Mexico City — The ‘nearshoring effect’ will need to prove its strength in helping drive mergers and acquisitions (M&As) in Mexico in 2023, amid a slowdown in international activity that is even leading some large investment banks to reduce their headcount.
Caution is the keyword among experts in the Mexican M&A scene, and who are setting their sights on the strength of mid-size deals, or middle market deals as they are also known.
“By 2023, I imagine that Mexico will cautiously follow middle-market activity,” said Sergio García del Bosque, managing director in Mexico of investment firm Seale & Associates, and which leads the ranking of dealmakers in Mexico according to Transactional Track Record (TTR).
The outlook for Mexico forecasts a continuity in the momentum of M&A activity in 2022 in terms of the number of deals. While there will be no shortage of announcements of large deals in financial terms, these will be strategic, García del Bosque believes.
As of November 2022, the Mexican market had registered 387 deals, 3.75% more than during the same period of 2021, and which in value total $14.97 billion, 10.38% lower than during 2021, according to TTR
Among the most noteworthy transactions of the year were the sale by Grupo Bimbo of its Ricolino confectionery business, the purchase by Fomento Económico Mexicano (FEMSA) of the Swiss convenience store chain Valora, and the merger of Televisa’s contents business with Univision.
Still pending is the closing of what is expected to be one of the largest transactions of the year, the sale of Banamex by Citigroup, and the $100 million purchase of the brands of Mexico’s City Express from Marriott International, as well as the commercial alliance between the low-cost airlines Viva Aerobus and Allegiant.
In 2023, inflation and high interest rates will be putting pressure on the cost of capital, which is used to calculate the value of companies. On the other hand, there are companies that still have liquidity on their balance sheets and will have to sell those resources.
Nearshoring could benefit the M&A market with operations in segments such as industrial, manufacturing and engineering, real estate and construction, technology and telecommunications, Armando Valdez, CEO at Smith & Locke Capital Brokers, told Bloomberg Línea, with operations focused mainly on the middle market in Monterrey, one of the cities that has benefited from nearshoring.
“For 2023 I see increasing behavior in M&A’s with respect to 2021 and 2022, and always driven by the USMCA,” Valdez said, referring to the free trade agreement between the US, Mexico and Canada.
He sees favorable factors for the Mexican market due to the effect of the trade conflict between the US and China; higher energy prices in the European Union, and Mexico’s low energy costs, when compared to other regions of the world.
In the last weeks of the year, industrial real estate investment funds (called Fibras in Mexico), have raised capital and announced agreements to purchase industrial parks, such as Fibra Mty, which in December agreed to acquire 46 industrial buildings for $662 million.
Beyond nearshoring, other segments to watch closely in terms of M&A are companies in the restaurant and retail sectors, which saw a recovery after the pandemic, said García del Bosque.
Startups, especially fintechs, have registered a decrease in capital in 2022, despite this, we should not rule out new funding for 2023, according to the managing director of Seale & Associates.