M&A market, according to our latest Capital Confidence Barometer. Although volatility in currencies, commodities and other capital markets are still issues for Colombian enterprises, executives indicated a positive outlook for corporate earnings and short-term market stability.

Although M&A intentions in Colombia have declined from a record high in April 2016, Colombian executives remain enthusiastic about dealmaking, with 37% expecting to pursue an acquisition in the next 12 months. At the global level, Colombian respondents anticipate a mostly stable deal market — 60% expect global M&A to remain stable into 2017. Domestically, executives are far more positive, with 57% saying the Colombian M&A market will improve in the coming 12 months. Colombians are equally positive about the number and quality of acquisition opportunities.

Thinking smaller

For Colombian as well as global executives, the prevailing M&A trend is for smaller deals: 55% of our Colombian respondents expect their deals to be between US$250m and US$1b.

Companies are casting a wider net, eyeing start-ups and fast-growth tech innovators. These target acquisitions are meant to address companies’ need for product innovation and advances in technology and digitalization — issues our Colombian respondents cited as the most disruptive to their core business. In addition to looking at smaller targets, companies are looking at more of them: more than half of Colombian companies have more than five deals in their pipelines.

Even when acquiring within their own respective sectors, pluralities of Colombian executives cited acquiring innovative start-ups (28%) and acquiring technology or new product capabilities (27%) as their top strategic drivers. When pursuing acquisitions outside the sector, Colombians are evenly split, with 50% reacting to competition and 50% looking to acquire new talent.

Seeking nearby deals

As in previous Barometers, Colombian executives prefer to stick closer to home when searching for investments: intra-regional deals made up 50% of their destinations, and Colombia, Brazil and Mexico were cited as their top three preferred destinations.

The US and the UK round out the list, with Colombians seemingly undeterred by the uncertainty Brexit has raised.

Increasing sector disruption also has Colombians thinking about multiple routes to accelerate growth. Colombian executives say their boards are more focused on portfolio analysis, the impact of digital technology and sector convergence. Accordingly, Colombian companies are not only acquiring but also partnering to achieve growth and stay ahead of changing industry landscapes. On the whole, 41% of Colombian respondents say inorganic strategies, including M&A, alliances and joint ventures, are driving their plans — as innovation accelerates, these types of deals can provide a fast, strategic route to growth.

Looking ahead

As we head into 2017, Colombians’ positivity about opportunities, even despite political uncertainty, coupled with confidence in credit availability, should provide a strong foundation for M&A. As short-term market stability improves — and with a large majority of Colombians expecting the price of assets to remain at or below current levels — executives will likely continue to hunt for deals that allow them to innovate and keep pace in a fast-changing business environment.

 

EY - Andrés Gavenda

Andrés Gavenda

Managing Partner, Transaction Advisory Services

Ernst & Young Audit SAS

+57 1 484 7524


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