After sitting on the sidelines amid the uncertainty that followed the US elections in November 2016, Mexican companies have returned to dealmaking, according to the 41 Mexican respondents who participated in this edition of EY’s Capital Confidence Barometer.
With 56% of Mexican executives intending to pursue mergers and acquisitions in the next 12 months — equal to the global average, and near Mexico’s all-time Capital Confidence Barometer high — we see that companies have moved past their cautious approach and are accelerating their search for growth. This relative bullishness is reinforced by the 43% of
Mexican respondents who expect the domestic economy to improve in the months ahead. Mexican executives express similar optimism in market fundamentals: confidence in the number and quality of acquisition opportunities, as well as the likelihood of closing deals, is stable to improving. Elevated valuations are encouraging sellers to come to market, and favorable macroeconomic conditions are tempting patient buyers.
Digital acquisitions and opportunities for consolidation dominate dealmaking
Three-quarters of the assets Mexican respondents are targeting are valued at less than US$250m. However, a small percentage are looking at megadeals of US$5b or more, as companies look to consolidate amid the shifting political landscape. Inbound investment is also on the rise, primarily from Europe and Asia as opposed to the US.
Active sectors include energy, consumer products and retail, and private equity. In the financial services sector, banks are looking at bolt-on acquisitions to improve their digital footprint. Consumer products companies are considering digital assets that can harness the industry’s vast stores of data.
Across all sectors, 29% of Mexican executives say the impact of digital technology is the most prominent item on the boardroom agenda. Yet one-fifth say the most difficult challenges they face as they transform their organizations into digital enterprises are maintaining a competitive position as others adopt new technologies, and implementing and enabling an innovation culture.
Ultimately, for 43% of respondents, the question they are trying to answer — through both organic and inorganic initiatives — is, how can I future-proof my business in an age of constant disruption?
Optimism leads, but Mexican companies prepare for all outcomes
Despite these innovation challenges and the ambiguity surrounding US policy, Mexican executives are feeling considerably more confident than they were six months ago. Although currency and market volatility have returned as key risks for Mexican companies, healthy pipelines and stable valuations are expected to keep deal flows at above-average levels.
At a fundamental level, Mexican executives are optimistic that the current geopolitical uncertainty will subside. That said, these business leaders are exploring all options to prepare for a range of outcomes.