Latin America’s M&A decline in 2022: challenges and outlook for Brazil and Mexico

Interest rates and geopolitical uncertainty impacted merger and acquisition (M&A) activities in Latin America in 2022, seeing a decline of 35.9% from 2021.

Based on Bloomberg’s public data, the deals amounted to US$106.9 billion in the region in 2022, compared to US$168.3 billion in 2021.

The outlook remains cautious for 2023, as economic slowdowns and capital flow issues continue to affect business operations.

An LLYC survey, in partnership with iDeals and M&A Community, suggests a possible rebound in 2024.

Around 50% of respondents anticipate a recovery by 2024, while the remaining are hopeful for a bounce-back in late 2023.

The experts concur that challenges in securing financing and its effect on prices are evident reasons for the slowdown.

A significant insight from the survey indicated that Brazil and Mexico present the most challenges for M&A currently.

Mexico faces hurdles, especially in foreign investments, due to financing issues.

While Brazil grapples with changes, not just in its industry, but also due to political shifts, causing investor uncertainty.

Despite these challenges, Brazil remains attractive for investment, offering ample growth and expansion opportunities.

Globally, factors like differing valuations, macroeconomic volatility, high financing costs, and lack of transparency contribute to the stalling of such deals.

As for the industry’s recovery, the focus shifts towards companies that can grow without significant capital expenditure and are market leaders.

Diversified corporate sales and the strategic use of technology towards end clients will be beneficial.

In terms of M&A attractiveness within Latin America, a KPMG report from June highlighted the region’s potential.

Mexico topped the list with 79% favorability, followed by Brazil at 69%.

The shift sees Mexico potentially overtaking traditionally favored Brazil in terms of M&A attractiveness due to market size, stability, natural resources, and strategic positioning.