3 minute read 22 Oct 2018
Mexican executives cautiously optimistic as they survey the M&A landscape

Mexican executives cautiously optimistic as they survey the M&A landscape

By

Bill Casey

EY Americas Vice Chair, Transaction Advisory Services

Experienced transaction advisor. Fluent in English, Spanish and Portuguese. Competitive triathlete.

3 minute read 22 Oct 2018

Our latest mergers and acquisitions report reveals that Mexico is optimistic about the future as some are pressing the pause button on dealmaking.

This article is part of our M&A report Global Capital Confidence Barometer, 2nd half 2018.

In the last few months, when I have asked my clients how they see the future, the overwhelming response is “cautiously optimistic.” This sentiment is also reflected in the responses of executives surveyed for the 19th edition of the Capital Confidence Barometer.

At the time of our survey, a new, more populist government had just been elected in Mexico, creating a level of uncertainty in the business community. There was also ambiguity on the trade front amid tough negotiations for a new North American Free Trade Agreement (NAFTA) among the US, Mexico and Canada.

Macroeconomic and external environment

67%

expect the Mexican M&A market to improve

The result is that while Mexican executives are cautiously optimistic about the future, some are pressing the pause button on dealmaking. They want to determine how the trade policies of the new government and the new United States-Mexico-Canada Agreement (USMCA), will impact corporations in Mexico before they move forward with acquisition plans.

In fact, 44% of Mexican executives expect to pursue M&A in the next 12 months, versus 76% six months ago. That level of deal intentions is in line with global intentions, which sits at 46%. Although dealmaking expectations have fallen, confidence in M&A markets remains high, with 89% of Mexican executives seeing the global M&A market as improving and 67% expecting things to improve locally over the next 12 months. Anticipated deal pipelines and completions also underpin a strong M&A outlook.

With more than half of Mexican respondents citing shifting trade policies and political uncertainties as the biggest risk to M&A, companies are increasing the frequency of their portfolio reviews, with divestitures as their primary focus. In particular, private equity (PE) is driving a different dynamic. Entering the market flush with capital, PE firms are pushing the Mexican companies they invest in to undertake regular portfolio reviews to identify opportunities to redeploy capital and free up cash to make the companies more resilient and less affected by ongoing uncertainty.

Buy and integrate

44%

expect to actively pursue acquisitions in the next year

Looking ahead, as the new Mexican administration transitions and begins to govern, and the USMCA is ratified, we expect stability to return to the Mexican peso. Additionally, we expect exports to the US to pick up, improving GDP growth. These factors, plus the honeymoon period the new government will enjoy over the next 18 to 24 months as it implements its new policies, should bode well for dealmaking.

Retail and consumer-focused sectors are especially likely to benefit as the new government makes good on its effort to redistribute money to those with lower incomes. With valuations strong and PE increasing the competition for assets, the next 12 months will be a good time for Mexican businesses to sell.

Summary

Mexican executives are watchful of the recently elected populist government as well as the uncertainties surrounding existing and imminent new international trade treaties. Caution notwithstanding, executives expect improvement in the M&A market in Mexico, with many companies focusing on divestiture. Private equity firms investing in Mexican companies are urging them to periodically review their portfolios to identify opportunities. The next twelve months are being seen as a good time for deal-making. Download the full report here (pdf).

About this article

By

Bill Casey

EY Americas Vice Chair, Transaction Advisory Services

Experienced transaction advisor. Fluent in English, Spanish and Portuguese. Competitive triathlete.