Insights > Navigating M&A and Investments in Latin America

Navigating M&A and Investments in Latin America

Riveron’s experts recently examined several factors shaping the business climate across Latin America during a presentation at a global summit event hosted by AASA. Investors face an increasingly complex landscape as the region continues to see a high activity across mergers and acquisitions (M&A) and evolving political and economic trends, which will impact initiatives across energy, technology, healthcare, manufacturing, and other sectors. Here is a summary of the latest outlook:

Access the presentation for additional details.

The economic and political climate shaping Latin America

In Latin America, an influx of socialist governments have been recently elected or are leading the polls for upcoming elections. The governments will likely bring increased instability for foreign investors across political, regulatory, environmental, and financial factors. The region’s recurrent themes include low productivity, poor infrastructure, corruption, and political instability. Local consumption will, however, remain strong over the next 12-18 months fueled by expansionary economic policies. From a brighter standpoint, Latin America’s abundant natural resources continue to bring new opportunities. The region has plenty of resources such as lithium and copper, key metals for electrification, and the advantage of broad sunny and windy areas that can generate gigawatts of low-cost electricity to produce and export green hydrogen.

Deal activity across the region

M&A deals in Latin America totaled some $100+ billion in the first nine months of 2021, the highest volume in a decade, according to Refinitiv data. Healthcare and fintech sectors have seen the most deal activity. Among the most relevant deals: Hapvida SA completed a $9.5 billion takeover of a rival healthcare company, and Univision made a nearly $5 billion acquisition while retailer GPA SA spun off a wholesale division at a similar value. Almost 60 percent of the regional M&A transactions were centered in Brazil, followed by Mexico, Chile, Peru, and Colombia. Brazil’s privatization agenda has helped implement several structural changes that boosted economic activity in the country prior to the pandemic. The devaluation of the Latin American currencies, coupled with very low interest rates in some of the major developed economies, also became a significant driver of M&A.

What to consider in Latin America

When conducting business in Latin America, there are several things that potential investors should watch out for:

Understanding the local landscape

The regionally inconsistent and volatile economic and sociopolitical landscapes require careful assessment and review of political, social, cultural, and regulatory risk in the acquisition or merger target’s host country.

Examining unique diligence factors

Beyond the customary drivers of an investment thesis (such as quality of earnings, return on investment, and other often-examined metrics), a thoughtful M&A diligence in Latin America must include an analysis of the local and relevant cross-border nuances. Analysis should determine the ability of the host country’s legal system when enforcing the laws and treaties that can protect investments.

Navigating legal, lending, and other evolving nuances

Political uncertainty becomes a key factor that impacts the countries’ sovereign credit rating and consequently on the credit ratings of local issuers.  Hot topics to focus on are changes in public policy, tax laws, governmental approvals proceedings, and legislative or regulatory requirements. Equally important are enforcement and safeguards on contractual terms with government counterparties, foreign exchange, and capital repatriation rules.

Building a well-informed team of advisors

When mapping out an approach to investments in Latin America and the Caribbean, it helps to rely on an experienced, informed team focused on cross-border transactions. To help avoid pitfalls and realize the maximum benefit of any potential investments, teams should tap into a comprehensive network, including top law firms in the region and professionals familiar with the complexities of areas such as Brazil, Columbia, Peru, and Mexico.

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