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M&A plans reach new heights

Global Capital Confidence Barometer l Mexico highlights | 17th edition

Mexican corporates, like Mexico as a whole, are learning a lot about managing through uncertainty in 2017. Consider the Mexican earthquake in September — a powerful event, occurring on the 32nd anniversary of the 1985 Mexico City earthquake, that also served as an example of how digital technology can make a positive impact. Mexican citizens used social media to locate their loved ones within minutes of the seismic event.

These lessons extend to Mexican dealmaking, according to this edition of the Capital Confidence Barometer. Ongoing confidence in the local economy and rising investorexpectations are taking M&A intentions in Mexico to new heights. This is despite ongoinguncertainty around the renegotiation of the North American Free Trade Agreement (NAFTA)and upcoming political elections in Mexico.

Our semiannual survey finds nearly two-thirds (64%) of Mexican respondents intending to pursue an acquisition in the next year, and nearly half (46%) see the M&A market as improving. Accordingly, Mexican companies are looking to take advantage of healthy deal pipelines to pursue acquisitions that can reshape their portfolios in response to disruptive forces.

However, although a clear majority of executives (75%) say that they are reviewing their portfolios at least every six months, Mexican companies need to stay vigilant to remain competitive amid shifting consumer preferences and threats from digitally enabled competitors.

As with the earthquake example, the power of social media and other digital technologies gives Mexican companies an opportunity to generate powerful new capabilities. However, these same technologies could disrupt Mexican companies, potentially into extinction.

Mexican executives are therefore focused on digital opportunities. One-fifth of respondents say the impact of digital technology and transformation of business models remain atop the boardroom agenda, and this transformation may increasingly include joint ventures and alliances. They are taking a similar approach to talent strategy, with 45% looking to develop digital capabilities in-house.

However, as companies across industries respond to digital disruption, the war for digital talent will heat up. Competition is also coming from other quarters. After largely sitting on the sidelines for several years, private equity is expected to dominate dealmaking in 2018, challenging Mexican companies for assets more than at any time in the past five years.

As Mexican companies look to the next 12 months, more than half (54%) expect increases in both cross-border dealmaking and PE competition to be key themes. In Mexico, PE players are now ready to get back into the game, raising the stakes on the competition for high-value assets.

Of course, given all of the risks brought on by macro phenomena — from politics to innovation to natural disasters — Mexican executives have grown comfortable with uncertainty and adept at finding growth amid all kinds of market tremors.

EY - Olivier Hache

Olivier Hache

Transaction Advisory Services

Mancera, SC

+52 55 5283 1310

Download Mexico highlights (PDF)