Latin American dealmaking gains momentum in H1

Following a challenging period, local and overseas dealmakers are gaining confidence investing in the region

While the region has experienced significant political turbulence of late, Latin American (LatAm) dealmaking appears to be turning a corner. Positive political changes are spurring economic growth and, according to BBVA research, this is set to increase from 1.2% in 2017 to 1.4% in 2018, and even to 2.5% in 2019.

The growing boardroom confidence is reflected in larger deals changing hands. The LatAm and Caribbean region attracted 277 deals worth US$68.4 billion during the first half of 2018, more than doubling the value achieved in H1 2017.

Brazil bounces back

Brazil has been trying to move past its recent battles with political corruption, which served to stagnate economic growth and dampen dealmaking activity. Signs of economic progress are returning: Brazil’s stock market has posted all-time highs in 2018 as the corruption investigation progresses.

The largest deal of the year in the region—Suzano Papel e Celulose’s US$15.3 billion takeover of Brazilian pulp manufacturer Fibria Celulose—may serve as one sign of returning boardroom confidence. 

Consumer confidence

While the energy and industrials sectors continue to generate the bulkiest deals, the consumer sector topped the volume chart in H1 with a total of 45 announced deals, highlighting a diversifying investor landscape. The sector attracted the fifth-largest deal targeting the region in H1—a US$2.1 billion bid by the Netherlands-based agricultural goods company Louis Dreyfus for a 78.5% stake in Brazil-based sugar, ethanol and renewable energy firm Biosev.

Overseas interest

Confidence in the region’s dealmaking has stretched to overseas bidders. A total of 146 inbound deals worth US$41.6 billion announced in the first half of the year reached the highest H1 value since 2012.

Despite this uptick in activity, political factors such as increased tariffs and increasing trade tensions appear to be weighing on US dealmaking into the region, with deal volume dropping 42% year-on-year.

However, new dealmaking partnerships appear to be forming against this backdrop of trade tension. European firms stepped up their investment into the region in H1, with big-ticket deals including Italy-based Enel’s US$3.4 billion planned acquisition of AES Eletropaulo and Netherlands-based Louis Dreyfus Company’s US$2.1 billion purchase of a 78.47% Stake in Biosev.

Interest in new sectors alongside the traditional, as well as interest from a diverse array of countries, is a positive sign for LatAm M&A activity, reflecting a recovering economic landscape and growing investor confidence.

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