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Mexican M&A intentions continue to rise

Global Capital Confidence Barometer l Mexico highlights | 18th edition

Mexican executives exhibit overwhelming macroeconomic confidence despite uncertainty

If Mexican companies are concerned about the country’s pending political elections or the renegotiation of the North American Free Trade Agreement (NAFTA), these concerns are not reflected in the most recent edition of our Global Capital Confidence Barometer. In fact, our survey finds companies exhibiting remarkable resilience in the face of ongoing uncertainty.

Mexican executives are feeling remarkably confident about both the global and local macroeconomic outlook: 88% and 74%, respectively, see the global and Mexican economies improving. Strong underlying fundamentals, particularly around credit availability and short-term market stability, support this perception.

That said, Mexican executives are also keeping their eye on a number of external issues that pose near-term risks to growth plans. Topping the list for nearly half of executives is changes in trade policy and protectionism — an unsurprising finding, as NAFTA discussions continue. Mexican executives are watching US interest rate hikes and their spill over impact on countries south of the border. Currency fluctuations, digital disruption and sector convergence are also on their radar.

Deal intentions continue to rise

Nonetheless, even with ongoing uncertainty surrounding these issues, deal intentions continue to rise. More than three-quarters of Mexican companies expect to pursue M&A in the next 12 months, and the vast majority have strong confidence that dealmaking conditions will continue to improve.

  • They expect their M&A pipelines to nearly triple from 12 months ago, and they have healthy expectations for deal closings — also up from last year.
  • Mexican companies remain disciplined in their dealmaking: 80% of executives report that they have canceled a deal if the price wasn’t right.
  • Also, private equity is expected to remain a fierce competitor as PE firms find outlets for their dry powder. A sizable majority of our Mexican respondents believe PE will increase competition for assets and drive up valuations.

Portfolio review and divestments are increasing

At the boardroom level, 55% of Mexican executives say portfolio transformation remains their top priority. Although more than half of companies continue to review their portfolios annually, an increasing number are undertaking reviews more frequently. Seventy-four percent of Mexican companies have identified assets to divest that are either at risk of disruption or currently underperforming. And they plan on spinning them off quickly, with more than three-quarters expecting to dispose of assets within a year.

Preparing portfolios for resilience

The 2016 US elections taught Mexican corporates a valuable lesson in adaptation and resilience. They are paying greater attention to business metrics than politics, strengthening their core business and shoring up their portfolios to weather any storm. Mexican corporates also understand that blurring sector lines are creating more competition, shifting consumer behaviors and fundamentally altering the business landscape. As such, they are taking a closer look at where they are now and where they want to be in the future.

EY - Olivier Hache

Olivier Hache

EY Transaction Advisory Services Leader — Latin America North

Mancera, SC

+52 55 5283 1310

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