Mexico deals are currently more transactional than transformational in nature, with 43% expecting to pursue M&A in the next year.
n October 2019, the International Monetary Fund (IMF) released its observations on the state of Mexico’s economy based on its visit in the previous quarter. The findings suggest that while strong fundamentals have contributed to the country’s resilience, domestic growth has declined significantly in the context of slowing global growth and ever-present geopolitical uncertainty. Additionally, new policies and regulations issued by the Mexican Government, combined with the Government’s budget cuts and commitment not to increase taxes, has the IMF projecting a growth rate of 0.4% in 2019.
Given this backdrop, it is interesting to note that 75% of Mexican executives surveyed in the most recent EY Global Capital Confidence Barometer continue to see the Mexican economy growing, up from 62% a year ago. In the last six months, nearly one-fifth (20%) say the local economy has either modestly or strongly improved; 70% believe it has stayed the same. Further, two-thirds of Mexican executives say they do not expect a downturn. Domestic market indicators support executives’ optimism, with sentiment up markedly across corporate earnings, short-term market stability and credit availability, and modestly for equity valuations.
And yet, despite their optimism, Mexican executives are proceeding more cautiously in their dealmaking. Although more than two-thirds (69%) expect the local M&A market to improve in the next year, M&A intentions have dropped substantially from six months ago. Where 70% of respondents in April 2019 expected to actively pursue M&A in the next 12 months, 43% have the same expectations today.