3 minute read 12 Nov 2018
As political stability returns, Peruvian executives push ahead with M&A plans

As political stability returns, Peruvian executives push ahead with M&A plans

By

Enrique Oliveros

Ernst & Young Asesores Empresariales S. Civil de R.L., (Peru) Lead Partner, Transactions & Corporate Finance Services

Experienced investment banker with cross-border and multi-industry proven track record. Big soccer fan and passionate reader.

3 minute read 12 Nov 2018

With the domestic political disruption behind them, and investor confidence on the rise, Peruvian companies return to mergers and acquisitions.

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

Six months ago, Peruvian executives were experiencing jitters following the March resignation of President Pedro Kuczynski. Today, with his successor, Martín Vizcarra, fully established in the office of the presidency, Peruvians appear much more confident. From a drop to 44% in April 2018, M&A intentions have rebounded to 55%, according to the results of our latest Global Capital Confidence Barometer. Although this remains below a Capital Confidence Barometer high of 66% 12 months ago, deal intentions are signaling M&A strength coming back.

Buy and integrate

55%

Peruvian executives expect to actively pursue acquisitions in the next year

Political stability is also infusing Peruvians with a sense of optimism in the state of the economy. The Peruvian Government has always remained steady in terms of the economy, trade and its central bank, which is rated as one of the most disciplined in the region. However, with more political certainty, the prices of metals and minerals on the rise, and continued improvements in economic governance, 77% see the domestic economy as improving; 84% are even more confident in the global economy. Economic indicators, particularly positive sentiment on market stability, credit availability and equity valuations support this confidence.

Macroeconomic and external environment

77%

Peruvian executives see the domestic economy as improving

Yet, although political certainty has returned, evolving government and regulatory intervention in business issues and M&A is emerging as a top risk to growth for 41% of Peruvian executives. For 46% of executives, policy uncertainty in terms of trade and tariffs and competition rules are seen as key risks for dealmaking in the next 12 months.

Major M&A themes

46%

Peruvian executives cite regulation and policy uncertainty as the biggest potential risks to dealmaking

While Peruvian executives were awaiting the return of political stability, they have turned their attention to portfolio optimization. Although frequent portfolio reviews have become the norm in recent years as market disruptions escalate, more than a quarter (26%) of Peruvian executives say they now continuously review their portfolios to better position themselves in the marketplace. This is more than double six months ago; nearly half (49%) review their portfolios every six months or more often. For 85%, the main result of their most recent portfolio review was divesting an asset identified as underperforming or at risk for disruption.

Looking ahead, Peruvian executives expect the M&A market to continue improving. Rising confidence in pipeline activity and the ability to close deals in the next 12 months appear to underpin their optimism. An additional driver of M&A intentions in the near term, particularly for corporates, is pending regulation that would require some M&A deals, based on size or market capitalization, to receive regulatory approval before being finalized. Companies may accelerate their activities to close deals before the regulation is enacted.

As companies ramp up their M&A activity, they’ll find themselves competing with a formidable cohort of private equity players; 40% see private equity as a major acquirer of assets.

Major M&A themes

46%

Peruvian executives see private equity as a major acquirer of assets

And while the majority of Peruvian companies are expected to look for investments closer to home, one in five will be focusing on cross-border activities as a means of navigating a host of global and regional trade and tariff uncertainties. Overall, with the domestic political disruption behind them, and investor confidence on the rise, Peruvian companies return to dealmaking.

Summary

Six months ago, Peruvian corporates pressed pause on M&A amid a period of political uncertainty. Now that the political noise has faded, economic conditions and business-friendly economic reforms have Peruvian businesses making an eager return to dealmaking. Read the full report in English (pdf) or in Spanish (pdf).

About this article

By

Enrique Oliveros

Ernst & Young Asesores Empresariales S. Civil de R.L., (Peru) Lead Partner, Transactions & Corporate Finance Services

Experienced investment banker with cross-border and multi-industry proven track record. Big soccer fan and passionate reader.